News & Insight

Keeping Your Doctors Close – Part I: A Challenge for Health Systems

This series by John Marren (1948-2025) and Thomas Babbo of the law firm Hogan, Marren, Babbo & Rose, Ltd. (“HMBR”) delves into one of the most significant challenges facing health systems in 2025: retaining a vibrant, engaged medical staff. This first part discusses today’s highly competitive environment for the acquisition of physician practices, and why physicians increasingly align away from their local hospital system.  Later installments address:  the reasons physicians are motivated to move their practice, a strategic new model for keeping physician practices intact, and how to develop this solution with or without a partner.

The Grass is Always Greener…for Physicians (Maybe), but not Necessarily for Hospitals

Health systems see the acquisition of physician practices by third parties as a significant threat – portending decreased patient referrals, reduced market share, and increased competition. This concern is not without cause. Over the past decade, the acquisition of physician practices by private equity (PE) firms, insurance companies, and large physician groups has significantly increased. Here are some key points:

  • Private Equity Acquisitions: The number of physician practices acquired by private equity firms (“PE”) has grown from about 75 deals in 2012 to nearly 500 by 2021.[1] These acquisitions estimated annual deal value rose from approximately $41.5 billion to $200 billion during this period.[2].
  • Large Medical Groups: While private equity dominates the acquisition landscape, large physician groups also play a significant role. They account for about 14% of the acquisitions..[3]
  • Insurance Companies. These acquisitions are part of a broader trend where insurers aim to integrate care delivery with insurance services, potentially improving care coordination. They also raise concerns about market consolidation and its impact on competition and patient choice. Since 2019, health insurers have acquired about 11% of physician practices.[4] This is a substantial portion, especially when compared to other acquirers like hospitals and health systems, which account for only 6%.[5] The average number of physicians acquired per deal by insurers is more than ten times higher than for any other type of acquirer. This indicates that insurers are targeting larger practices or groups of practices.[6]

Physician Turnover Hits the Bottom Line

Physician turnover can cause a significant fiscal strain on hospitals. Here are some key impacts:

  • Revenue Loss: Physicians generate an average of about $2.4 million annually for their affiliated hospitals. When a physician leaves, the hospital loses this revenue until a replacement is found and fully operational.[7]
  • Recruitment and Onboarding Costs: Recruiting a new physician is expensive. Interview expenses alone can reach $30,000 per candidate. Further, hospitals often offer signing bonuses, relocation assistance, and student loan repayment, which can add up to significant amounts.[8]
  • Vacancy Costs: The time it takes to fill a vacancy varies depending on the specialty. For example, filling a family medicine position can take around 4.3 months, potentially costing the hospital $559,000 in lost revenue during this period.[9]
  • Overall Turnover Costs: The total cost of turnover for a single physician can range from $400,000 to $600,000, considering lost revenue, recruitment, and onboarding expenses.[10]

These costs highlight the importance of retention strategies to minimize turnover and its fiscal impact on health care institutions.

Can a Health System Even Find the Right Physicians?

Recruiting physicians is indeed a challenging task for health systems. Several factors contribute to this difficulty:

  • High Demand and Low Supply: There is a significant imbalance between the demand for physicians and the available supply, especially in certain specialties.[11] This makes it harder for health systems to find qualified candidates.
  • Competitive Compensation: Health systems must offer competitive compensation packages to attract and retain physicians.[12] However, financial constraints and declining reimbursement rates can make it difficult to provide attractive offers.

Will the Medical Staff Support the Health System’s Value-Based Care Model?

