So what are the implications of more prevalent revenue sharing between hospital based physician practices? Here is one example: It has been widely quoted that hospitalist physicians require a subsidy of up to $130,000 per physician in a hospitalist practice. This happens because hospitalists typically see high numbers of unassigned – and often un- or under-insured – patients. Hospitals, which are now responsible for this subsidy, find value in the better patient care and lower lengths of stay from physicians dedicated only to inpatient medicine.
For the same reasons, many emergency physicians, as well as anesthesiology and radiology physician earnings can be subsidized by hospitals where they work, due to insufficient revenue generated from patient encounters. The actual amount of the subsidy, while varying widely, can be significant, although it is thought to be less than hospitalists receive on a per physician basis.
The point is that hospitals would like to reduce the subsidy to physicians to the smallest amount possible. Therefore, intra-hospital subsidies between specialties will likely be a growing trend. A similar tactic occurs with inter-hospital subsidies where a variable fraction of the revenue from other more economically favorable practice locations is pooled in order to be able to pay market salaries to their doctors.
Many physician management companies may hope to fare better in competition using this tactic, but this can only be considered a “race to the bottom” of market based compensation for physicians, even in hospitals with very favorable payer mix and demographics. This development will make the retention of physicians at some hospitals increasingly problematic as they leave for better pay elsewhere.
Which Specialty Wins?
In hospitals where physician practices subsidize across specialties, emergency physicians appear to be bearing the largest burden of support for the hospitalist practice. Given the large burden of uncompensated care and other pressures from government and commercial payers that reduce emergency physician reimbursement, this is not likely to be a sustainable trend long term.
As one of the largest physician management companies in the country, our emergency medicine practices have also had to adjust to this new competitive reality. Now we know that each time we compete for new business, and sometimes to keep our current business, we will compete against companies willing to make low bids that use revenue from other sources beyond the department or the hospital to remain viable.
This does not mean the hospital will always go for the lowest bidder. Our experience is often they do not choose that option after weighing what benefit and value they expect from the physician staffing company selected. However, physician groups who are unwilling or unable to pool intra-hospital or inter-hospital physician revenue in the future will be disadvantaged in competition to win (or maintain) hospital relationships focused more on price rather than performance.
Furthermore, a company staffing more than one hospital-based physician practice at the same hospital will also have an advantage in competition for other practices at that same hospital in the future. This is particularly so if they are performing “good enough” and can offer all the combined services at a lower cost to the hospital.
Once bundled payments are widely implemented, hospitals will demand better integration of inpatient care by all hospital-based physicians. Other physician specialties beyond emergency medicine will also be affected as these competitive revenue sharing tactics become more prevalent. Any of the hospital-based physician specialties that remain in “silos” unaligned with the other hospital based physicians will fare even worse within the hospitals where they practice in the future.
A final consideration is that hospital administrators are often unaware of revenue sharing within a physician group staffing multiple hospitals. This practice will become more problematic with the downward pressure on physician reimbursement. Hospitals should hope that the revenue generated by their physicians is not indirectly subsidizing practices in other hospitals – especially one of their competitors!