However, the nonprofit provider and health plan warned subsequent quarters may be less profitable as expenses are projected to climb.
Dive Brief:
Nonprofit hospital and health plan giant Kaiser Permanente reported a $7.4 billion net gain for the first quarter ended March 31, compared to an income of $1.2 billion reported in the same period last year.
The Oakland, California-based operator’s earnings were boosted by its completed acquisition of Geisinger Health, which netted Kaiser a one-time operating gain of $4.6 billion.
Kaiser reported a quarterly operating margin of 3.4%, but noted the first quarter tends to be its strongest due to the timing of the open enrollment cycle. Kaiser predicts revenues will remain steady during subsequent quarters but expenses will likely rise.
Dive Insight:
Kaiser operates 40 hospitals, according to its website, and serves nearly 12.6 million health plan members as of the first quarter.
During the quarter, Kaiser subsidiary Risant Health — a nonprofit health network created last year to independently buy and operate other nonprofit health systems — completed its purchase of Geisinger Health. Kaiser received a one-time payment, boosting earnings. Net income for the quarter excluding the Geisinger transaction was $2.7 billion.
Kaiser increased its operating income year over year by more than 300% to total $935 million. Still, the nonprofit provider said that figure fell short of income logged prior to the pandemic.
Continued cost pressures from high utilization, care acuity and rising prices of goods and services drove quarterly expenses up 6% year over year to total $26.5 billion.
Kaiser has conducted at least three rounds of layoffssince the fall. It most recently cut 76 employees at the beginning of this month, a spokesperson confirmed to Healthcare Dive.
The cuts were done to “reduce costs across our organization,” and primarily impacted information technology and marketing roles, the spokesperson said via email.
Kaiser is not on a hiring freeze, the spokesperson noted. The organization has increased headcount by 5% since 2022 and has open positions currently listed online.
The Wall Street Journal also reported this weekend that Kaiser is attempting to sell $3.5 billion of its private investment holdings due to liquidity issues, citing sources familiar. Kaiser may attempt to sell further holdings later in 2024, according to the report.
Kaiser did not respond to requests for comment by press time about the possible sale.
Medicare Advantage insurers are planning to pare down their plan offerings in 2025.
Facing lower reimbursement rates from CMS and higher medical costs, many plan executives said they will prioritize margins over growing their membership numbers.
Brian Kane, CEO of Aetna, told investors May 1 that the company will prioritize “margins over membership” in 2025. The company will exit counties where it believes it can’t be profitable, Mr. Kane said.
“It’s hard to say right now that we won’t have a meaningful decrease in membership,” Mr. Kane said. “It’s certainly possible.”
Aetna’s competitors will be faced with the same choices, Mr. Kane said.
Humana executives also said the company is eyeing market exits in 2025. Susan Diamond, Humana’s CFO, said the company is expecting a net decline in its MA membership next year.
“Whether that is incrementally larger or smaller based on the other plans will be very dependent on what we see across the competitive landscape,” Ms. Diamond said April 24.
On first-quarter earnings calls, payer executives told investors they are disappointed in CMS’ 2025 rate notice. The notice will decrease benchmark payments, which insurers say amounts to a cut in funding for the program.
Medical costs are also on the rise in Medicare Advantage. CVS Health told its investors that Medicare Advantage costs keep climbing, partly driven by seasonal inpatient admissions. Outpatient services, including mental health and pharmacy, and dental spending also increased costs, CVS said.
In its final rate notice published April 1, CMS said it was aware Medicare Advantage organizations were reporting rising costs but was “not aware of all of the specific drivers accounting for the experience of these MA organizations. We have reviewed incomplete fourth quarter 2023 Medicare FFS incurred experience and it is consistent with our projections.”
Payers have also said they will cut back on supplemental benefits to account for lower rates.
CVS Health CEO Karen Lynch said it wil adjust plan-level benefits in 2025. The company led the industry in growth in 2024 but was a “notable outlier” compared to its peers in adding on supplemental benefits to entice members, The Wall Street Journalreported May 1.
Some Aetna plans offer a fitness reimbursement, according to The Wall Street Journal. Members could cash in the benefit for pickleball paddles, golf clubs and other sports equipment — but these extras could be a thing of the past in a tougher rate environment.
