Many hospital leaders consider employed primary care physicians (PCPs) a money sink, or, at best, a loss leader needed to secure referrals to specialists and hospital facilities. There are two factors contributing to this belief: PCP visits are generally reimbursed at lower rates than specialist services, and PCPs have fewer opportunities to generate technical revenue.
However, these perceptions may change for good—thanks to a new report.
According to information released last week by physician search firm Merritt Hawkins, PCPs generated more direct hospital revenue than their specialist colleagues for the first time in five years in 2013–even without including indirect revenue from specialist referrals.
Physician-driven hospital revenue, by specialty
Includes admissions, procedures, and tests conducted in hospital inpatient and outpatient facilities
*Click to expand
Reaping the rewards of PCP employment
Merritt-Hawkins argues that a major factor behind the higher PCP-generated revenues is increased physician employment. According to their report, "as primary care physicians become hospital employees, they may be more likely to divert tests, therapies, and other services 'in-house' to their hospital employer, rather than to outside resources such as radiology groups or labs." Employment may also increase PCP loyalty to the “parent” hospital and that hospital’s share of per-physician revenue.
Aside from direct hospital revenue, PCP employment can bring many benefits to health systems, from strengthening the referral network to laying the foundation for population health management. However, the new data suggest that, even from a strict inpatient business perspective, employment of PCPs may finally be paying off.
Specialists on the defensive
The tables appear to be turning, in fact. Moving forward, specialists, not PCPs, may be the ones who need to prove their value to hospital employers.
Hospitals are seeing declines in revenue for certain specialities, particularly neurology, neurosurgery, general surgery, and invasive cardiology (at the same time, revenues continued to grow in nephrology, orthopedics, and hematology/oncology). This may be due to their investments in managing chronic disease and shifting some types of inpatient care to lower-cost settings.
Meanwhile, these specialists continue to command higher salaries. For example, invasive cardiologists generate only slightly higher revenue than family practitioners–but are compensated almost three times as much.
Ratio of physician compensation to hospital-driven revenue
Six top revenue-generating specialties
*Click to expand
The decline in specialist profitability is not limited to hospital technical fees, either. Our benchmarking survey of employed physicians suggests that PCP net contribution on professional fees (after accounting for practice costs) also exceeds that of specialists.
Implications for physician employment strategy
Medical groups can draw several lessons from this information:
Review specialist employment plans.
While specialists will always be crucial to serving community needs, medical groups may need to re-examine their compensation packages to ensure higher net value of employment. Some groups may consider employing fewer physicians in specialties where revenues are declining.
For guidance on market-aligned recruitment and compensation strategy, watch our on-demand webconference.
Elevate employment of non-physician providers in both primary care and specialties.
In primary care, nurse practitioners and physician assistants can further strengthen the growing revenue stream. In specialty care, these clinicians can significantly expand physician capacity and help meet community need while keeping costs in check.
To learn more about utilization models and other issues concerning non-physician providers, register for our national meeting and webconference.
Prepare for scrutiny of primary care costs.
Purchasers and patients continue to demand more value from the health care industry. While higher revenues from primary care are a boost to the bottom line today, medical groups must ensure that increased PCP loyalty does not result in higher overall costs of care in the long run.
Are you reconsidering your medical group’s physician employment strategy? Share your thoughts with us at firstname.lastname@example.org.
Want to estimate the primary care demand in your market? Find out with our Primary Care Volume Estimator.
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