Physician compensation totals 84% of medical group expenses

Physician compensation continues to account for the bulk of medical group expenses, even while physicians and providers generate less revenue, according to the latest data from Kaufman Hall.

These findings should signal a reconsideration of medical group operations, the report authors suggested, as investment/subsidy per employed physician reaches unsustainable levels.

"Investment/subsidy per physician rose above $300,000 for the first time -- a sign that current models of physician employment are not sustainable," Matthew Bates, managing director and physician enterprise service line leader with Kaufman Hall, said in a statement. "Revenue is increasing but physicians and providers are working more while generating less revenue. Health systems need to rethink operations to align the costs of provider employment with the current health care environment."

Notably, finances remain stable for both hospitals and health systems, the National Hospital Flash Report and the Physician Flash Report indicate. However, the reports, which include data through September and the third quarter of 2024, respectively, show significant costs in terms of physician compensation.

According to the Physician Flash Report, expenses from physicians and other providers accounted for 84% of total expenses for medical groups. The median investment/subsidy per employed physician was $304,312. The provider and physician compensation per full-time employee each increased by 3% since this time last year.

On the hospital side, Kaufman Hall found relative stabilization in September, although margins are still slim. Across most of the indicators included in the National Hospital Flash Report, Kaufman Hall found slight decreases in margins compared to the previous month's data. This includes volume and operation margin.

But it's the inpatient revenue and average lengths of stay that hospital leaders should be monitoring, Kaufman Hall advised. While outpatient revenue dipped slightly, the report showed increases in inpatient revenue. This indicates a greater volume of high-acuity patients, the report authors stated.

"Two data points to monitor in the months ahead are inpatient revenue and average lengths of stay," Erik Swanson, senior vice president and data and analytics group leader with Kaufman Hall, said in the press release. "Both metrics increased this month, which indicates that hospitals are treating more high-acuity patients. If this continues, organizations will need to contain expenses."

Sara Heath has covered news related to patient engagement and health equity since 2015.