Physician Staffing Firms Seeing Double-Digit Growth

The physician staffing sector has grown by more than 10% annually over the past four years, and that pace is expected to continue, says a Moody's Investors Service analyst.

The Patient Protection and Affordable Care Act and the healthcare sector's move toward value-based reimbursements have created a favorable environment for hospital-based physician staffing companies to consolidate and grow even larger, Moody's Investors Service, Inc. says.

Ron Neysmith, a senior analyst at Moody's Corporate Finance Group, says the physician staffing sector has grown by more than 10% annually over the past four years. That pace is expected to continue, he says, as hospitals embrace outsourcing to streamline operations and create efficiencies.

In addition, Neysmith says, the Medicaid expansion under the PPACA means that more people will have health insurance and that bad debt levels will fall at physician staffing companies doing business in Medicaid expansion states.

Unfortunately, providers in states that have rejected the Medicaid expansion will likely continue to see high bad debt levels in the near term.

Neysmith singled out TeamHealth Inc., Envision Healthcare Corp., and AmSurg Corp., as particularly well positioned to take advantage of the shifting care delivery and reimbursement landscape.

"Physician staffing companies will continue to grow through a combination of acquisitions, new contracts and organic growth," Neysmith says. "The industry is very fragmented, so acquisitions will be a focus for TeamHealth, Envision and AmSurg. These likely will be small-to-medium tuck-in acquisitions that they can fund from cash flow, maintaining their credit quality."

Up-Selling Services
Neysmith says the big three staffing companies will also focus on "up-selling" complimentary provider services to clients.

"Once they get into a hospital and show that they've got a high level of proficiency of managing a medical department, certain departments sort of lead themselves to being outsourced," he says. "Once they are already there, they try to provide additional services."

Neysmith says he expects that larger staffing firms will use their size and scale to wrest new business away from smaller, regional operators.

Hiring staffing companies also relieves hospitals of the burden of recruiting and retaining hospital-based physicians.

"A lot of hospitals are having trouble recruiting and managing some of those physicians and physician staffing companies help them fill that role, Neysmith says.

Working for staffing companies is also an attractive alternative for physicians, Neysmith says, because the often have greater job flexibility, and upward mobility.

"I wouldn't say it's necessarily about compensation," he says. "A lot of physicians are not looking to be self-employed. These physician staffing companies have those systems in place and one of the benefits is clearly the mobility."

Mike D. Snow, president/CEO of Knoxville, TN-based TeamHealth, agrees that "a convergence of issues" has created a favorable climate for physician staffing companies.

"First it's the pressure that hospitals feel to produce results," Snow says. "They have come under pressure in their reimbursement. Whether it is readmission penalties or quality initiatives the metrics under which they are being paid are changing and they have real skin in the game. They in turn have put pressure on their hospital-based physicians to deliver."

"No. 2, that pressure has led to those physician groups looking for partners who can bring the resources and the processes and capabilities to help deliver on the promise to client hospitals. When you wrap around that Medicare payment reform and the whole Affordable Care Act and the move towards a new paradigm those three things have combined to make the physician staffing space a fairly interesting space to be in right now."

70% Emergency Medicine
TeamHealth employs or contracts with nearly 10,000 physicians and serves clients in 47 states. Snows says about 70% of TeamHealth business is emergency medicine, 10% is anesthesiology, 10% is hospitalist, and 10% is various specialty services.

While recruiting is a challenge, Snow says TeamHealth has a strong recruiting and retention program and physician turnover is limited to no more than 8% annually.

"Most of our recruitment is to fill new opportunities," he says. "We have a pretty stable group of physicians. The vast majority of the time, once they join us they stick with us. That helps a lot. Once you develop a reputation as a physician-friendly culture, it makes recruiting much easier."