Weathering Changes to Provider-Based Reimbursement

Are the salaries of employed physicians sustainable? That depends on how health systems and physicians respond to looming rate adjustments and to meeting their collective needs. Deteriorating economics are driving physicians who originally selected entrepreneurial private practice to become employees of a health system.

Today, physicians in private practice are faced with:

• Escalating infrastructure costs;
• Exponential growth in regulatory mandates;
• Marginal increases, at best, in government payments;
• Commoditization by the commercial payers;
• Declining profitability of their ancillary services;
• Bad debt associated with high-deductible health plans;
• The failure of joint ventures, co-management, call pay and other weird arrangements to provide sufficient income protection over time.

These factors are forcing physicians to begrudgingly exchange both their ownership and (at least in theory) their autonomy for the 'safety' of employment within a health system. Along with providing stable or even higher compensation to physicians, health systems are absorbing the cost of significant investments in infrastructure  such as an electronic health record and better salaries and benefits for office-based employees. Few health systems pay for goodwill when physicians accept employment; however, many systems are paying for 'intangible assets' (stirring a debate in the valuation community over the appropriateness of this practice).