The trend of production spurring a rise in compensation 'is not sustainable,' says a new report.
To be paid more, physicians are ramping up their levels of production by seeing as many patients as possible.
In response, CEOs of provider organizations wanting to maintain a strong and sustainable workforce must adequately compensate their physicians, as well as find ways to give them more time back to avoid burnout and turnover.
Medical groups and healthcare organizations report an increase in pay of 3.6% for primary care specialties, 5.1% for medical specialties, 5.5% for surgical specialties, and 5.8% for radiology, anaesthesiology, and pathology specialties in 2023, according to a new AMGA report.
The 2024 Medical Group Compensation and Productivity Survey compiles data from 459 medical groups, representing over 189,000 providers from 197 physician, advanced practice clinician, and other provider specialties.
Compared to previous years, primary care experienced a modest rise in pay, whereas all other speciality types had relatively greater gains which aligned with their increase in productivity, measured in work RVU (wRVU).
The median compensation for the rollup of the top three primary care specialties (family medicine, internal medicine, and general pediatrics and adolescent medicine) jumped from $298,726 in 2023 to $311,666 in 2024, representing an increase of 4.3%. Meanwhile, productivity for these providers increased by 4.6%, resulting in a compensation/wRVU ratio with negative change.
"Net collections not keeping pace with necessary compensation growth is a significant challenge for the majority of groups in the country," said Fred Horton, president, AMGA Consulting, which administers the survey. "This issue, especially related to Medicare payment updates, must be addressed in order for organizations to afford necessary increases in compensation without continually relying on a need for providers to see more patients. If not addressed, many groups will soon be in a very challenging position in relation to work-life balance, burnout, and provider satisfaction.
"The big challenge is how to maintain a provider supply when you continually ask providers to do more to fund increases, rather than funding such increases with collections that keep pace with inflation. This trend of production driving increases in compensation is not sustainable."
This means CEOs should be proactive about keeping their physicians happy. One of the most important ways to do that is by creating personal time for them to offset the extra time they spend seeing patients.
While many healthcare leaders recognize the value of investing in and implementing AI, it’s still an area that has room to grow. Technology like generative AI has great potential to target the administrative burden placed on physicians for tasks like documentation or responding to emails.
CEOs must also consider giving their physicians more autonomy and a bigger voice when it comes to clinical and administrative decisions. If physicians feel like they have a say in how they practice and how patients are cared for, they’re more likely to be personally invested in their work and feel an attachment to their organization.
Above all, however, leaders should ensure they’re compensating their physicians to the level of their production. Keeping labor costs down is a primary objective for provider organizations everywhere, but the expenses associated with replacing an exiting physician can far outweigh the increase in pay.
It may seem like a boost to the bottom line at the end of every quarter when your physicians are delivering at high levels, but overworked and underpaid doctors will eventually by costly for a CEO in the long run.
The hospital operator continues to report favorable earnings thanks in part to an uptick in demand for services.
HCA Healthcare beat expectations with a hearty second quarter that allowed the health system to increase its 2024 outlook as it heads into the back half of the year.
For the quarter, HCA reported net income of $1.46 billion, up from $1.19 billion earned in the same period in 2023, and $17.5 billion in revenues, clear of the consensus estimate of $17.05 billion.
As a result, the hospital chain operator revised its guidance range for net income to $5.67 billion to $5.97 billion and its revenue to $69.75 billion to $71.75 billion. Those figures are up form previous projections of $5.2 billion to $5.6 billion for net income and $67.3 billion to $70.3 billion for revenue.
Much of the success for the quarter was attributed a boost in patient volume as same facility admissions increased 5.8% year-over-year. Meanwhile, same facility equivalent admissions rose 5.2%, same facility emergency room visits were up 5.5%, same facility inpatient surgeries increased 2.6%, and same facility outpatient surgeries declined 2.1%. Same facility revenue per equivalent admission jumped 4.4% year-over-year.
“The company's results for the second quarter were positive across the board and reflected strong demand for our services,” HCA CEO Sam Hazen told investors in an earnings call. “In addition, our teams continue to execute our strategic plan effectively and produce positive outcomes for our patients while also enhancing efficiencies in our facilities, including better throughput and case management.”
Hazen said the decline in outpatient surgeries was explained by lower volumes in Medicaid and self-pay populations, which he expects to improve in the second half of the year as patients part of the redetermination process show up in different seasonality categories.
HCA’s ability to manage expenses was also a boon for the system in the quarter. CFO Mike Marks relayed to investors that labor costs improved 200 basis points from the previous year as contract labor declined 25.7% year-over-year and represented 4.8% of total labor expenses.
