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Hospital Employment of Physicians

By August 24, 2011Commentary

Hospitals are service powerhouses in health care, often delivering not only traditional inpatient care but a variety of ancillary and outpatient services.  In recent years hospitals have also accelerated their hiring of both primary care and specialist physicians.  A recent issue brief from the Center for Studying Health System Change explores the ramifications of hospitals employing physicians.   (CSHSC Brief) The brief is based on discussions with leaders in twelve communities across the country.  As the brief notes, in the early 1990s there was another burst of physician practice acquisitions by hospitals, with many of those ultimately being reversed, as productivity lagged and hospitals did not get the economic returns they anticipated.  This time, hospital executives say they are avoiding those issues by using productivity based compensation, but of course that system only exacerbates the incentives that already exist to overtreat patients.

Hospitals wish to employ physicians as a way to buttress market share by controlling admissions and delivery of ancillary services and procedures and if they employ both primary care doctors and specialists, as a way to ensure referrals to the specialists.  Physicians are receptive to employment by hospitals because it gives them more compensation certainty, may allow a better work/life balance and helps manage regulatory and other issues, such as the EHR requirement.  It is unclear what the effect on patients is; access may be improved for some patients but costs likely increase and patients now bear a growing share of those costs.   Hospitals claim that employing physicians can also improve care coordination efforts, but that has yet to be proven.

A large number of reports have demonstrated that hospital unit price increases are the single biggest factor in health spending growth and in annual insurance premium rises.  In markets where hospital consolidation has occurred, the problem is worse, and consolidated hospital markets appear to have some of the highest rates of doctor employment.  This appears to be leading to demands for higher physician payment rates from insurers in those markets.  Regulators and policymakers made a horrific mistake in not stopping hospital consolidation.  They should act now before the problem of market power expands to the physician side and the only solution will be rate regulation of some type, which is a market interference which might have unintended negative consequences.

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