Primary care is often described as the front door of the health care s hospitalization, discuss chest pain before it becomes an emergency, and receive the preventive care that keeps small problems from developing impressive billing codes.
Yet inside many hospital financial reports, primary care appears less like a sturdy front door and more like a window someone forgot to close during a thunderstorm. Hospital-owned medical groups frequently report substantial operating losses, sometimes amounting to hundreds of thousands of dollars per employed physician each year. Industry benchmark data indicate that the reported investment or subsidy per provider across health system-owned practices exceeded $300,000 in 2024. ose numbers deserve attention, but not panic. A reported loss can reflect a genuinely inefficient practice, an underfunded care model, questionable accounting allocations, or a deliberate investment that produces value elsewhere in the health system. Frequently, it reflects several of these things at once.
The hidden problem is not simply that hospital primary care loses money. It is that hospital executives, physicians, policymakers, and patients may not agree on what “loses money” actually means.
What Are Hospital Primary Care Losses?
A hospital primary care loss generally refers to the difference between the revenue generated by a health system-owned primary care practice and the expenses assigned to operating that practice. Revenue may include office visits, preventive services, care-management payments, procedures, and portions of value-based contracts. Expenses may include physician compensation, nurses, medical assistants, rent, technology, billing, insurance, administration, and allocated corporate overhead.
On paper, the calculation seems straightforward:
Practice revenue minus practice expenses equals operating income or loss.
In reality, the calculation can resemble assembling a piece of furniture with instructions translated through four languages. Revenue may be recorded in one department, costs in another, and strategic benefits nowhere at all.
Hospital-owned practices tend to report significantly larger losses than physician-owned groups. That does not necessarily mean independent physicians possess mysterious financial superpowers. Physician-owned practices usually distribute remaining income to their owners as compensation, causing the practice itself to finish near break-even. Hospital systems, by contrast, normally record employed-physician compensation as an expense and may add layers of centralized overhead. hy Hospital-Owned Primary Care Practices Struggle Financially
Primary Care Is Paid Less Than the Work Requires
Primary care physicians do far more than conduct brief office visits. They review test results, respond to patient messages, reconcile medications, coordinate with specialists, document quality measures, manage chronic diseases, complete forms, and explain why an online symptom checker may not be the ideal substitute for medical school.
Much of that work is poorly compensated or not separately billable under traditional fee-for-service arrangements. The payment system rewards discrete services, procedures, and volume more reliably than continuity, prevention, communication, or clinical judgment.
The United States has consistently directed only a small portion of total health spending toward primary care. The 2025 U.S. Primary Care Scorecard reported that primary care accounted for less than 5% of health spending in 2022. Medicare primary care spending was approximately 3.4%, while Medicaid spending was about 4.3%. By comparison, primary care physicians manage many of the conditions that drive expensive emergency, specialty, and inpatient utilization. hysician Compensation Has Outpaced Practice Revenue
Hospitals compete for a limited supply of family physicians, internists, pediatricians, nurse practitioners, and physician assistants. Competitive salaries, recruitment incentives, loan support, benefits, and retention bonuses may be necessary to maintain access, particularly in rural and underserved communities.
However, revenue generated directly through primary care visits may not cover those costs. A hospital may guarantee a physician’s salary based on market compensation while failing to provide enough examination rooms, support staff, scheduling capacity, or patient demand to support the expected level of productivity.
The result is a painful financial combination: premium labor costs attached to a practice that cannot operate at full capacity. The clinician may feel overworked, the patient may wait six weeks for an appointment, and the spreadsheet may still report inadequate productivity. Health care has a special talent for making everyone feel busy while proving nobody did enough.
Operating Expenses Continue to Rise
Medical practices face higher costs for clinical labor, technology, cybersecurity, malpractice coverage, supplies, compliance, coding, and revenue-cycle operations. Kaufman Hall reported that labor represented roughly 84% of physician-enterprise expenses in the first quarter of 2024. MGMA subsequently found that practice leaders continued to experience substantial operating-expense growth in 2025. imary care is particularly labor-intensive when it is delivered properly. Team-based care may require nurses, medical assistants, pharmacists, behavioral health professionals, care coordinators, social workers, and referral specialists. Those team members can improve access and outcomes, but fee-for-service reimbursement does not always pay for their work directly.
