Do doctors cost hospitals $300,000 a year?

With hospitals now “subsidizing” their physician workforces at more than $300,000 per physician per year, current physician employment models are not sustainable. a new report suggested.

In the third quarter of 2024, hospitals spent $304,312 per physician on what the report calls a “subsidy,” according to Matthew Bates, MPH, director at Kaufman Hall, who authored the Physician Flash Report.

“When hospitals first started hiring physicians… it was to create more ‘systematization’ and improve population health and value-based care by creating a continuum of delivery,” Bates shared. MedPage Today. “Right now, that cost model has become too skewed. We need new models, new ways of thinking.”

The physician costs calculated in the report include surrounding practice costs, including staff such as receptionists and medical assistants, as well as real estate and utilities. However, Bates said labor makes up 84% of the total cost. Physician reimbursement specifically represents about 60% of total costs, he said.

Marisha Burden, MD, MBA, of the University of Colorado Anschutz School of Medicine in Denver, a physician administrator who studies health care workforce issues and who was not involved in the report, agreed that it was a good idea was to ‘ring the alarm bells’. that current healthcare financial models are unlikely to be sustainable.”

However, she called the report “a bit of a flawed narrative that misses the full reality of things.” For example, if the report focuses only on physician billing, she says, it misses out on other revenue streams, such as downstream services like diagnostics, specialty referrals and admissions.

Bates acknowledged that the report did not take into account downstream revenues, adding that other items and services from an acquired practice – such as X-ray equipment – ​​are moved “to the hospital side of the ledger.”

Hospitals “take the additional revenue away from most physician groups when they hire them,” Bates said. “That’s important to consider because that helps generate the subsidy and the downstream.”

However, Bates noted that when analyzed by Relative Value Units (wRVUs), which focus only on compensation for labor, physicians do more work but ultimately get paid less for that work.

For example, physicians brought in 5,540 wRVUs in the third quarter of 2022, which rose 12% to 6,195 in the same quarter of 2024. Meanwhile, reimbursement per wRVU fell from $65.32 to $62.26 during that time, according to the report.

“Their wages are struggling to keep up because the amount they are paid for the services they provide is not keeping pace with inflation,” Bates said. “We saw that this year when Medicare proposed (cuts) for reimbursement by physicians.”

“You work harder and your wages don’t keep up with inflation,” Bates said. “That’s just frustrating for everyone.”

Doctors and business leaders must come together to find a solution to healthcare systems’ financial problems, Burden and Bates said.

“To say that it is the group of physicians or physicians that is causing the problem is short-sighted,” Burden said, noting that the report focuses on financial matters and “misses” the bigger picture of “thinking about optimal work design … that doesn’t float”. just the financial and operational outcomes we want, but also the patient outcomes we want.”

“In American health care, decisions are often made without considering one critical element: the health care workforce who makes it all possible,” she noted, adding that the patient’s perspective is also often overlooked. “We need to integrate them a little better.”

When staffing decisions are driven by a report that says “these costs are only increasing and threatening the viability of the organization… then you get knee-jerk reactions like asking physicians to do more,” she said. “And physicians are really being utilized.”

She called for “a kinder culture in how we think about our workforce. Physicians are the core value driver within our organization, not the cost centers.”

Bates agreed that health care is “at its best when physicians, or white coats, and administrators, or suit coats, work together to find ways to make the system more efficient and effective.”

“Suit coats and white coats need to talk to each other and work together,” he added. “Healthcare is a team sport, and if we can be more effective together as a team, we can move the needle.”

The Doctor Flash Report is based on data from more than 200,000 practicing physicians and advanced practice providers – including nurse practitioners, physician assistants and certified registered nurse anesthetists – from a range of practices across the US, from single-physician practices to large academic groups. It has been produced quarterly since first published during the COVID-19 pandemic in 2020.