While every payer criticized CMS’s proposed rates, some executives said they would hold off on discussing their specific strategy until final bids are due. Insurers must send their MA plan proposals for 2025 to CMS by early June.
“It’s too early to provide specifics for the 2025 bid at this stage,” Elevance Health CEO Gail Boudreaux told investors. “I’m going to repeat, we’re looking to really balance growth and margins.”
Here are 30 health systems with strong operational metrics and solid financial positions, according to reports from credit rating agencies Fitch Ratings and Moody’s Investors Service released in 2024.
Avera Health has an “AA-” rating and a stable outlook with Fitch. The rating reflects the Sioux Falls, S.D.-based system’s strong operating risk and financial profile assessments, and significant size and scale, Fitch said.
Cedars-Sinai Health System has an “AA-” rating and a stable outlook with Fitch. The rating reflects the Los Angeles-based system’s consistent historical profitability and its strong liquidity metrics, historically supported by significant philanthropy, Fitch said.
Children’s Health has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Dallas-based system’s continued strong performance from a focus on high margin and tertiary services, as well as a distinctly leading market share, Moody’s said.
Children’s Hospital Medical Center of Akron (Ohio) has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the system’s large primary care physician network, long-term collaborations with regional hospitals and leading market position as its market’s only dedicated pediatric provider, Moody’s said.
Children’s Hospital of Orange County has an “AA-” rating and a stable outlook with Fitch. The rating reflects the Orange, Calif.-based system’s position as the leading provider for pediatric acute care services in Orange County, a position solidified through its adult hospital and regional partnerships, ambulatory presence and pediatric trauma status, Fitch said.
Children’s Minnesota has an “AA” rating and stable outlook with Fitch. The rating reflects the Minneapolis-based system’s strong balance sheet, robust liquidity position and dominant pediatric market position, Fitch said.
Cincinnati Children’s Hospital Medical Center has an “Aa2” rating and stable outlook with Moody’s. The rating is supported by its national and international reputation in clinical services and research, Moody’s said.
Cook Children’s Medical Center has an “Aa2” rating and stable outlook with Moody’s. The ratings agency said the Fort Worth Texas-based system will benefit from revenue diversification through its sizable health plan, large physician group, and an expanding North Texas footprint.
El Camino Health has an “AA” rating and a stable outlook with Fitch. The rating reflects the Mountain View, Calif.-based system’s strong operating profile assessment with a history of generating double-digit operating EBITDA margins anchored by a service area that features strong demographics as well as a healthy payer mix, Fitch said.
Hoag Memorial Hospital Presbyterian has an “AA” rating and stable outlook with Fitch. The Newport Beach, Calif.-based system’s rating is supported by its strong operating risk assessment, leading market position in its immediate service area and strong financial profile,” Fitch said.
Inspira Health has an “AA-” rating and stable outlook with Fitch. The rating reflects Fitch’s expectation that the Mullica Hill, N.J.-based system will return to strong operating cash flows following the operating challenges of 2022 and 2023, as well as the successful integration of Inspira Medical Center of Mannington (formerly Salem Medical Center).
JPS Health Network has an “AA” rating and stable outlook with Fitch. The rating reflects the Fort Worth, Texas-based system’s sound historical and forecast operating margins, the ratings agency said.
Mass General Brigham has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Somerville, Mass.-based system’s strong reputation for clinical services and research at its namesake academic medical center flagships that drive excellent patient demand and help it maintain a strong market position, Moody’s said.
McLaren Health Care has an “AA-” rating and stable outlook with Fitch. The rating reflects the Grand Blanc, Mich.-based system’s leading market position over a broad service area covering much of Michigan, the ratings agency said.
Med Center Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Bowling Green, Ky.-based system’s strong operating risk assessment and leading market position in a primary service area with favorable population growth, Fitch said.
Nicklaus Children’s Hospital has an “AA-” rating and stable outlook with Fitch. The rating is supported by the Miami-based system’s position as the “premier pediatric hospital in South Florida with a leading and growing market share,” Fitch said.
Novant Health has an “AA-” rating and stable outlook with Fitch. The ratings agency said the Winston-Salem, N.C.-based system’s recent acquisition of three South Carolina hospitals from Dallas-based Tenet Healthcare will be accretive to its operating performance as the hospitals are highly profited and located in areas with growing populations and good income levels.
Oregon Health & Science University has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Portland-based system’s top-class academic, research and clinical capabilities, Moody’s said.
