The Moody's Investor Service's Physician Employment FY 2014 Medians report links the high physician employment rate to lower hospital profitability.
However, Moody's predicted hospitals will continue employing a high volume of surgeons going forward. Here are five key notes from the report:
1. The average median cash flow margin is 10.7 percent for hospitals with low physician employment compared with 8.5 percent for hospitals with very high physician employment rate. The survey defined low and high employment volume based on the employed physicians as a percentage of the total medical staff:
• Low: 1 to 15 percent
• Mid: >15 to 30 percent
• High: >30 to 65 percent
• Very High: >65 to 100 percent
2. The hospitals with a high rate of physician employment reported higher revenue and expense growth due to absorbing physician salaries. These hospitals also made related IT investments and staff changes.
3. Hospitals with a high employment rate reported a 6.8 percent three-year revenue compound annual growth rate and 7.5 percent expense CAGR. The low physician employment hospitals reported median 4.9 percent three-year revenue CAGR and 5 percent expense CAGR.
4. Moody's expects the expense growth to slow as hospitals generate efficiencies through improved practice management and economies of scale. But direct losses on physician practices will remain a challenge.
5. The hospitals with high physician employment reported $950 million average operating revenue, compared with $431 million for hospitals with low physician employment. The national median OR revenue is $673.
6. The hospitals with high physician employment rates had a greater share of the outpatient revenue — 54 percent — when compared with inpatient revenue — 46 percent. This is nearly the inverse of hospitals with low employment rates.