A Perspective in the New England Journal of Medicine discusses the employment of physicians by hospitals, with a focus on recent trends and the economic consequences to the hospitals. (NEJM Perspective) At the present time, almost one-half of all doctors are employed by a hospital or integrated delivery system. There has been a 75% increase in such employment since 2000 and, according to a recent survey, 74% of hospitals intend to increase such hiring in the future, both of primary care physicians and specialists.
Hospitals had an unhappy experience with acquiring doctors’ practices in the 1990s and ended up divesting many of them due to poor productivity, physician unhappiness, and hospital losses. The rationale for the current hiring trend is similar–to be able to influence referral flows for inpatient and outpatient services, as well as ancillary services like lab and imaging. The renewed interest in new risk-based payment structures and better coordinated care may also be a factor. The authors, however, estimate that hospitals lose about $150-250,000 per doctor for the first three years after employment, which then decreases to about half that. To break even would require heroic productivity increases.
But hospitals often end up making money in the longer term on all the referred services. And since hospitals already have substantial market power, they can raise prices to cover any supposed losses. The authors hypothesize that if payers put hospitals at risk, the hospitals will have incentives and will create incentives for their employed physicians to only deliver appropriate care and will create other efficiencies that could lower overall spending. The much more like scenario, borne out by history, is that employment of more physicians by hospitals will only exacerbate market power woes and raise costs, regardless of the payment structure.