Acquisitions Often Add Administrative Layers
When a hospital purchases a physician practice, it may replace the practice’s billing system, electronic health record, scheduling platform, purchasing process, compliance structure, and management team. Some standardization is valuable. Too much can turn a four-person office into a branch location of a small federal republic.
Centralized operations may increase costs without immediately improving patient throughput. A hospital system can also impose approval processes that slow hiring, purchasing, scheduling, and local problem-solving. Physicians who previously adjusted their office workflow in an afternoon may suddenly need three committees and a project charter.
Access Goals Can Conflict With Productivity Goals
Health systems may intentionally operate clinics in communities where patient volume, payer mix, or reimbursement rates are insufficient to produce a conventional profit. These practices may serve Medicaid beneficiaries, uninsured patients, rural residents, or communities facing clinician shortages.
HRSA workforce projections anticipate substantial physician shortages through 2038, with nonmetropolitan areas facing especially severe primary care gaps. Closing every clinic that fails a stand-alone margin test could improve a quarterly report while worsening the long-term health of an entire region. he Hidden Ledger: Value That Does Not Appear in the Clinic’s Income Statement
Primary Care Generates Downstream Clinical Activity
Primary care physicians refer patients for imaging, laboratory testing, rehabilitation, surgery, cardiology, oncology, and other services. Those referrals may produce significant revenue elsewhere in an integrated system. An AMGA analysis noted that affiliated physicians can generate substantial downstream hospital revenue, although the amount varies widely by specialty and market. is does not mean health systems should buy primary care practices merely to capture referrals. Referral decisions should be based on patient needs, quality, access, and preference. The Federal Trade Commission has specifically warned that hospital acquisition of physician practices can alter referral patterns and reduce competition. ill, a system that counts every dollar of primary care expense while crediting all resulting laboratory, imaging, and specialty revenue to other departments is not measuring the complete financial relationship. It is judging the roots for failing to produce apples while the fruit department takes all the credit.
Continuity Can Prevent More Expensive Care
Strong primary care relationships are associated with lower emergency department use, fewer hospitalizations, lower costs, and better outcomes. Those benefits matter enormously under accountable care, capitation, shared-savings contracts, and other value-based payment models. der fee-for-service payment, however, preventing an admission may reduce hospital revenue. Under value-based care, the same avoided admission may improve financial performance. That difference explains why a primary care practice can appear financially unattractive under one contract and indispensable under another.
CMS has tested prospective and population-based primary care payments through programs such as the ACO Primary Care Flex Model. The model is designed to provide participating accountable care organizations with predictable funding for proactive, team-based care rather than relying exclusively on visit-by-visit billing. rimary Care Supports Community Mission
Nonprofit and public hospitals often have obligations that extend beyond maximizing service-line margins. They may operate residency programs, support community health initiatives, provide charity care, and maintain access in locations that commercial operators avoid.
A clinic that loses money may still provide measurable value by improving vaccination rates, controlling hypertension, reducing avoidable readmissions, supporting maternal health, or connecting patients with behavioral and social services. The challenge is to measure those benefits rather than treating “mission” as a vague word used whenever the finance meeting becomes uncomfortable.
When the Loss Is Realand When Accounting Makes It Worse
Signs of a Genuine Operating Problem
Some hospital primary care losses are neither strategic nor mysterious. They reflect fixable operational failures. Warning signs include:
- Low appointment availability despite unused clinician capacity
- High no-show rates without effective reminder or waitlist systems
- Inadequate coding, documentation, or charge capture
- Excessive staff turnover and dependence on temporary labor
- Poorly matched staffing levels across clinic locations
- Slow credentialing that leaves new physicians unable to bill
- Compensation models disconnected from access, quality, and panel size
- Duplicate administrative functions
- Weak management accountability
A practice experiencing these problems needs operational improvement, not a philosophical speech about the value of primary care.
