Did you know that every time Costco sells one of their rotisserie chickens, they’re actually losing money? In fact, Costco loses about $30-40 million dollars annually on those chickens. Although it seems like a poor strategy in isolation, retailers often sell popular items at a loss—known as loss leaders—to attract a larger customer base. Traditionally, health systems have operated under a similar model as it relates to their employed medical group, with average losses per MD around $200k.
Treating the employed medical group like a loss leader is the typical fee-for-service playbook. However, the COVID-19 pandemic has brought the employed medical group to the forefront of concerns for many health systems. Inpatient and emergency room volumes haven’t returned to pre-COVID levels, inflation and contract labor spending are at unprecedented levels, and site-of-service shifts have continued. Meanwhile, primary care disrupters are using a different playbook, largely with the goal of keeping patients out of hospital inpatient and hospital outpatient departments (HOPD). It’s no wonder that financial losses for the employed medical group are being re-examined.
Unfortunately for health systems, the difficulties stretch beyond just financial concerns. Providers and staff feel a lack of purpose, leading to a general decline in satisfaction and burnout. In fact, an overwhelming 49% of medical employees report burnout, making competitive overtures that much more attractive.
Reimagining the Economic Playbook
Ancore signaled the need to reimagine the employed medical group early in 2021 and outlined a potential execution path. Ancore’s client work has illuminated that the economic value proposition is crystal clear between administration and physicians for the disruptors – primary care and private equity single specialty entities specifically. Health systems using the fee-for-service playbook do not have this luxury due to Stark and anti-kickback laws. As a result, health system administration and physicians, at times, do not have a common understanding of how they make money and how they spend money. In times like these, health systems cannot afford to keep physicians and clinical leaders in the dark as it relates to the current fee-for-service strategy. Ancore’s economic reimagination starts with getting administration and physician leaders in the same room to understand current revenue and expense drivers, how they impact current economics—including physician compensation—and explore not only how we can improve performance but also how the economics playbook’s changes (fee-for-service to value-based payment for example) will impact future investments and compensation models.
Real Life Example
Let’s look at this in the context of a recent case study at Pine Medical Center[1], a large academic medical center in the Midwest. They asked Ancore to help level-set the current performance of the physician enterprise, including both the faculty and community practices. There were numerous “aha moments,” including how provider-based ancillary profits were bolstering the physician enterprise economics while simultaneously being a significant area of financial risk, as those disruptors were shifting care away from HOPD settings. This collaboration was an important step in generating a common language for current performance, areas of success, and opportunities to improve.
Call to Action
It’s time to unlock the power of your medical group. To move forward and reimagine a new future, physicians and administrators need to be on the same page regarding financial performance and alignment with the mission and strategy. Although change can evoke anxiety, returning to the system’s mission can inspire hope. By reconnecting employees to the mission and communicating how you are better aligning the economics and incentives, morale will soar, and engaged employees are always better for patient care.
Ready to reimagine the economics of your employed medical group? Shoot us a message.
[1] Pseudonym