Orlando (Fla.) Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the health system’s strong and consistent operating performance and a growing presence in a demographically favorable market, Fitch said.
Presbyterian Healthcare Services has an “AA” rating and stable outlook with Fitch. The Albuquerque, N.M.-based system’s rating is driven by a strong financial profile combined with a leading market position with broad coverage in both acute care services and health plan operations, Fitch said.
Rush University System for Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Chicago-based system’s strong financial profile and an expectation that operating margins will rebound despite ongoing macro labor pressures, the rating agency said.
Saint Francis Healthcare System has an “AA” rating and stable outlook with Fitch. The rating reflects the Cape Girardeau, Mo.-based system’s strong financial profile, characterized by robust liquidity metrics, Fitch said.
Saint Luke’s Health System has an “Aa2” rating and stable outlook with Moody’s. The Kansas City, Mo.-based system’s rating was upgraded from “A1” after its merger with St. Louis-based BJC HealthCare was completed in January.
Salem (Ore.) Health has an”AA-” rating and stable outlook with Fitch. The rating reflects the system’s dominant marketing positive in a stable service area with good population growth and demand for acute care services, Fitch said.
Seattle Children’s Hospital has an “AA” rating and a stable outlook with Fitch. The rating reflects the system’s strong market position as the only children’s hospital in Seattle and provider of pediatric care to an area that covers four states, Fitch said.
SSM Health has an “AA-” rating and stable outlook with Fitch. The St. Louis-based system’s rating is supported by a strong financial profile, multistate presence and scale with good revenue diversity, Fitch said.
St. Elizabeth Medical Center has an “AA” rating and stable outlook with Fitch. The rating reflects the Edgewood, Ky.-based system’s strong liquidity, leading market position and strong financial management, Fitch said.
Stanford Health Care has an “Aa3” rating and positive outlook with Moody’s. The rating reflects the Palo Alto, Calif.-based system’s clinical prominence, patient demand and its location in an affluent and well insured market, Moody’s said.
University of Colorado Health has an “AA” rating and stable outlook with Fitch. The Aurora-based system’s rating reflects a strong financial profile benefiting from a track record of robust operating margins and the system’s growing share of a growth market anchored by its position as the only academic medical center in the state, Fitch said.
Willis-Knighton Medical Center has an “AA-” rating and positive outlook with Fitch. The outlook reflects the Shreveport, La.-based system’s improving operating performance relative to the past two fiscal years combined with Fitch’s expectation for continued improvement in 2024 and beyond.
Since 2022, S&P Global Ratings has tracked an increase in violations of debt agreements as macro economic pressures and low operating margins challenge providers.
Dive Brief:
The number of nonprofit health systems violating their financial agreements with lenders or investors has increased since 2022 as providers struggle to meet debt obligations amid challenging operating conditions, according to a new report from credit agency S&P Global Ratings.
This year, nonprofits will continue to be at heightened risk of violating covenant agreements, or conditions of debt that are put in place by lenders. Recently, the most common violations among nonprofits have been debt service coverage — the amount of days-cash-on-hand to debt ratios — as the sector continues to weather high expenses and weak revenues.
Most nonprofits have recently received extra time to remedy finances in the form of waivers or forbearance agreements, but other systems have merged with more financially stable organizations to meet lending agreements, according to the report.
Dive Insight:
Financial covenant violations among nonprofits began to increase at the onset of the COVID-19 pandemic.
In the early stages of the pandemic, violations were often tied to one-time pressures on operating income, such as mandatory stoppages of services.
However, violations have since evolved and now reflect nonprofits’ struggles with ongoing labor shortages and inflationary pressures, according to the report.
Providers in the speculative rating category were more likely to have violated financial covenants over the past two years and accounted for 60% of violations in S&P’s rated universe.
Some health systems have recovered from the pandemic much better than others, and those with healthier margins tend to be the ones that made a stronger push into outpatient care.
By the numbers:
There’s a wildly large and growing difference between the operating margins of top-performing health systems and those at the bottom, according to Kaufman Hall data shared with Axios. (Go deeper on their analysis.)
“The hospitals that are not performing well are performing worse, but the hospitals that are recovering are performing extremely well,” firm co-founder Kaufman told Axios.
“I would say hospitals that are not doing particularly well … they’re not capturing that outpatient work, or at least not at the level that they need to,” he added.
