Hospital Employment of Physicians

One of the most significant structural developments in health care over the past two decades has been the dramatic shift from physicians being in independent practices to being employed by hospitals, or even health plans, and having practices owned by private equity firms.  This trend is concerning because it may lead physicians to refer patients more to other services and providers in the hospital system, potentially raising utilization and health spending.  Physicians are the gatekeeper to many health services, through their referral power.  It may also lead to lower job satisfaction and poorer quality care for patients.  A new study at the National Bureau of Economic Research probes these issues.  (NBER Paper)

The researchers used Medicare data from 2008 to 2015 (one of the often bizarre things about health care research is the lag of data used for research, which is inexplicable given that most claims-based data is available in close to real time) to construct episodes of care and compare hospital-based and independent doctors.  The primary findings were that while hospital-employed physicians have higher spending for the same episode, this is primarily due to outpatient visit prices that are higher in the hospital than they would be  in a physician’s office.   This is a bizarre location facet of Medicare reimbursement that experts have said should be changed for years, but hospitals have obviously resisted.  Another source of increased spending was more home health care use.  These  increases in spending were offset to some extent by fewer total professional services within an episode, which may reflect a different economic incentive for the hospital-employed physician, who no longer may make more money by delivering more services, but may be salaried.    But those fewer professional services occurred among physicians were not associated with the hospital; in fact, hospitals achieved their goal of capturing more of a patient’s care within the hospital’s employed physicians.

So physicians employed by hospitals are much more likely than independent ones to refer within the hospital, where the same service costs more, but use fewer total services.  For a long time, I have believed that hospitals should be banned from owning physician practices or employing physicians, other than those who actually full-time treat inpatients, and this research is why that would be an important structural fix to our health spending issues.