Signs the Reported Loss May Be Distorted
Other losses are magnified by accounting decisions. A clinic may be assigned corporate overhead for human resources, legal services, marketing, information technology, executive leadership, and facilities. Those services are real, but the allocation method may not reflect what the clinic actually uses.
A health system might also charge a medical group for centralized billing while failing to assign the group credit for improved payer contracts negotiated through the hospital. It may allocate full electronic health record expenses to physicians even though the same platform supports hospital operations. Or it may book imaging and laboratory revenue outside the medical group while assigning referral-management costs to the clinic.
A useful financial review should therefore distinguish among direct operating expenses, avoidable expenses, centralized support costs, strategic investments, and systemwide benefits. Combining them into a single “loss per physician” number may be convenient, but convenience is not the same as insight.
How Consolidation Can Affect Patients and Payers
Hospital ownership can provide physician practices with capital, technology, negotiating support, benefits, compliance resources, and financial stability. Physicians frequently seek employment because independent practice has become administratively demanding and financially uncertain. AMA data show that only 42% of physicians remained in private practice in 2024, down sharply from 2012. wever, consolidation can also increase prices. When a hospital acquires a freestanding practice, certain services may be billed under hospital outpatient payment rules, potentially producing higher costs for Medicare and patients. Commercial insurers may also pay more when a health system gains bargaining leverage. KFF, GAO, and MedPAC have documented concerns about higher spending associated with hospital-physician consolidation and differences in payment based on where a service is delivered. search reviewed by GAO generally found price or spending increases after hospital-physician consolidation, while quality improvements were limited or inconsistent. That does not prove every acquisition harms patients. It does mean that “integration” should be evaluated by measurable results rather than admired automatically because it has a polished logo.
How Health Systems Can Address Primary Care Losses
1. Build a Transparent Financial Model
Health systems should report direct practice performance separately from allocated overhead and strategic investment. Leaders need to know which costs are controllable, which are systemwide, and which support community obligations.
The report should also show downstream revenue, total cost-of-care performance, quality outcomes, access, patient retention, referral leakage, and value-based contract results. No single metric tells the whole story, particularly when that metric arrives wearing a dollar sign and an angry red font.
2. Measure Access as Seriously as Productivity
Work relative value units and visit volume remain useful, but they should not be the only measures of physician contribution. Health systems should monitor panel size, third-next-available appointment, continuity, message workload, risk-adjusted outcomes, preventive care, patient experience, and after-hours access.
A physician who manages a complex patient population may produce fewer billable visits while preventing more expensive care. The measurement system should be sophisticated enough to recognize that difference.
3. Design Teams Around Patient Demand
Physicians should work at the top of their training. Medical assistants can prepare visits and close care gaps. Nurses can support triage and chronic-disease management. Pharmacists can manage medication regimens. Behavioral health clinicians can address conditions that commonly appear in primary care.
Team-based care should not mean hiring more people and hoping teamwork happens spontaneously. Roles, workflows, panel capacity, communication, and financing must be deliberately designed.
4. Align Compensation With Sustainable Goals
Compensation should balance productivity with quality, access, teamwork, continuity, and stewardship. Plans based entirely on visit volume may encourage rushed care and burnout. Plans based entirely on guaranteed salary may create weak accountability if operational expectations are unclear.
The best model depends on market conditions and contract structure, but physicians should understand how performance is measured and have meaningful input into the design.
5. Expand Prospective and Value-Based Payment
Primary care cannot consistently deliver comprehensive, proactive care when nearly every dollar depends on a face-to-face billable encounter. Prospective payments can support care coordination, digital communication, population health, behavioral health integration, and outreach to high-risk patients.
The National Academies has recommended moving toward hybrid payment that combines fee-for-service with prospective or capitated support. It has also urged public and private payers to increase the share of health spending devoted to primary care. . Consider Alternatives to Full Employment
Hospital acquisition is not the only path to clinical alignment. Health systems can support independent physicians through clinically integrated networks, management-service agreements, accountable care organizations, co-management arrangements, shared technology, or professional service agreements.