Yes, but:
Operating margin is only one measure of a hospital’s financial health, and total margins are often much higher, said Anderson, the Johns Hopkins professor.
“You diversify where there is potential profit, and they have moved into all sorts of things where there is profit,” he added.“They have a whole portfolio of ways to make money now that they didn’t have 20 years [ago].”
Some experts also say that hospitals aren’t disciplined about keeping costs down.
“I think partly what happened over time is that … investments were not treated as investments, but as costs,” said Cooper, the Yale economist.
Hospitals’ business models are being upended by fundamental changes within the health care system, including one that presents a pretty existential challenge: People have far more options to get their care elsewhere these days.
Why it matters:
Health systems’ responses to major demographic, social and technological change have been controversial among policymakers and economists concerned about the impact on costs and competition.
Communities depend on having at least some emergency services available, making the survival of hospitals’ core services crucial.
But without adaptation — which is already underway in some cases — hospitals may be facing deep red balance sheets in the not-too-distant future, leading to facility closures and shutteredservices.
The big picture:
Many hospitals have recovered from the sector’s post-pandemic financial slump, which was driven primarily by staffing costs and inflation. But systemic, long-term trends will continue to challenge their traditional business model.
Many of the services that are shifting toward outpatient settings — like oncology, diagnostics and orthopedic care — are the ones that typically make hospitals the most money and effectively subsidize less profitable departments.
When hospitals lose these higher-margin services, “you’re starving the system that needs profits to provide services that we all might need, but particularly uninsured or underinsured people might need,” said UCLA professor Jill Horwitz.
And hospitals have long claimed that much higher commercial insurance rates make up for what they say are inadequate government rates.
But as the population ages and moves out of employer-sponsored health plans, fewer people will have commercial insurance, forcing hospitals to either cut costs or find new sources of revenue.
By the numbers:
Consulting firms are projecting a bleak decade for health systems.
Oliver Wyman recently predicted that under the status quo, hospitals will need to reduce their expenses by 15-20% by 2030 “to stay viable.”
Boston Consulting Group last year projected that health systems’ annual financial shortfall will total more than $200 billion by 2027, and their operating margins will have dropped by 10 percentage points.
To break even in 2027, a “typical” health system would need payment rate increases of between 5-8% annually — twice the rate growth over the last decade, according to BCG. If the load is borne solely by private insurers, hospitals will need a 10-16% year-over-year increase.
Between the lines:
This is the lens through which to view health systems’ spree of mergers and acquisitions, which have increasingly drawn criticism from policymakers, regulators and economists as being anticompetitive.
For better orworse, when hospitals have a larger market share, they are in a better position to negotiate and bring in more patients, and they can dilute some of the financial pain of poorer-performing facilities.
And when they acquire physician practices or other outpatient clinics, they’re still getting paid for delivering care even when patients aren’t receiving it in a traditional hospital setting.
“I think the hospitals have sort of said … ‘We can keep doing things the same way and we can just merge and get higher markups,'” said Yale economist Zack Cooper. “That push to consolidate is saying, ‘Let’s not move forward, let’s dig in.'”
Yes, but:
A big bonus of outpatient care is that it’s supposed to be cheaper. But when hospitals charge more for care than an independent physician’s office would have, or they tack on facility fees, costs don’t go down.
“They’ve protected their portfolio, and that’s added to the cost of health care,” said Johns Hopkins professor Gerard Anderson.
The other side:
Hospitals are typically on the losing end of negotiations with insurers right now, thanks to how large insurers have become, and are “in an extremely difficult competitive position,” said Ken Kaufman, co-founder of consulting agency Kaufman Hall.
Criticizing their mergers and acquisitions as anticompetitive is a “complete misunderstanding of the situation,” he said, and moving toward a new care model will take “an incredible amount of resources.”
Reality check:
Hospitals account for 30% of the country’s massive health spending tab, and they’ll have to be at the forefront of any real efforts to contain costs.
They’re also anchors in their communities and are powerful lobbyists, which helps explain why Congress has struggled to modestly reduce what Medicare pays hospital outpatient departments.
