The Red Queen's Trap, Part 3: Where the Margin Actually Is

The Red Queen's Trap — a 4-part series on margin in healthcare. Part 1: Why → · Part 2: Leadership Alignment → · You're reading Part 3: Where the Margin Is. · Part 4: The Ongoing Process →

Part 2 covered the leadership alignment that makes finding margin possible in the first place — the structure that surfaces what's already known locally but invisible organizationally. Assume that alignment is in place. The next question is tactical: where, specifically, is the margin sitting inside a practice or health system that's already leaving it on the table?

The Process: Department by Department

None of what follows comes from a flash of insight. It comes from a habit — one that's more repeatable than most leaders assume, and one anyone can run.

Picture it plainly: a list of every department in the organization, and someone sitting down with it, one line at a time. Not a strategic offsite, not a consultant's framework (though I like those too) — a working list, gone through department by department, asking the same four questions of each one:

• Is there a physician incentive opportunity here?
• Is there a productivity option here?
• Is there a cost I can get out here?
• Is there a service I could add here that would drive revenue?

Then it goes further than the department list. The same discipline applies to the financials underneath it — going line by line through every expense, every account, asking whether it still makes sense. Not a quarterly review skimmed for anything obviously wrong. Every line, every time.

I've sat in enough of these sessions to notice something: the people who consistently surface more margin opportunities than everyone else in the room aren't smarter or more experienced. They're just more systematic. They run the same four questions against every department, and they read every expense line rather than trusting that nothing's changed since the last time someone looked.

That's the entire method, and it's less exciting than it sounds. Most departments won't have an answer in all four columns. Some will have an answer in two. Occasionally one will have an answer in all four, and that's usually where the biggest opportunity in the whole organization turns out to be hiding.

The value isn't in any single pass. It's in doing this the same way, constantly — not as a one-off audit triggered by a bad quarter, but as an ongoing habit that never really stops. Margins move. Departments change. A department that had nothing to offer eighteen months ago might have real opportunity today, simply because staffing turned over, a new service became available, or a payer contract changed. This is how you have to think about cost in healthcare today: line by line by line, over and over, not once a year.

Run that scan consistently, and three specific areas come up again and again.

Physician Incentives: Where Real Innovation Still Happens

Part 1 argued that traditional healthcare can't innovate its way out of margin pressure the way other industries do — reimbursement is locked in, and the parts of the business where innovation pays off are being pulled away by outside entities. That's true at the macro level. But inside a practice or health system, there's a specific place where genuine innovation still creates real margin: how physicians are aligned, compensated, and structured into the organization.

Two examples make this concrete.

A panel-based compensation model paired with an APP in primary care. We saw it coming before it showed up in the numbers, because we were talking with our physicians consistently — the leadership alignment from Part 2, doing its job. Physicians were burning out. And they were optimizing to the productivity model we had in place, right when what the practice actually needed was for their panels to grow. Through those conversations, working through the options together, we built something different. The standard pure-wRVU compensation model has a ceiling problem: it rewards volume, but it also burns out the most productive physicians right as they're generating the most value. Redesigning compensation around panel size instead — and pairing the practice's most productive physicians with an advanced practice provider — let those physicians keep growing their compensation without the burnout curve a straight wRVU model creates. The result showed up directly in the numbers: panel growth for providers above the 75th percentile was over 5% in year one alone, and continued climbing for three years, while cost per wRVU across the practice dropped by more than 10%. That's not a marginal improvement — it's a materially better margin on every visit the practice sees.

A site-of-care partnership with a neurosurgery program. This one came to us. An independent neurosurgery group was watching their margins get squeezed and wanted a stronger partnership with the hospital. So we sat down and went line by line through their practice — understanding what was actually possible, and how a partnership could build real margin for both sides rather than just goodwill. Their proceduralists were performing certain procedures in off-campus, office-based settings. Partnering to bring those procedures into the hospital did two things at once: it gave patients a better-resourced care environment, and it restructured the revenue model in a way that worked for both sides. The neurosurgery group gained additional revenue they needed for their own long-term sustainability. The hospital gained a materially better margin on those same procedures — margin that could then be used, in part, to support the partnership itself. Neither side got there by cutting the other's piece of the pie. The alignment created a larger pie for both.

This is different from the leadership alignment covered in Part 2. That's the process that helps you find and execute on margin generally. This is a margin lever in its own right — redesigning physician incentives themselves, whether through compensation structure or formal practice relationships, as a direct source of new margin.

Incentive redesign like this is one of the specific levers we work through with clients inside the TACTICS Framework. Explore the TACTICS Framework →

Staffing Productivity: Getting the "Throw a Body at It" Reflex Out of the System

Healthcare has a default instinct when something isn't working: add headcount. A clinic feels chaotic, hire a medical assistant. A department is behind, add a coordinator. It's an understandable reflex — more hands feels like the fastest fix — but it's also one of the most consistent sources of quiet margin erosion in the industry.

Where this actually gets found:

• Staffing ratios measured against volume and acuity, not against how a clinic has always been staffed. Ratios set years ago rarely reflect the patient mix or workflow a practice runs today.
• Overtime and agency/premium labor patterns, which are usually a symptom of a scheduling or coverage design problem, not a headcount problem — and get treated as the latter anyway.
• Coverage models, especially where staffing was added to solve a specific short-term problem and never revisited once that problem passed.

None of this is about cutting for its own sake. It's about removing the slack that accumulated because adding was always easier than redesigning.

Revenue Capture: Getting Full Value From What You Already Have

This is the piece most groups underestimate, because it doesn't require growth — it requires precision. Growing volume (adding physicians, opening new locations) has real limits: capital, timeline, physician recruitment, market saturation. Capturing more of the revenue a practice is already entitled to has none of those constraints. It's operational discipline, not expansion.

Where this actually gets found:

• Coding accuracy and documentation completeness — clinical work performed but not fully captured in the record, which means it's performed but not reimbursed.
• Service line utilization — ancillary services (imaging, labs, in-office procedures) that are clinically appropriate and already available in-house, but routinely referred out of the system out of habit rather than necessity.
• Payer mix and contract performance — whether the practice is actually capturing the terms it's contracted for, and whether referral patterns are optimizing for the payer relationships that matter most.
• wRVU-eligible work that's under-documented — physicians doing the clinical work, without the record fully reflecting the complexity or volume of what was actually done.

This is the list that should get audited first, before anyone starts a conversation about growth. It's the fastest-available margin, and it's already inside the walls of the organization.

The Discipline This Requires

Running the scan is one thing. Acting on what it finds requires rigor. A staffing fix that ignores physician needs just shifts the problem. A coding push that ignores EMR issues just results in the team doing the extra work. A new incentive model that isn't backed by the leadership alignment from Part 2 won't survive contact with the physicians it depends on.

That's exactly why this can't live as a single project with an end date. Opportunities identified once go stale — payer rules shift, staffing turns over, alignment structures need renegotiation. Which is the exact problem Part 4 addresses.

What's Next

Identifying where the margin is sitting today answers one question. Keeping that answer current — and actually executing against it — month over month, is a different problem entirely. Part 4 covers how to build the ongoing process that does both.

Ready to talk about where your organization stands? Book a Free Strategy Session →

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