Radiology Subsidies: Nighthawk Coverage Considerations

Most full-service acute care hospitals in the U.S. provide 24/7  access to radiology services. To meet this demand, hospitals typically either employ radiologists directly or contract with independent private practice radiology groups. One of the most persistent operational challenges in delivering continuous coverage is staffing overnight shifts. Recruiting and retaining physicians willing to work night hours remains difficult, particularly amid nationwide radiology workforce shortages. Hospitals and their radiology partners must adopt strategic approaches to ensure quality and consistent coverage.

In practice, hospitals and radiology groups generally rely on one of four models to provide overnight coverage:    

1. Hospital-Employed Coverage: The hospital provides night coverage through hospital-employed physicians.

2. Hospital-Contracted Teleradiology (Nighthawk) Coverage: The hospital provides night coverage through a contract with a nighthawk company (i.e., an outsourced teleradiology vendor that provides services during night shifts).

3. Radiology Group Coverage: The private radiology group provides night coverage using its own physicians and providers.

4. Radiology Group-Contracted Teleradiology (Nighthawk) Coverage: The private radiology group provides night coverage by contracting with a nighthawk company.

When a hospital or radiology group engages a nighthawk provider, the associated costs can be substantial. Even in arrangements where the nighthawk company performs final reads and retains the ability to bill and collect from patients and insurers, it typically still charges a service fee to the hospital or the group. In other cases, nighthawk providers furnish only preliminary reads during the overnight shift, with final reads later completed by affiliated radiologists. This structure places additional burden on the affiliated radiologists, who must dedicate additional time to re-interpret studies, oversee the quality and coordination of nighthawk coverage, and manage the billing and collection process. Because preliminary reads do not generate professional fee revenue, the nighthawk provider cannot bill, thereby shifting both clinical and financial responsibility to the affiliated radiologists. Although affiliated radiologists ultimately generate professional revenue from final reads, the combined impact of increased workload and nighthawk service fees often results in total costs exceeding collections, creating a net financial loss for the hospital or radiology group.  

Given these dynamics, the cost of outsourced nighthawk services represents a major financial burden and a key consideration in structuring radiology service arrangements between a hospital and its radiology partner.

In response to rising costs and operational challenges, the prevalence of hospital subsidies for radiology groups has increased in recent years, driven by higher labor and operational costs, critical radiology workforce shortages, and ongoing reimbursement pressures. In many cases, private radiology groups are unable to generate sufficient revenue from professional services alone to support the total cost of providing services, including compensating physicians at fair market value (“FMV”).

Subsidy arrangements are designed to bridge this gap by providing financial support from the hospital to the radiology group, ensuring the sustainability of services and continued access to care.

To determine the appropriate level of subsidy, a detailed analysis, typically in the form of a profit-and-loss (“P&L”) model, is conducted. The P&L analysis should evaluate:

• Professional fee collections from services provided under the agreement

• Physician compensation and benefit expenses at FMV levels

• Practice overhead and administrative costs at FMV levels

• Any incremental expenses related to overnight coverage

The difference between total costs and collections represents the subsidy requirement.

A critical component of this analysis is the proper allocation of teleradiology or nighthawk services, where applicable. Depending on the arrangement, responsibility for overnight coverage and its associated costs may fall to either the radiology group or the hospital. Accordingly, the analysis may be performed under scenarios in which the radiology group assumes the financial and operational responsibility for overnight coverage, or in which the hospital bears those obligations. Additional key considerations include the level of productivity generated by the nighthawk providers and whether the nighthawk providers retain the right to bill and collect for services rendered.

In scenarios where the radiology group subcontracts with a nighthawk company, assumes full financial and operational responsibilities, and the nighthawk providers do not retain collections, the analysis may be approached in one of two ways:

1. Inclusive Productivity Approach: The analysis includes all productivity generated by both the radiology group’s physicians and the nighthawk providers in determining FMV compensation. Under this approach, the value of all clinical work has been captured; therefore, the analysis should not include any additional nighthawk-related expenses unless they are tied to nonclinical administrative services and are not contingent upon wRVU production, study volume, or coverage availability. This treatment avoids duplication of clinical costs already reflected in the inclusive productivity framework.

   
   

2. Carve-Out Approach: The analysis excludes productivity generated by nighthawk providers to ensure that the determination of FMV compensation for its employed radiologists is dependent only on the employed radiologists’ productivity. Under this approach, all expenses associated with nighthawk services are included as a separate expense in the P&L analysis.  

Regardless of the methodology, proper alignment of productivity and revenue with the party incurring the costs is essential to accurately reflect the party’s financial performance and determine the appropriate level of subsidy required to support the arrangement.

BFMV is experienced in reviewing and designing fair market value and commercially reasonable radiology subsidy arrangements that meet the volume or value standard. Contact us for hourly consulting or FMV opinion engagements.