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Video2024 Physician Compensation and Growing Affordability Challenges
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For years, health systems have relied on productivity metrics to set physician compensation. Yet even as physicians achieve greater efficiency and higher output, hospital systems are struggling to keep pace. Losses tied to physician employment are soaring, creating an unsustainable dynamic between compensation and financial viability.
These challenges are reflected in Kaufman Hall’s Q3 2024 Physician Flash Report, which shows losses per physician employed by health systems have topped $300,000 annually. Losses are defined as revenue less all practice expenses, the largest of which is physician compensation. Under a health system umbrella, most physicians are compensated based on some combination of productivity such as volume, effort and skill measured through work relative value units (wRVUs), administrative functions and quality outcomes. However, these metrics are often agnostic to practice profitability.
Market-based physician compensation tends to increase over time due to competition by health systems to attract and retain a limited supply of providers, expectations that such compensation should increase by inflation from base rates and increasing productivity per provider. However, financial losses from physician groups increase if reimbursement growth does not keep pace with expenses. In 2024, financial losses increased despite rising physician productivity.
By the Numbers
Kaufman Hall aggregates information from more than 200,000 employed physicians and advanced practice providers across more than 100 specialties. This data paints a clear picture of the financial pressures facing health systems.
| Revenue per Provider FTE | $377,870 | $394,184 | $16,314 | 4.3% | |
| Total Expenses per Provider FTE | $611,194 | $640,062 | $28,868 | 4.7% | |
| Provider wRVUs per FTE | 4,657 | 4,907 | 250 | 5.4% | |
| Physician wRVUs per FTE | 5,820 | 6,195 | 375 | 6.4% | |
| Net Patient Revenue per Provider wRVU | $77.18 | $76.36 | $(0.82) | -1.1% | |
| Provider Compensation per FTE | $297,431 | $305,533 | $8,102 | 2.7% | |
| Physician Compensation per FTE | $358,753 | $369,392 | $10,639 | 3.0% | |
| Investment/Subsidy per Provider | $223,530 | $234,907 | $11,377 | 5.1% | |
| Investment/Subsidy per Physician | $288,672 | $304,312 | $15,640 | 5.4% | |
Provider FTE = NP, PA, MD, DO
Physician FTE = MD, DO
Source: Kaufmall Hall, Physician Flash Report Q3 2024
Key Takeaways
- Revenue per provider is up approximately $16K (4.3% from Q3 2023). Expenses per provider, on the other hand, are up approximately $29K (4.7%).
- Productivity per physician increased by 6.4% while physician compensation increased 3%.
- Reimbursement per provider wRVU decreased 1.1%.
- Physician compensation increased by $10,639 per physician while losses per physician increased by $15,640. These statistics indicate the increased losses were primarily due to higher physician salaries which resulted from increased productivity.
Why it Matters
Employing physicians at market-based compensation levels (often supported by an external valuation firm or internal methodology) is necessary to better coordinate care and support other health system network assets and service-line initiatives. While a certain level of physician practice investment is budgeted by hospital systems and expected, perpetually increasing investments will eventually lead to the unsustainability of the physician practice support model.
In a time of reimbursement headwinds for physician services, employed physician salaries continue to increase, contributing to heightened financial losses for the hospital systems. Over time, the physician support model becomes financially unsustainable and creates an impetus for the restructuring of the physician/hospital relationship.
Health Care Valuation Takeaways
- Market-based opinions and/or observations of physician compensation may differ from what a health system can afford or is willing to pay.
- Physician compensation surveys provide important data tools for benchmarking purposes. However, the survey averages and medians do not imply or represent fair market value compensation. The facts and circumstances of any one specific arrangement must dictate selected compensation levels.
- Valuation firms issuing physician compensation fair market value opinions must view the analysis holistically. Other critical variables to consider include practice profitability, provider-specific distinctions and unique situational factors.
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Authored by Connor Campbell
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