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Yet Another Source of Rising Health Costs: Hospitals Hiring Physicians

By Jane Norman, CQ HealthBeat Associate Editor

August 18, 2011 -- Hospitals are increasingly signing up physicians as employees, but the trend may raise health care costs in the short term, says a study released Thursday by the Center for Studying Health System Change.

The problem is that both hospitals and doctors will continue to practice in a fee-for-service environment that stresses volume, the study says. Hospitals that tie physician compensation to productivity encourage doctors to step up the volume, it says.

Physicians hired by hospitals also told researchers that the hospitals put pressure on them to order additional and more expensive tests. “In one market, at least two cardiologists declined hospital employment offers because they perceived the pressures to drive up volume were stronger than those in their mid-sized, independent cardiology group,” said the study.

Researchers at the center conducted site visits at 12 communities across the nation and found hospital employment of doctors growing rapidly in most places. In markets with high concentrations of hospitals, doctors are pressed to sign up with one system or another, the study says.

The payment vagaries of Medicare also lead to higher reimbursements in some cases for doctors when they are working for hospitals instead of on their own.

For example, the study says, it is possible for a doctors’ practice to be bought by a hospital and not change locations or operations—and yet receive “substantially” higher Medicare reimbursements. That’s because it’s now designated as a “provider-based facility,” even if it is not physically located on hospital grounds.

Most commercial insurers go along with the Medicare fee schedule so the hospitals may get higher reimbursements from private insurance companies as well, the study says.

Another factor pushing up costs may be “bidding wars” for physicians in hot specialties that drive up salaries. “Hospitals are paying cardiologists over $1 million a year,” an Indianapolis physician told researchers. “Hospital costs are going up dramatically in our market. . .You are seeing a number of compensation offers that are multiples of what physicians had made historically.”

The increased integration of hospitals and doctors doesn’t necessarily improve the coordination of care, either, the study says. Communication, especially between inpatient and outpatient doctors continues to be a problem.

Most doctors traditionally have practiced on their own or in small groups, serving on voluntary medical staffs of local hospitals in return for admitting privileges. But there was a wave of hospital hiring in the 1990s and it’s returned as hospitals prepare for changes brought about by the health care law ( PL 111-148 , PL 111-152 ) such as bundled payments and accountable care organizations. In addition, doctors may be seeking more financial security and a better balance between work and life. 

Report on Hospital Employment of Physicians (pdf)

Jane Norman can be reached at [email protected].  

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