These models may preserve local autonomy while providing infrastructure and coordination. Employment can be appropriate, but it should be selected because it fits the organization’s strategynot because everyone else bought practices and the executive team developed acquisition envy.
Experiences From the Front Lines: What Hospital Primary Care Losses Look Like
The following scenarios are composites based on common operational patterns. They are not descriptions of a specific hospital or patient.
The Busy Clinic That Looked Unproductive
A suburban primary care clinic had a full waiting room, an overflowing inbox, and physicians routinely working through lunch. Administrators were therefore surprised when monthly reports showed weak productivity and a growing operating loss.
The first assumption was that the physicians were not seeing enough patients. A closer review found a different problem. Appointment slots were frequently blocked for administrative reasons, new-patient visits were scheduled inconsistently, and dozens of daily telephone encounters were never documented as billable services. Physicians spent hours reviewing records and answering messages, but the financial system recorded only completed office visits.
The health system redesigned scheduling templates, added clinical support for inbox management, improved coding education, and created protected time for complex care. Appointment access improved, revenue increased, and physician turnover slowed. The lesson was not that clinicians needed to work harder. They needed an operating model that could recognize the work they were already doing.
The Rural Practice That Was Never Going to Break Even
A small rural clinic served an aging community with high rates of diabetes, heart disease, and transportation barriers. Its payer mix was unfavorable, recruitment was difficult, and daily visit volume fluctuated. The clinic reported a persistent loss.
Closing it would have removed the loss from the medical-group statement. It also would have forced patients to travel nearly an hour for routine care. Hospital leaders estimated that closure would increase emergency visits, delay follow-up after discharge, weaken physician recruitment, and damage community trust.
Instead of pretending the clinic would become conventionally profitable, the system classified part of its subsidy as a community-access investment. Leaders established explicit goals for appointment availability, chronic-disease control, post-discharge visits, and avoidable emergency use. The clinic still required support, but its purpose became measurable. The conversation shifted from “Why is this office losing money?” to “What outcomes are we buying with this investment?”
The Practice Buried Under Corporate Overhead
An urban medical group appeared to lose significantly more money each year even though patient volume and collections were stable. Physicians were told that their performance was deteriorating.
A detailed review revealed that the system had changed its overhead-allocation formula. The practice had been assigned larger shares of executive administration, information technology, legal services, marketing, and real estate expenses. At the same time, laboratory and imaging revenue associated with the group’s patients was credited to other departments.
The underlying practice had operational weaknesses, but it had not declined nearly as dramatically as the headline number suggested. The system introduced separate reports for direct margin, allocated overhead, downstream contribution, and value-based performance. That did not magically create profit. It did create a more honest discussion.
These experiences illustrate why hospital primary care losses cannot be solved with a single productivity target. Sometimes the answer is better scheduling. Sometimes it is payment reform. Sometimes it is an explicit community subsidy. And sometimes the most urgently needed intervention is asking the accounting department to show its work.
Conclusion: Primary Care Is an Investment, but Not a Blank Check
Hospital primary care losses are a serious financial challenge. Rising compensation, labor costs, administrative complexity, weak reimbursement, and inefficient operations can make employed medical groups difficult to sustain. Health systems cannot dismiss every loss as part of the mission or assume downstream revenue will rescue a poorly managed practice.
At the same time, treating primary care as an isolated retail business ignores how health care works. Primary care supports prevention, continuity, specialty coordination, hospital follow-up, community access, and value-based performance. Its contribution often appears outside the clinic’s income statement.
The practical solution is neither aggressive cost-cutting nor unlimited subsidy. It is transparent accounting, disciplined operations, thoughtful workforce design, appropriate payment, and clear expectations about the outcomes each primary care investment should produce.
Primary care may be the front door of health care, but it should not be expected to pay for the entire house using office-visit copayments.