When asked by analysts whether HCA is targeting M&A to enter new markets, Hazen said the system “is built to be bigger” but will be selective with acquisitions that fit its model.
“Will we enter new markets? Hopefully, yes, but those opportunities haven't necessarily presented themselves,” Hazen said.
Private equity investment in the industry is receding, not increasing.
As private equity's involvement in healthcare continues to draw scrutiny for its potential negative consequences, it's fair to ask just how prevalent PE is in the industry.
A new report by PitchBook, titled Quantifying PE Involvement in Healthcare Providers, offers the answer that PE's role is "vastly overstated," indicating that PE investment is trending away from providers.
The research estimated that the aggregate revenue of PE-backed providers in the country is at $117.7 billion for 2024, which accounts for just 3.3% of total US healthcare provider spending.
Regulatory conversation around PE has seemingly picked up and gained traction, but the report notes that PE investment in healthcare is not new. While the number of PE-backed companies in the industry has increased from 350 in 2017 to 648 at the end of this year's first quarter, the year-over-year growth rate has declined sharply from 24.9% in 2018 to less than 1% in Q1 2024.
"PE firms are actively pivoting away from investing in healthcare providers and are instead seeking investments in other areas of healthcare, such as healthcare IT and pharma services," PitchBook stated.
When it comes to physician employment, the growth is not primarily driven by PE either. Of all the physicians currently employed by either hospitals or corporate entities, 71.1% are hospital employed, while 28.9% are employed by corporate entities.
Interest in hospitals and skilled nursing facilities (SNFs) by PE has also waned. PitchBook highlighted that there hasn't been a significant PE acquisition of a US hospital since 2018, while 98% of currently PE-backed companies are in categories other than hospitals and SNFs.
Finally, PE investors are avoiding out-of-network investment, according to the research. Investors pursued higher out-of-network rates in the past, but they're now staying clear of them in categories including acute-care physician staffing, SUD treatment, and EMT.
Though the data shows PE's role in the industry is not as significant as the narrative may make it seem, high-profile bankruptcies of PE-backed organizations like Steward Health Care are expected to put increased pressure on lawmakers and regulators.
Organizations have opportunities to retain their workers who are eyeing an exit.
It’s impossible to stop the flow of employee turnover at your organization completely, but CEOs can cut down on voluntary exits by taking a proactive approach to retention.
By understanding what’s important to workers who may have a wandering gaze or even a foot already out the door, leaders will have a better chance of avoiding the costs associated with turnover and creating an environment that people want to be part of.
Of the employees who left their organization in the past year, 42% said that leadership could have intervened to prevent them from leaving, according a recent study by Gallup that fielded responses from 717 people.
As CEOs know, replacing outgoing workers isn’t cheap. Gallup estimates that the replacement of leaders and managers costs around 200% of their salary, while the replacement of professionals in technical roles and frontline employees is 80% and 40% of their salary, respectively.
Leadership often doesn’t know of an employee’s intention to leave, which is why CEOs need to impart on managers the importance of communication with workers. Nearly half of employees (45%) who voluntarily left report that neither a manager or leader proactively discussed their job satisfaction, performance, or future with them in the final three months before leaving.
So, what conversations should leadership have with employees to get them to reconsider departing?
Unsurprisingly, the most common answer (30%) among respondents was to provide additional compensation and benefits. It may not always be financially viable for organizations to increase pay, but having annual conversations with employees about where their compensation is trending can go a long way to making them feel valued, Gallup highlighted.
Meanwhile, 70% of exiting employees relayed that managers can take actions to address workplace issues to improve retention. These actions include more positive interpersonal interactions with manager (21%), discussing organizational issues (13%), creating opportunities for career advancement (11%), improving staffing/workload/scheduling (9%), and less negative interpersonal interactions manager (8%).
Especially for younger workers who may put greater value on relationships and culture, leaders should be quick to address problems that can result in burnout and exits.
What’s clear is that leadership can’t wait for their employees to open the dialogue, it has to be initiated from the top and it has to be consistent if CEOs want to minimize turnover.
Primary care hasn't been so friendly to some of the biggest companies entering healthcare.
The road to healthcare disruption is being paved with more and more retailers who are struggling to crack the space.
While there's a consumer demand for a retail experience that can make a trip to the doctor's office even more convenient, big-name companies that have tried their hand at the concept are finding primary care is trickier and less profitable than they imagined.