Value-based care is transforming health care as health systems focus on outcome-driven payment models. In this evolving paradigm, physicians and other health professionals are rewarded for improving patient health outcomes rather than the volume of services they deliver. This shift enhances care quality, reduces costs, and improves patient satisfaction. Whether primary care or specialist, any recruited physician should commit to your value-based care program. Typically included:

  • Focus on Outcomes: Value-based care emphasizes rewarding health care providers for improving patient health outcomes rather than the volume of services they deliver.[13] Instead of compensation based on volume, value-based care is focused on quality and efficiency.
  • Adoption of Innovative Strategies: Health systems are adopting innovative strategies, such as integrating data analytics, care coordination, and preventive services to support value-based care.[14]  These tools help identify high-risk patients, manage chronic conditions, and prevent hospital readmissions.[15]
  • Value-Based Payment Models: There is a significant shift from traditional fee-for-service models to alternative payment models like Clinically Integrated Networks, Accountable Care Organizations (ACOs), and bundled, incentivized, or risk-based payments.[16] These models incentivize providers to deliver high-quality care at lower costs.
  • Patient-Centered Care: Many health systems are placing a strong emphasis on patient-centered care, which involves focusing on preventive care, managing chronic conditions, and addressing social determinants of health.[17]
  • Widespread Adoption: Across the U.S., extensive networks and smaller community hospitals are tailoring their approaches to align with value-based care goals.[18] This widespread adoption indicates a significant transformation in the health care landscape.

Many physicians are increasingly attracted to health systems that embrace value-based care, as it allows them to focus on improving patient outcomes rather than just performing high volumes of procedures, potentially leading to greater job satisfaction and a sense of purpose in their practice; this especially holds for those systems capable of effectively managing the complexities of data management and potential financial risks involved in these models. McKinsey & Co. even projects that value-based care will accelerate “…from creating approximately $500 billion in enterprise value today … to reach $1 trillion as the landscape matures.”[19]

Conclusion

The intense physician acquisition efforts by non-hospital elements such as PE, insurance companies, etc., underscores the crucial need for health systems to actively retain independent physicians and coordinate employed and independent physicians in value-based care efforts. When considering retaining and attracting a health system’s medical staff, we must understand the basic reason why physician turnover is so high – they leave voluntarily. Our next segment will focus on why doctors are so eager to leave.

[1] Private Equity Acquisition of Physician Practices—Looking for Ethical Guidance From Professional Societies, https://jamanetwork.com/journals/jama-health-forum/fullarticle/2823384

[2]Private Equity Consolidation of Physician Practices Steady Despite Economic Conditions, https://www.troutman.com/insights/private-equity-consolidation-of-physician-practices-steady-despite-economic-conditions.html

[3] Id, at 1.

[4] Id, at 1.

[5] Setting the Record Straight: Private Equity and Health Insurers Acquire More Physicians than Hospitals Infographic, https://www.aha.org/infographics/2023-06-26-setting-record-straight-private-equity-and-health-insurers-acquire-more-physicians-hospitals

[6] Id, at 5.

[7] The cost of physician turnover, https://www.beckershospitalreview.com/finance/the-cost-of-physician-turnover.html

[8]The cost of Physician Turnover, https://www.beckershospitalreview.com/finance/the-cost-of-physician-turnover.html.

[9] Id, at 7.

[10] The Growing Problem of Physician Turnover, https://physiciansthrive.com/contract-review/the-growing-problem-of-physician-turnover/

[11]Recruitment and Retention Strategies for Physicians and Advanced Practice Providers, https://www.healthleadersmedia.com/clinical-care/9-recruitment-and-retention-strategies-physicians-and-advanced-practice-providers

[12]How to attract physicians in a challenging labor market,  retain https://www.mckinsey.com/industries/health care/our-insights/health care-blog/how-to-attract-and-retain-physicians-in-a-challenging-labor-market.

[13]For these health systems, value-based care means putting patients first,  https://www.ama-assn.org/practice-management/payment-delivery-models/these-health-systems-value-based-care-means-putting

[14] Id, at 13.

[15] Id, at 13.

[16] Id, at 13.

[17] Id, at 13.

[18] Id, at 13.

[19] Investing in the new era of value-based care, https://www.mckinsey.com/industries/health care/our-insights/investing-in-the-new-era-of-value-based-care

  Jan 31, 2025  |  By    |   On Firm News