The case for CMGs as opposed to employing physicians directly

August 05, 2020
By Dr. Kevin Kathrotia

Hospital staffing models for physicians have been hotly debated for years as healthcare costs continue to rise and quality of care comes into question.
As costs to maintain private practices increased due to various policies and legislation under the Obama administration, more physicians began migrating to direct employment by hospitals and were met with open arms by hospitals needing to fill gaps in care, take business from competitors, receive better rates from insurers and end negotiations with contract management groups, among other reasons. However, while hospitals may believe hiring physicians saves money and brings in additional revenue — it can actually do the opposite. While some larger contract management groups have gained a poor reputation for surprise billing and unreasonable contracts, depending on your facility, it actually makes more sense in terms of finances and efficiency to work with CMGs. An important caveat, though, is to make sure you sign with the right one.

How directly employing physicians costs hospitals
According to findings from the American Medical Association, over 25% of U.S. physicians practiced in groups wholly or partly owned by hospitals in 2016, and another 7% were direct hospital employees. This is a significant, and somewhat shocking number of physicians across the country considering multispecialty physician groups lost almost $196,000 per employed physician. In some larger health systems, physician operations are resulting in nine-figure operating losses and a major hit to hospital earnings.

As outlined in the Harvard Business Review, hospitals are losing money on their employed physicians because the accumulated costs of their salary, practice expenses and corporate overhead exceeds the revenue brought in by the practices. This is due, in large part, to not managing these practices effectively through lack of physician organization, standardized staffing and effective scheduling systems — all processes that are provided and streamlined by CMGs.

Benefits of working with a CMG
By uncovering all the inefficiencies and revenue lost by employing physicians, hospitals and healthcare systems are able to establish goals for the physician enterprise that can then be translated into a contract with a CMG to ensure all needs are met within the allocated budget and hospitals are receiving the necessary returns.

Because CMGs negotiate directly with hospitals and healthcare systems, they can ensure the physician staff is sized and located appropriately, and is providing all services necessary to maintain and improve hospital success. Many CMGs provide staffing for inpatient services, specifically specialties such as neonatology, anesthesia and high-risk obstetrics, which ensures that the care provided within the hospital is performed by extensively trained professionals and is of the highest quality. Not to mention, CMGs additionally provide one-stop shopping for hospital admins to eliminate time and money spent on the vetting and hiring process.

However, before diving into negotiations with any CMG, it’s important to thoroughly research options and find the one that best fits outlined criteria, especially since some larger groups can lose focus on their strengths and are guilty of balance/surprise billing (especially those backed by private equity firms), which can result in unhappy patients and insurance providers.

What to look for in a CMG
When vetting CMGs, look for companies that are small- to mid-size and local in focus, but have the infrastructure of the larger CMG. Think of it as quality over quantity — because there is a smaller admin cost, there is less overhead being passed on to the hospital, making it more cost-effective, especially for those with smaller volumes.

For example, hospitals with smaller NICU volumes are more at the mercy of their contract with the CMG. Regardless of the number of patients, the CMG will provide enough to meet hospital and patient needs, but it’s often at the expense of the hospital. Lower overhead costs by smaller groups allow them to be more cost-effective to facilities in these circumstances and provide better service at the same time.

Additionally, a local focus means increased access and a more personal touch. Smaller companies are more nimble, and more adaptable to a locale/territory or to a culture for a particular hospital. Working with a smaller CMG offers a “boutique-like” experience, whereas a larger national company is very rigid in their processes.

Dr. Kevin Kathrotia
While working with a CMG can save hospitals and healthcare systems a significant amount of money by making the contracts work for their specific needs and budget, it’s important to proceed with caution before going into negotiations. Hospitals and healthcare systems will want to make sure that the CMG will be cost effective, provide exceptional care and flexibility, and work together in the hospital’s best interest to ensure continued success.

About the author: Dr. Kevin Kathrotia is chief operating officer for Millennium Neonatology.