In this week’s graphic, we dive into recently released data on Tenet Healthcare’s 2023 financial performance. While the for-profit healthcare services company’s annual margin on hospital operations has declined since 2017, its overall profitability has more than doubled, thanks to strong performances from its ambulatory surgery center (ASC) chain,
United Surgical Partners International (USPI), which has consistently posted margins above 30 percent. Despite bringing in less than one fifth of Tenet’s total revenue, USPI is now responsible for almost half of Tenet’s overall margin.
Tenet has pursued this growth aggressively since buying USPI in 2015, swelling its ASC footprint from 249 locations in 2015 to more than 460 in 2023, with plans to increase that number to nearly 600 by the end of next year.
Tenet appears to be doubling down on its strategy of pursuing high-margin services over high-revenue services, especially as outpatient volumes are expected to far surpass growth in hospital-based care over the next decade.
Today is the federal income Tax Day. In 43 states, it’s in addition to their own income tax requirements. Last year, the federal government took in $4.6 trillion and spent $6.2 trillion including $1.9 trillion for its health programs. Overall, 2023 federal revenue decreased 15.5% and spending was down 8.4% from 2022 and the deficit increased to $33.2 trillion. Healthcare spending exceeded social security ($1.351 trillion) and defense spending ($828 billion) and is the federal economy’s biggest expense.
Along with the fragile geopolitical landscape involving relationships with China, Russia and Middle East, federal spending and the economy frame the context for U.S. domestic policies which include its health system. That’s the big picture.
Today also marks the second day of the American Hospital Association annual meeting in DC. The backdrop for this year’s meeting is unusually harsh for its members:
Increased government oversight:
Five committees of Congress and three federal agencies (FTC, DOJ, HHS) are investigating competition and business practices in hospitals, with special attention to the roles of private equity ownership, debt collection policies, price transparency compliance, tax exemptions, workforce diversity, consumer prices and more.
Medicare payment shortfall:
CMS just issued (last week) its IPPS rate adjustment for 2025: a 2.6% bump that falls short of medical inflation and is certain to exacerbate wage pressures in the hospital workforce. Per a Bank of American analysis last week, “it appears healthcare payrolls remain below pre-pandemic trend” with hospitals and nursing homes lagging ambulatory sectors in recovering.”
Persistent negative media coverage:
The financial challenges for Mission (Asheville), Steward (Massachusetts) and others have been attributed to mismanagement and greed by their corporate owners and reports from independent watchdogs (Lown, West Health, Arnold Ventures, Patient Rights Advocate) about hospital tax exemptions, patient safety, community benefits, executive compensation and charity care have amplified unflattering media attention to hospitals.
Physicians discontent:
59% of physicians in the U.S. are employed by hospitals; 18% by private equity-backed investors and the rest are “independent”. All are worried about their income. All think hospitals are wasteful and inefficient. Most think hospital employment is the lesser of evils threatening the future of their profession. And those in private equity-backed settings hope regulators leave them alone so they can survive. As America’s Physician Group CEO Susan Dentzer observed: “we knew we’re always going to need hospitals; but they don’t have to look or operate the way they do now. And they don’t have to be predicated on a revenue model based on people getting more elective surgeries than they actually need. We don’t have to run the system that way; we do run the healthcare system that way currently.”
The Value Agenda in limbo:
Since the Affordable Care Act (2010), the CMS Center for Innovation has sponsored and ultimately disabled all but 6 of its 54+ alternative payment programs. As it turns out, those that have performed best were driven by physician organizations sans hospital control. Last week’s release of “Creating a Sustainable Future for Value-Based Care: A Playbook of Voluntary Best Practices for VBC Payment Arrangements.” By the American Medical Association, the National Association of ACOs (NAACOs) and AHIP, the trade group representing America’s health insurance payers is illustrative. Noticeably not included: the American Hospital Association because value-pursuers think for hospitals it’s all talk.
National insurers hostility:
Large, corporate insurers have intensified reimbursement pressure on hospitals while successfully strengthening their collective grip on the U.S. health insurance sector. 5 insurers control 50% of the U.S. health insurance market: 4 are investor owned. By contrast, the 5 largest hospital systems control 17% of the hospital market: 1 is investor-owned. And bumpy insurer earnings post-pandemic has prompted robust price increases: in 2022 (the last year for complete data and first year post pandemic), medical inflation was 4.0%, hospital prices went up 2.2% but insurer prices increased 5.9%.
