There are 3 main reasons hospital CFOs are considering employment models for their hospital-based physician services – specifically, anesthesia, radiology & emergency medicine.

1.  Commercial Payer Barriers – we see an increasing trend of commercial payers reducing the existing outsourced physician groups’ allowables, kicking the outsourced group out-of-network for rate allowance leverage, or worse – not offering a new physician group a commercially-reasonable path to become an in-network provider.

An outsourced physician group that can’t participate in-network or bring commercially-reasonable allowables has the hospital shouldering the subsidy burden.  Hospitals still have some rate negotiation leverage with payers.  Launching an employed model provides a degree of financial relief if the hospital can negotiate reasonable in-network physician services allowables.  

1. Hospitals are Already Employing – De Facto – when the contracted monies a hospital has to pay an outsourced group is >50% of the revenue needed to support the service line, the hospital is “employing” the physician group whether they want to or not.  

Outsourced physician groups have passed their wage inflation expense, CMS & commercial allowable cuts, and profit margin requirements to hospitals and health systems.  CFOs naturally ask: “…if we are providing the majority of the necessary financial support, what would the benefit of a true insourced service line be?”

1. Service Line Continuity & Alignment – hospitals can’t realize their return on invested capital (ROIC) if they can’t optimize throughput and control fixed and variable expenses.  

An employed hospital-based service line offers predictability in budgeting, reporting transparency, accelerated execution of coverage changes (i.e., you don’t need to negotiate or amend a PSA), and the ability to align the onsite clinical leaders and hospital support departments to the needs of the service line.  

Diligence on whether an employed service line model makes sense has become more acute given the labor and subsidy dynamics.

Trinity Health Advisors can provide not only the diligence support, but the experience in successfully transitioning and operating more than 35 insourced service lines over the last 5 years.