Whether it's Walmart, Walgreens, CVS Health, or Amazon, the challenges with opening and operating a retail primary care model are causing giants to either reconfigure their approach or drop out of the race entirely.
"Everybody who's trying to enter this industry and trying to slice off pieces of the business, every other week we're finding somebody else that says, 'no más. No more,'" newly retired Banner Health CEO Peter Fine told HealthLeaders. "It's not easy to get into this business. It's not easy to manage to get to scale. It's not easy to manage the cost."
The decision to pivot by these companies is coming in bunches.
Walmart just announced the sale of its MeMD virtual care business to telehealth startup Fabric, which comes on the heels of the move to close all 51 of its health centers and virtual care offerings five years after launching.
Walgreens recently announced plans to cut its stake in primary care clinic chain VillageMD to the point its no longer majority owner, CEO Tim Wentworth told investors in an earnings call. This spring, the pharmacy chain operator said it planned to close 160 VillageMD clinics and reported nearly $6 billion in net loss for the second quarter, reflecting the value of its investment in the primary care business.
Meanwhile, CVS Health is reportedly seeking a private equity partner to help fund Oak Street Health, the primary care provider it purchased a year ago for $10.6 billion. The company also continues to operate more than 1,100 MinuteClinics, which have seen the type of services offered evolve over time.
In the case of Amazon, the behemoth has folded its Amazon Clinic telehealth service into its One Medical primary care business and rebranded to Amazon One Medical pay-per-visit telehealth. To expand its presence, Amazon One Medical has been inking partnerships with employers and health systems.
According to Fine, the shortcomings in primary care by these retailers should come as no surprise.
"For primary care practices, when you buy them and then you think you can run them profitably by just being behind the scenes, having a standardized billing system, it's ludicrous," he said. "We're going to see a lot more crashing and burning because they think this is just an easy business to get into and they're not always totally sure of how to handle insurance and not totally sure about really understanding the behaviors of the consumer."
Traditional providers may continue to hold the advantage in those regards, but it's clear some of these retailers want to be involved in the primary care space in one capacity or another.
As long as there is a need by the consumer to get quicker, more affordable access to services—which traditional providers haven't figured out how to offer themselves—disruptors' interest will be piqued.
However, until retailers figure out how to leverage primary care so they can send patients to more profitable services that they make revenue from, investment in that business is not going to benefit the bottom line.
"This is just basic primary and urgent care. You can't make money because that's not where the money is. Money isn't in primary care," Fine said.
"There'll be more that will say they want to move in a different direction."
Here’s what CEOs should keep an eye on when it comes to hospital and health system transactions.
The second quarter saw a dip in hospital dealmaking following a robust start to the year, according to a report by Kaufman Hall.
Though the 11 transactions announced in Q2 represented the lowest figure for the quarter since before 2017, the deals that were made focused on strategic access to capital investments and realignment over scale.
Two of the 11 transactions were considered “mega mergers,” featuring smaller parties that had annual revenues of $1 billion or more. The average seller size for the quarter was near $1 billion, which was growth of 161% over year-end seller size averages since 2017.
While the total transacted revenue for the quarter of $10.8 billion fell short of the previous two Q2s, it remained around past years’ marks.
The 11 deals consisted of three involving religiously affiliated acquiring entities, two involving academic or university-affiliated buyers, and six involving other nonprofit health systems. This was the first time since Kaufman Hall tracked this data that there were no for-profit health system buyers in the second quarter, which followed just a single deal made by a for-profit acquirer in the first quarter of the year.
Here are three M&A trends for CEOs to monitor from the report:
Pursuit of intellectual capital
Risant Health’s addition of Cone Health to its value-based care network that already included Geisinger Health was one of the two mega mergers for the quarter and indicative of a new approach in hospital M&A.
The blueprint by Kaiser Permanente’s subsidiary reflects a model “in which intellectual capital is as—if not more—important than traditional capital,” Kaufman Hall wrote.
By allowing partners the ability to launch new services and products through its systems, Risant is an appealing buyer to operators seeking operational flexibility and financial stability.
Market reorganization and system realignment
The second mega merger of the quarter saw BayCare buy out the interest of Trinity Health to end the joint operating agreement.
The deal “illustrates an ongoing trend in which large regional and national health systems, both for-profit and not-for-profit, are working to realign their systems to focus on markets with significant growth potential, with divestitures in some markets supporting investments and acquisitions in other markets. In turn, these divestitures enable the growth of regional markets,” Kaufman Hall wrote.
