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Physician Employment by Hospitals

By November 22, 2017Commentary

The Patient Advocacy Institute is apparently dedicated to helping physicians in independent practice.  So it released a survey demonstrating the effects of the ongoing trend to hospital employment of physicians.   (PAI Survey)   From 2012 to 2015, health system employment of physicians grew 49%, to 140,000 doctors.  One motive for this is that employing physicians gives hospitals control of referrals and allows them to take advantage of stupid reimbursement systems that pay more for the exact same service when done in a hospital outpatient department as compared to a physician’s office.   And of course, it increases the health system’s market power, allowing it to raise prices for commercial payers.  There has been a focus on certain specialties, like cardiology, orthopedics and gastroenterology, which often have hospital procedures associated with them.  Here is an example of why these practice acquisitions occur; a colonoscopy is reimbursed by Medicare at $413 in a physician’s office and $1090 in a hospital outpatient department.  It is not just Medicare that pays more; the beneficiary has a cost-sharing burden that also increases.  Looking at just the three specialties mentioned above, employed physicians provide more of their procedures in a hospital than do independent doctors.

Looking just at four services, Medicare paid $3.1 billion more because of hospital employment of doctors and of this amount, $400 million was picked up in beneficiary cost-sharing.  Medicare’s share was 27% higher and the patient’s 21% more.  This analysis just further supports what we all already know; it is not good to allow hospitals to employ physicians.  It creates excessive utilization and raises pricing, resulting in much higher spending.  There is absolutely zero rationale for paying hospitals more for outpatient services than community-based doctors are paid; if anything hospitals should be paid less, since they presumably have economies of scale they can bring to bear.  And this analysis just focused on Medicare; if the impact on commercial health plans is included, it is much greater.  The remedy is obvious, stop paying more for the same service in different settings; or even better, force hospitals to stop employing doctors.

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