The cost of employed physicians

The increasing trend toward direct employment of physicians by hospitals may seem to be shifting power from physicians to hospitals; however, in the words of Lawrence Peter “Yogi” Berra, “it ain’t over till it’s over.”

A Moody’s report on hospital financial trends pointed out that while physician employment can be an effective strategy for revenue growth, it can also result in lowering operating margins, and as a result, hospital creditworthiness.

Hospitals face a new set of physician preferences as they employ millennial physicians while replacing older baby boomer physicians. Many younger physicians prefer a predictable work schedule and shorter workweek, and they are less likely to participate in system development as well as medical policy development (which is required in new care delivery models such as ACOs and bundled payments) (Goldsmith, Kaufman, and Burns, 2016).

Thus, hospitals are faced with increasing physician expenses while at the same time trying to achieve greater productivity and improved quality to reach their financial goals. Hospitals are under pressure from government and commercial insurance companies to improve healthcare outcomes and reduce cost.

Under the Medicare Part B payment policy, employed physician services can be “provider based,” allowing the hospital to charge technical fees for its services. This allows hospitals to offer salaries to some physicians that are significantly higher than what they may earn in a private practice.

The Medical Group Management Association reports that losses in excess of $200,000 per hospital-employed physician are not uncommon. Hospitals often place employed physicians on RVU-based incentive compensation to offset their salary expense, encouraging them to maximize consultative requests for other specialists and imaging and laboratory services.

The accelerated physician recruitment effort, along with hospital consolidation, has seen organizations recruiting 30 or more physicians at once for employed positions (Darves, 2014). Recruitment strategies include both new graduates and practicing physicians who are willing to sell their practice and transition to an employed position. For new graduates coming out of a residency or fellowship, this translates into many new employed practice opportunities. For MSPs, this could mean a significant spike in initial appointment volume and increased pressure to onboard new recruits through a physician-friendly, seamless procedure. The competition in recruitment is not just singled out to hospitals and healthcare systems but also to retail clinics, telemedicine companies, and concierge medicine practices (Darves, 2014).


Darves, B. (2014). “Understanding the physician employment ‘movement’.” NEJM Career Center. Retrieved from

Goldsmith, J., Kaufman, N., & Burns, L. (2016). “The tangled hospital-physician relationship.” Health Affairs Blog. Retrieved from


Source: News & Analysis

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Physician Employment