Employed Physicians Add Revenue, Trim Profits

Hospitals with very high physician employment generate stronger revenue growth but are less profitable than peer institutions with fewer employed physicians, Moody’s Investors Service says.

It’s pretty simple.  Physicians are very expensive to employ,” says Daniel Steingart, vice president and senior analyst at the rating agency.

“Typically when doctors come from being in private practice or a small group practice and they come under the hospital’s employ it’s not even just a straight transfer of their revenues and expenses.  Oftentimes the expense base actually grows.  Hospitals typically have a more generous benefits package and there is additional overhead associated, oftentimes with new IT systems, etc.”

“So, although the hospital gains the revenues that the practice had been generating, the expenses of the hospital go up, and physicians earn quite a bit of money,” Steingart says.  “It’s a strategic move by the hospitals for a variety of reasons, but it does come with a financial penalty.”

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