Costly capital:
The U.S. economy is in a tricky place: inflation is stuck above 3%, consumer prices are stable and employment is strong. Thus, the Fed is not likely to drop interest rates making hospital debt more costly for hospitals—especially problematic for public, safety net and rural hospitals. The hospital business is capital intense: it needs $$ for technologies, facilities and clinical innovations that treat medical demand. For those dependent on federal funding (i.e. Medicare), it’s unrealistic to think its funding from taxpayers will be adequate. Ditto state and local governments. For those that are credit worthy, capital is accessible from private investors and lenders. For at least half, it’s problematic and for all it’s certain to be more expensive.
Campaign 2024 spotlight:
In Campaign 2024, healthcare affordability is an issue to likely voters. It is noticeably missing among the priorities in the hospital-backed Coalition to Strengthen America’s Healthcare advocacy platform though 8 states have already created “affordability” boards to enact policies to protect consumers from medical debts, surprise hospital bills and more.
Understandably, hospitals argue they’re victims. They depend on AHA, its state associations, and its alliances with FAH, CHA, AEH and other like-minded collaborators to fight against policies that erode their finances i.e. 340B program participation, site-neutral payments and others. They rightfully assert that their 7/24/365 availability is uniquely qualifying for the greater good, but it’s not enough. These battles are fought with energy and resolve, but they do not win the war facing hospitals.
AHA spent more than $30 million last year to influence federal legislation but it’s an uphill battle. 70% of the U.S. population think the health system is flawed and in need of transformative change. Hospitals are its biggest player (30% of total spending), among its most visible and vulnerable to market change.
Some think hospitals can hunker down and weather the storm of these 8 challenges; others think transformative change is needed and many aren’t sure. And all recognize that the future is not a repeat of the past.
For hospitals, including those in DC this week, playing victim is not a strategy. A vision about the future of the health system that’s accessible, affordable and effective and a comprehensive plan inclusive of structural changes and funding is needed. Hospitals should play a leading, but not exclusive, role in this urgently needed effort.
Lacking this, hospitals will be public utilities in a system of health designed and implemented by others.
Health system operating margins improved in 2023 after a tumultuous 2022. Increased revenue from rebounding patient volumes helped offset the high costs of labor and supplies for many systems, but some continue to face challenges turning a financial corner.
In a Feb. 21 analysis, Kaufman Hall noted that too many hospitals are losing money but high-performing hospitals are faring far better, “effectively pulling away from the pack.”
Average operating margins have see-sawed over the last 12 months, from a -1.2% low in February 2023 to 5.5% highs in June and December. In February, average operating margins dropped to 3.96% before the Change Healthcare data breach, which has impacted claims processing.
Here are 42 health systems ranked by operating margins in their most recent financial results.
Editor’s note: The following financial results are for the 12 months ending Dec. 31, 2023, unless otherwise stated.
Revenue: $20.55 billion Expenses: $18.31 billion Operating income/loss: $2.5 billion (*Includes grant income and equity in earnings of unconsolidated affiliates) Operating margin: 12.2%
*Results for the first six months ending Dec. 31 Revenue: $2.1 billion Expenses: $2 billion Operating income/loss: $22.9 million Operating margin: 1.1%
A recent engagement with a health system executive team to discuss an underperforming service line uncovered a serious issue that’s becoming more common across the industry.
“Our providers are more productive than ever,” the CFO informed our team, “and yet we keep losing money on the service line.”
After digging into their physician compensation model, we came upon one source of the system’s issue. Because it was incentivizing physician RVUs equally across all payers, its providers responded, quite rationally, by picking up market share where growth was easiest: Medicaid patients, who weren’t generating any margin.
“We recognize that we’ve been employing these physicians as loss leaders in order to generate downstream revenue,” the CFO shared, “but what’s the point of that revenue if there’s no longer any downstream margin?”
The economics of physician employment becomes a tough conversation very quickly; it’s a sensitive topic to many, and one with myriad facets.
But the loss leader physician employment model obviously only works when it produces positive downstream margins.
We’re in a critical window of time, where hospital margins are just beginning to recover as volumes return—but those volumes are not necessarily in the same places as before.
The opportunity is ripe for systems to work closely with their aligned physicians to reexamine the post-pandemic margin picture for individual service lines and ensure incentives are aligning all parties to hit operating margin goals.
Are these kinds of conversations taking place at your health system?
HENRY KOTULA 