Are Doctors Costing Hospitals $300K Per Year?

With hospitals now “subsidizing” their physician workforce to the tune of more than $300,000 per doctor each year, current models of physician employment aren’t sustainable, a new report suggested.

In the third quarter of 2024, hospitals spent $304,312 per doctor on what the report refers to as a “subsidy,” according to Matthew Bates, MPH, a managing director at Kaufman Hall, who was an author of the Physician Flash Report.

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

Physician costs calculated in the report include the surrounding practice expenses, including staff such as front desk receptionists and medical assistants, as well as real estate and utilities. However, Bates said labor accounts for 84% of the total cost. Physician compensation specifically accounts for about 60% of total expenses, he said.

Marisha Burden, MD, MBA, of the University of Colorado Anschutz School of Medicine in Denver, a clinician-administrator who studies healthcare workforce issues and who wasn’t involved in the report, agreed it was a good idea to “sound the alarm bells that current financial models in healthcare are probably not sustainable.”

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

Bates acknowledged that downstream revenue wasn’t accounted for in the report, and added that other items and services from an acquired practice — such as x-ray machines — get moved “to the hospital side of the ledger.”

Hospitals “do strip the ancillary revenue out of most physician groups when [they] employ them,” Bates said. “That’s important to consider because that helps generate the subsidy and the downstream.”

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

For instance, doctors brought in 5,540 wRVUs in the third quarter of 2022, which jumped 12% to 6,195 in the same quarter of 2024. Meanwhile, compensation 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’re getting paid for the services they deliver is not keeping up with inflation,” Bates said. “We’ve seen that this year, with Medicare proposing [cuts] for physician reimbursement.”

“You’re working harder and your wages aren’t keeping up with inflation,” Bates said. “That’s just frustrating for anybody.”

Clinicians and business leaders need to come together to find a solution to health systems’ financial woes, Burden and Bates said.

“To say that it’s the physician or clinician group driving the problem is short-sighted,” Burden said, noting that the report is focused on financials and “misses” the bigger picture of “thinking about optimal work design … that drives not only the financial and operational outcomes that we want, but also the patient outcomes that we want.”

“In U.S. healthcare, decisions often are made without looking at a critical element, the healthcare workforce, which makes all of this possible,” she noted, adding that the patient perspective often is overlooked as well. “We have to start integrating those a bit better.”

If staffing decisions are driven by a report that says, “this expense is only getting larger and threatening organizational viability … you’re going to get knee-jerk responses, like asking clinicians to do more,” she said. “And clinicians are really tapped out.”

She called for “a kinder culture of how we think about our workforce. Clinicians are core value drivers within our organization, not cost centers.”

Bates agreed that healthcare “is at its best when physicians, or white coats, and administrators, or suit coats, partner on looking for ways to make the system more efficient and effective.”

“Suit coats and white coats have to be talking together and partnering,” he added. “Healthcare is a team sport, and if we can be more effective as a team together, we can move the needle.”

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