Physician writing referral on laptop

COVID-19 has made the expensive problem of out-of-network physician referrals even greater. In fact, at the peak of the pandemic, utilization of specialty services dropped by 70% among many major specialties, including cardiology and pediatrics.1 A recent white paper on the rising risk of out-of-network referrals takes a deep dive into why referral leakage occurs and how it can be managed.

Why health systems should focus on out-of-network referrals?

Out-of-network referrals, also frequently labeled physician referral leakage, occur when patients leave their health care system in favor of non-affiliated providers. A major goal of hospitals and health care systems—regarding patient retention and financial success—is to control patient referral leakage by keeping patients in-network for specialty care.

Whether a physician refers outside their network or a patient doesn’t follow through on a referral, the health care system risks not only losing the patient for the referred visit but for any related tests, procedures, and subsequent hospital stays. And if the competing network provides an excellent experience, you may lose the patient for all future care as well.

Referral leakage often occurs because a patient’s experience doesn’t align with their needs. It may be due to patient preference, convenience, or a specialist’s reputation. Or it may be due to the relationship of the primary care provider with other doctors or the provider’s lack of knowledge regarding resources and specialists within their network.

How has COVID compounded the challenge of out-of-network referrals among health systems?

Even prior to the coronavirus outbreak, 25% of all physician referrals went to out-of-network specialists.2 Of course, while the pandemic rages on, medical organizations have an obligation to prioritize COVID-19 patients and those at high risk. This leaves non-COVID-19 patients relegated to the sidelines and often in search of their own specialists, frequently which are out-of-network.

Patients advised to stay at home during the pandemic—with many hoping to avoid infection from a busy medical center—are seeking care beyond their network, including telehealth practices and smaller, more convenient local clinics. Dropping admission rates among non-COVID-19 patients and reduced resources make it even harder for hospitals to retain patients in-network for specialist referrals.

What’s the cost of out-of-network referrals?

Physician referral leakage has a major impact on health care systems’ ability to deliver continuous care, as well as on the patient experience. It disrupts the ability of providers to coordinate patient care, leading to delays in diagnosis and treatment and increased redundancies like duplicate testing and polypharmacy. Not only do redundancies affect the patients' health but they are costly and waste hospital resources. Furthermore, physician referral leakage derails the opportunity for patients and providers to build on important relationships.

Referral leakage also affects a hospital’s financial health. The cost of referral leakage for health care systems in the United States is estimated at upwards of $97 million for every 100 affiliated physicians, which contributes to a 20% loss of a health care system’s annual revenue.1,3 In fact, most health care systems lose an average of $200 to $500 million to competitors each year due to outward migration of patients.2

Payers are also harmed by physician referral leakage as they agree to extend customized discounts to providers in their plans with the expectation that members will utilize the services of those providers.2 Health care systems and affiliated providers that are tied to value-based care payment models indeed assume all costs for beneficiaries, even if a patient goes out of network.

How can out-of-network referrals be reduced?

Our white paper, Reduce the rising risk of out-of-network referrals to mitigate COVID-19's financial impact, discusses three primary strategies to help manage physician referral leakage and help health care providers increase profitability while sustaining practice growth. These strategies utilize technology and aim to create improved channels of communication and access for both patients and physicians and establish methods to track patient referrals and improve on referral processes.

For example, health care systems should leverage their patient portals or similar technology to make it easier for patients to schedule an appointment or contact a provider. As COVID-19 has clearly established, more patients rely on the internet to search for medical information; connecting patients with in-network resources will improve patient engagement and retention overall.

Technology-backed collaboration efforts among physicians can also help in-network teams coordinate care. Educating physicians about the existence of a wide range of qualified specialists within their network is key to plugging referral leakage. In fact, keeping network physicians informed of specialties and treatment options available to their patients is proven to reduce out-of-network referrals.2

Technology should be further leveraged to track the referral process. Data from electronic health record systems and automated follow-up systems can be analyzed for gaps in referrals. In fact, 70% of primary care providers report sending patient history and reason for referral, but less than 35% of specialists report receiving that information.3 A designated referral coordinator can help alleviate inefficiencies in the referral process and increase referrals made to in-network specialists.2

Download our white paper for strategies to reduce out-of-network referrals




1 Mehrotra A, Chernew M, Linetsky D, Hatch H, Cutler D. The impact of the COVID-19 pandemic on outpatient visits: A rebound emerges. The Commonwealth Fund Web site. Published May 19, 2020. Accessed April 3, 2021.

2 Four ways healthcare providers can reduce referral leakage. Advanced Medical Review Web site. Published July 3, 2019. Accessed March 12, 2021.

3 Preventing patient leakage with in-network referrals. Perfect Serve Blog. Accessed April 5, 2021.