Health systems nationwide are navigating a growing number of payer-driven rules that influence how care is delivered, documented and reimbursed. For clinical and financial leaders, these pressures have become central to both daily operations and long-term strategy.
At New York City-based Mount Sinai Health System, Stephen Teitelbaum, MD, senior vice president and chief medical finance officer, said the cumulative effect of policies such as DRGs, preauthorization and observation criteria has reshaped the relationship between physicians, hospitals and insurers.
Dr. Teitelbaum spent three decades as a practicing urologist before moving into health system leadership, and the intersection of clinical judgment and financial structures is more pronounced today than at any point in his career. He believes these pressures increasingly place physicians and hospitals in positions where medical care is shaped less by clinical expertise and more by administrative frameworks.
“My career has been about bridging the gap between clinical practice and the financial realities of healthcare, because when those worlds collide, patient care is often caught in the middle,” he said during an interview with the “Becker’s Healthcare Podcast.” “I’m passionate about how policy- and pay-driven decisions impact physicians, hospitals, and most importantly, our patients.”
One of the most significant trends in healthcare is the leadership shift away from clinical judgment and toward payer oversight. This shift happened slowly, built over decades as insurers expanded utilization management requirements and administrative expectations. The result is a system where physicians must navigate criteria that limit autonomy and constrain decision-making.
“One of my biggest concerns, and really something I find most concerning in health is how healthcare leadership is evolving,” he said. “Historically, physicians were the architects of care and policy. Clinical judgment drove decisions and leadership was rooted in patient centered values. But today, that leadership is seeded to payers through a series of policies and practices that prioritize cost containment over clinical autonomy.”
Those payer-defined requirements surface daily in physician workflows. Clinicians now encounter a framework of administrative checkpoints around medical necessity, imaging guidance, appropriateness and utilization rules. These frequently supersede clinical reasoning and delay care.
“We’re talking about insurance companies and managed care organizations,” he said. “So instead of physicians determining what’s best for our patients, payers use cost algorithms and administrative hurdles to dictate care pathways. And what’s the result? We’re drowning in documentation, hospitals are losing revenue, and patients are stuck in a system where cost containment trumps clinical judgment.”
But clinical judgment cannot be unchecked, either. Rising costs, an aging population, increased chronic disease burden, and growing demand for services contribute to the challenging economic situation hospitals are in. Together, these factors place pressure on the entire system and have forced hospitals to shed service lines, workforce reductions and closures. Clinicians need a financially stable organization to keep providing care.
“One reality we can’t ignore is that healthcare operates within a finite pool of dollars,” he said. “That limited pool is being stretched thinner every day as costs rise dramatically. We have an aging population that requires more complex and chronic care, skyrocketing drug prices, rapid adoption of expensive technologies, and an unchecked demand for services. These pressures create a perfect storm where every stakeholder is competing for a share of resources, and payers use cost containment strategies to manage this imbalance. Unfortunately, these strategies often come at the expense of clinical autonomy and patient centered care.”
The tone for today’s coverage model was set by CMS in the 1980s, when the agency released the prospective payment system. The model was designed to reward efficiency, but subsequent layers of policy have altered how hospitals are reimbursed and how care is judged. As the model evolved into MS-DRGs and became recalibrated annually by CMS, hospitals were expected to manage resource use within fixed payments while documenting increasingly complex clinical pictures. This structure, when combined with modern utilization management tools, shifted control away from clinicians and toward payer rules.
“Preauthorization was introduced as a utilization management tool intended to prevent unnecessary procedures and control costs,” he said. “But over time, it has become one of the most disruptive forces in healthcare delivery. Instead of streamlining care, it has created a choke point that delays treatment, increases administrative burden, and erodes physician autonomy.”
Payers now shape how diagnoses are validated, how long patients should remain in the hospital, and what constitutes “medical necessity.” Those determinations often conflict with clinical experience.
“Medical necessity was once clinical judgment,” he said. “Physicians determined what care was appropriate based on patient needs and evidence based practice. Today, that concept has been hijacked by payers, insurers define medical necessity using proprietary algorithms and rigid criteria that often ignore clinical nuance.”
Other big issues include:
1. Observation status rules, the ambulatory surgery 24-hour category and the two-midnight rule further eroded reimbursement integrity. Efficient care can inadvertently penalize hospitals under DRG structures.
2. Medicare Advantage plans often diverge from CMS rules despite requirements to follow the two-midnight standard, contributing to denials and forcing hospitals and physicians into additional rounds of documentation.
3. Clinical validation audits have eroded the integrity of clinical decisions by challenging medical necessity judgments as well as coding assignments. “Clinical validation audits take this erosion of integrity even further,” he said.
These dynamics have reshaped the physician-hospital relationship. Hospitals must implement documentation rules to avoid financial penalties, even though those rules contribute to physician burden.
“To protect revenues, hospitals have had to impose ever-increasing administrative and documentation demands on physician requirements for detailed medical necessity justification, compliance with the two midnight rule, and exhaustive clinical documentation requirements and queries,” he said. “These layers of bureaucracy strain relationships, erode trust, and shift the focus from collaborative patient care to defensive documentation and compliance.”
What can be done?
“Physician leaders need to acknowledge that we’ve ceded control of healthcare decision making to payers,” he said. “And that this shift has fundamentally changed how care is delivered. Ignoring the problem won’t make it go away.”
He added that changing the trajectory will require collective action.
“The next question is, is it worth the effort to reverse this trend?” he said. “Because make no mistake, this will be an exhaustive uphill battle. It requires a unified physician voice, collaboration with hospitals, and engagement in policy advocacy at both state and federal levels.”
He encouraged physicians to deepen their understanding of payer policy and join coalitions that can influence rules and legislation.
“Physician leaders must understand the mechanics of payer policies, medical necessity criteria, observation status, the two-midnight rule, clinical validation audits, and preauthorization requirements, and how these erode autonomy,” he said. “We need to build coalitions. We can’t fight this alone. Partner with hospitals, professional societies, and patient advocacy groups to push for reforms like prior authorization policy and governance, join committees, influence legislation, and participate in paying negotiations. Leadership means having a seat at the table where the rules are written.”
Despite the scale of the challenge, Dr. Teitelbaum remains committed to supporting emerging leaders and contributing to the broader movement to restore clinical leadership in healthcare. Incremental progress is possible with sustained effort.
“We have tools, we have to organize and it’s potentially exciting,” he said. “It’s gonna be a fight, but it’s not something we should shy away from.”
