Hospitals and health systems are targeting physician staffing fees as a big opportunity for expense reduction.
Providers often use third-party staffing companies to find physicians who work as contractors at hospitals in key areas. Filling those roles became more expensive during the COVID-19 pandemic, and those costs are denting health systems' profits.
This past week during earnings calls with analysts, healthcare executives have discussed more cost-efficient options to staff the positions, including bringing talent in-house and cutting some of their reliance on staffing companies.
Here's a look at why health systems are addressing physician staffing fees and the potential impact of those changes on staffing companies.
What are physician staffing fees?
Third-party staffing companies charge hospitals a portion of a contracted physician's salary on top of the salary itself to cover their services. Hospitals and health systems often use staffing companies to source hospital-based roles such as emergency physicians, radiologists and anesthesiologists.
Why are staffing fees a hot topic?
A growing number of physicians are seeking more flexibility in their schedules, leading them to pursue more contract roles. Contract offers often come with higher pay than a physician would receive as a full-time employee.
Many clinicians took on contract work as labor demand rose and staffing shortages persisted during the COVID-19 pandemic. Companies were able to charge premium prices to find the contract clinicians that providers desperately needed, greatly inflating those providers' overall labor costs.
Who are the staffing firms?
Big names in medical staffing include CHG Healthcare, AMN Healthcare, HealthTrust Workforce Solutions, Jackson Healthcare, Sound Physicians and Aya Healthcare. Staffing companies recruit for healthcare roles across facilities and service lines, not just for hospital-based physicians.
Are staffing firms successful?
Many staffing firms are still benefiting from the strong demand for healthcare workers but some missteps have occurred.
The No Surprises Act, which took effect in early 2022, dealt a sharp blow to business models that relied heavily on the unexpected out-of-network bills the legislation seeks to prevent. The act prohibits third-party staffing companies from charging patients out-of-network prices when services are rendered at in-network facilities. Some of the companies, backed by private equity firms, carry higher levels of debt and face more risk when revenue streams are altered.
KKR-backed Envision Healthcare, for example, filed for Chapter 11 bankruptcy protection in May. The decision followed months of financial turmoil, much of which was tied to the No Surprises Act, and prolonged legal burdens. Envision's restructuring plan was recently approved by a federal bankruptcy court.
How do staffing fees affect health system financials?
High physician staffing fees are putting pressure on health systems' margins.
Physician expenses at King of Prussia, Pennsylvania-based Universal Health Services, which includes any costs associated with contracting hospital-based physicians, increased at a rate of 35% to 40% this year, Chief Financial Officer Steve Filton told analysts on last week's earnings call. Filton said those expenses have become a bigger issue than the for-profit health system anticipated.
Community Health Systems, in Franklin, Tennessee, partially attributed its third-quarter losses to "increased rates for outsourced medical specialists." Overall costs for salaries and wages at the for-profit system increased 1.7% year-over-year in the first nine months of fiscal 2023, equivalent to about 43% of revenue.
What are health systems doing about it?
Health systems are bringing more contract roles in-house to cut down on fees paid to staffing companies.
After hospital staffing company American Physician Partners folded in July, CHS hired more than 500 of its clinicians, eliminating staffing fees and adding $4 million to its third-quarter adjusted earnings before interest, taxes, depreciation and amortization.
Nashville, Tennessee-based HCA Healthcare took majority ownership of physician staffing company Valesco earlier this year and is integrating about 5,000 providers into its system. For-profit HCA is losing money on its Valesco venture, but executives say they remain confident it is the right investment long term.
What's next for physician staffing?
Health system executives are generally optimistic about physician expenses moderating in 2024, as the labor market continues to reset after the pandemic.
The future of staffing firms will depend on whether the economy dips into a recession, leading to more shocks on the labor market such as increased unemployment and wage growth reductions. That could force contract employees to seek the stability of full-time employment, which would create challenges for the firms, said Rick Kes, healthcare partner at professional services firm RSM.