Academic health systems expanding regional care networks
Meanwhile, UAB Health System’s purchase of Ascension’s central Alabama hospitals also demonstrates another trend.
Academic health systems are focusing on partnerships with community-based health systems to alleviate occupancy constraints at their flagship campuses and improve patient access, along with creating more opportunities for residency programs and clinical research programs, Kaufman Hall noted.
As hospitals and health systems explore new ways to achieve transformation, these partnerships models are expected to be at the forefront of dealmaking.
"Give us a little help and allow us to keep innovating," says Grande Ronde Hospital CEO Jeremy Davis.
Hospitals everywhere are feeling squeezed, but rural facilities especially are struggling to make ends meet and their mission will be made even more arduous if lawmakers don’t intervene.
Grande Ronde Hospital CEO Jeremy Davis knows that reality better than most as the leader of a nonprofit in rural Oregon, which is why he shared his insight before the Senate Finance Committee in a May hearing called “Rural Health Care: Supporting Lives and Improving Communities.”
Davis’ appearance allowed him advocate for rural hospitals during a time when many facilities are either shutting down or on the brink of closure as provisions from the pandemic run out.
The CARES Act provided rural hospitals with temporary funding and expansion of telehealth, but with capital since drying up and telehealth flexibilities set to expire on December 31, rural health once again needs Congress to take action, Davis told HealthLeaders.
“Now, with that funding having gone, most of these rural hospitals were already struggling heading into the pandemic and the pandemic didn't make them better,” Davis said. “It further challenged vulnerabilities within their operating structure within the reimbursement climate. So now that we're past the pandemic, there's kind of this reckoning and we're starting to see those rural hospitals are picking up steam that are that are vulnerable to closure.”
Since 2020, 37 rural hospitals have closed their doors, according to data compiled by the University of North Carolina’s Cecil G. Sheps Center for Health Services Research.
Many of the ones that remain open aren’t faring much better. A report by healthcare advisory firm Chartis earlier this year found that 50% of rural hospitals are operating at a loss, up from 43% in 2023.
Making telehealth flexibilities permanent, which Davis and many other rural hospital leaders are asking for, isn’t going to solve all of rural health’s problems, but it will help the situation from getting worse.
“Most importantly with some of these telehealth flexibilities, you look at behavioral health in our country. There's just an unmet need and we found as a result of telehealth that a lot of these patients felt more comfortable accessing these services in the comfort of their home because they weren't coming into a clinic and feeling like they were going to be judged and people thinking why they're there,” Davis said. “So we've been building this capacity. We've been trying to expand broadband. We've been doing this for a purpose. We, in some aspects, met the challenges of COVID head on with having some of that infrastructure in place because we had technology. Let's not go back. Let's go forward.”
Outside of telehealth, Davis unsurprisingly highlighted low reimbursement as the other area lawmakers should consider.
Most hospitals and clinics don’t receive adequate reimbursement when it comes to Medicaid or Medicare, Davis said, and the funding rural providers received during the pandemic went a long way to offsetting that.
While the pandemic is over and leaders aren’t necessarily expecting an infusion of $100 billion into hospitals again, Davis just wants a little aid in making it an even playing field for rural health.
“One of the things that I said in my testimony is, as a rural hospital administrator, we're looking for a help up, we’re not looking for a handout,” he said. “We want to be good stewards of the resources. We recognize funding is complex but trust us, enable us. There's a lot of really good people that are working in rural that are used to doing some great things with limited resources.
“As one of our hospitalists told me when I first arrived here, we fight above our weight class. There are a lot of rural hospitals in this country that fight above their weight class. So give us a little help and allow us to keep innovating, keep trying and see some of the amazing things that we can do.”
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The cross-market deal would extend Sanford's reach into Wisconsin and Michigan.
Sanford Health and Marshfield Clinic Health System are in talks on a merger that would give both operators a partner they’ve been seeking for some time.
The systems announced they’ve reached a nonbinding understanding to create a 56-hopsital system serving the Midwest, with the transaction expected to close by the end of the year, pending regulatory approval.
Under the proposed deal, Marshfield Clinic’s Wisconsin and Michigan facilities would become a region within Sioux Falls, South Dakota-based Sanford while maintaining regional leadership and branding. Sanford president and CEO Bill Gassen would lead the combined system, with Marshfield Clinic interim CEO Brian Hoerneman serving as president and CEO of the Marshfield region.
In addition to the hospitals, the resulting organization would consist of nearly 56,000 employees, 4,300 providers, two fully integrated health plans, speciality pharmacies, and research institutions.
