High specialist fees dent health systems’ results

Modern Healthcare – Thursday, February 20, 2025
By Caroline Hudson

The high cost of employing third-party specialists is expected to create more financial headaches for health systems this year, despite ongoing work to mitigate the impact.

Health systems often enlist third-party staffing companies and independent practices to fill openings for hospital-based physicians in specialties such as emergency medicine and anesthesiology. Systems incur added costs by subsidizing independent physicians or paying staffing firms an additional percentage on top of a physician’s salary.

Many health systems have yet to report their fourth-quarter and full-year earnings, but high specialist fees have caused problems for years. The rising cost of employing third-party specialists has forced systems to look for alternatives, including bringing some services in-house.

While system executives say specialist fees are beginning to moderate, those higher costs are still hitting the bottom line.

For-profit Community Health Systems saw a sharp increase in medical specialist fees in the fourth quarter ended Dec. 31. The fees increased by about $20 million on a same-facility basis, or 12% year-over-year, to approximately $170 million in the fourth quarter, President and Chief Financial Officer Kevin Hammons told investors on Wednesday’s earnings call.

Same-facility specialist fees, which include fees at hospitals owned by CHS last year and this year, rose 11% to about $640 million for 2024, Hammons added.

CHS brought some anesthesia services in-house this past year to lower expenses in the long term, despite the upfront costs. The Franklin, Tennessee-based system also hired hundreds of hospitalists and emergency medicine physicians from American Physician Partners after the staffing company folded in 2023.

“While we have made good progress with our in-sourcing initiatives, we anticipate further pressure in medical specialist fees over the near term. In 2025, we anticipate these costs to grow in excess of typical inflationary trends, but still well below the spikes that we saw in 2022 and 2023,” Hammons said on the call.

HCA Healthcare CFO Mike Marks also noted higher specialist fees, particularly in radiology, on the company’s fourth-quarter earnings call last week. He said the for-profit system is expecting more cost pressure in this area in 2025, though it should moderate as the year progresses.

Marks said professional fees make up nearly a quarter of HCA’s other operating expenses, which include fees, contract services, insurance, maintenance and taxes.

In 2023, Nashville, Tennessee-based HCA took majority ownership of physician staffing company Valesco and integrated about 5,000 providers into its system.

At Ascension, other operating expenses rose by $177 million in the first six months of the health system’s fiscal 2025, largely due to high specialist fees, according to the system’s latest earnings report. The St. Louis-based nonprofit system, which reported a $365 million operating loss in the six-month period, did not provide further details.

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