Health Care Law Blog

Modern Health Care has reported that hospitals often lose approximately $176,000 a year per each employed physician.

While this initially seems like a surprising statistic, it is understandable that hospitals lose money when they employ physicians. Physicians in private practice often pay their staff less than comparable hospital employees. When a hospital buys a physician’s practice, the benefit costs typically increase if the staff receives the hospital’s fringe benefit package. Moreover, hospital overhead is typically higher than a private physician practice with regard to HR costs and other support services.

Many systems claim that the only way to manage the health of a given population (which is what ACO and other similar payment structures are requiring) is to be fully integrated with employed physicians, so covering the losses incurred by employing physicians is the necessary cost of preparing for the new paradigm. The ugly, and legally problematic, truth is that most health systems look beyond the income generated by physicians for treating patients but also at income from physician ancillary referrals to justify the economic losses caused by acquiring physician practices. This raises concerns under the Stark law.