Both sides have tried and failed to complete mergers in recent years. Sanford’s three attempts were with UnityPoint Health in 2019, Intermountain Healthcare in 2020, and Fairview Health Services in 2023. The first pursuit fell apart after UnityPoint’s leaders rejected the move, whereas the breakdown of the Intermountain deal came after former Sanford CEO Kelby Krabbenhoft abruptly resigned. Sanford eventually called off the merger with Fairview due to lack of support in Minnesota.
With Marshfield Clinic, Sanford hopes to write a new narrative.
“We are who we are today because of combinations with care delivery organizations in rural communities across America’s heartland,” Gassen said in the news release. “These opportunities have allowed us to follow through on our promise to deliver world-class health care to every patient we serve no matter their ZIP code, and we are eager to continue building on this track record with Marshfield Clinic Health System.”
For Marshfield Clinic, past failed unions came with Gundersen Health System in 2019 and Essentia Health earlier this year. The latter saw Essentia point to Marshfield’s turbulent financial situation as the primary factor for pulling out.
Marshfield Clinic reported operating losses of $250.8 million and $367.9 million for fiscal years 2023 and 2022, respectively. Combining with Sanford, which raked in $402.2 million in operating income last year, affords Marshfield necessary financial stability.
“Partnering with Sanford Health presents an incredible opportunity for our organizations to unify and establish the premier rural health system in the nation,” Hoerneman said. “Together, we will ensure sustainable access to exceptional care for our communities for years to come.”
The company announced that its reorganization plan received court approval. What's next for the company?
Cano Health has successfully climbed out of bankruptcy months after entering restructuring, the primary care chain announced.
By converting more than $1 billion of funded debt into common stock and warrants, and receiving a commitment of more than $200 million from existing investors for its business plan going forward, Cano said it emerged from Chapter 11 as a reorganizing private company.
In February, the provider filed for bankruptcy and was delisted from the New York Stock Exchange following a significant stretch of financial trouble that saw it accrue liabilities in the range of $1 billion to $10 billion.
With a “significantly improved capital structure and optimized operations,” Cano will now turn its attention to its Florida market.
"We are taking a disciplined and strategic approach to our growth over the next few years, with the primary goal of improving services for patients within our existing Florida footprint, which now consists of 80 locations,” Cano Health CEO Mark Kent said in the news release.
“We are already seeing encouraging results across our improved platform, and I am immensely proud of our associates for their continued dedication to our patients throughout this process. Despite the challenges we have faced as an organization, we have emerged as a stronger and more focused company with a bright future."
Necessary shake-up
Cano said it is on track to hit its goal of $290 million in annualized cost reductions by the end of this year, with $270 million in cost reductions and productivity improvements already achieved.
The company was forced to make changes after reporting net losses of $270.7 million and $491.7 million in the second and third quarters of last year, respectively.
Liquidity was partly achieved through strategic divestitures of underperforming expansion markets, including the sale of its Texas and Nevada primary care centers for nearly $67 million to Humana’s CenterWell Senior Primary Care business.
Cano also exited operations in California, New Mexico, Illinois, and Puerto Rico, while reducing its workforce in the third quarter of last year by 21%.
Additionally, Cano announced leadership changes to its board of directors to better align with its planned path. Alan Wheatley, a former Humana executive who ran Medicare and Medicaid programs, will join the board as Executive Chariman, serving alongside two other members, Kent and Eric Hsiao of Nut Tree Capital Management.
The longtime leader of Banner Health joins the HealthLeaders Podcast as he heads into retirement.
Few CEOs in healthcare are afforded the perspective Peter Fine has gained after decades of experience in the industry, including 24 at the helm of Banner Health.
As he enters retirement to give way to the nonprofit health system’s new chiefAmy Perry, Fine can look back at a long and successful career that saw him witness firsthand how both healthcare and the CEO role changed over time.
Fine offered his insight on the HealthLeaders Podcast this week, detailing how the leaders of hospitals and health systems have had to evolve to meet the moment, especially after the pandemic.
"The focus before was all we have to do is provide a good clinical product and that satisfies everybody. Well, that's not the case," Fine said. "So that causes you to have to change certain things in your style and your approach and the things that you say and do in front of others become way different.
“Creating that recognition for everybody that you also have to look for opportunities to take away pain points that get in the way of the consumer interacting with us. It's a different approach because how you speak and what you say become way different."
Tune in to the episode to hear more from Fine on disruption in the industry, tackling workforce challenges, and what advice he would give to incoming CEOs.
