Report casts doubt on cost benefits of physician hirings

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As healthcare reform and cuts to Medicare have forced many private practices to close their doors, a brief issued Aug. 18 by the Center for Studying Health System Change (HSC) questioned whether the rise in hospital employment of physicians is actually as beneficial as some think in terms of quality and cost savings.

“In a quest to gain market share, hospital employment of physicians has accelerated in recent years to shore up referral bases and capture admissions,” according to HSC. “Stagnant reimbursement rates, coupled with the rising costs of private practice, and a desire for a better work-life balance have contributed to physician interest in hospital employment.”

 Hospitals look to employ physicians to gain market share through service-line agreements and as a way to prepare for possible payment cuts. Additionally, hospitals see physician employment potentially leading to increased admissions, diagnostic testing and outpatient services.

“While initial hospital moves to employ physicians generally focused on hiring specialists to build targeted service lines, such as cardiac or cancer care, hospitals increasingly are hiring primary care physicians to capture referrals for their employed specialists,” the report stated.

These hirings don’t help just the hospitals; physicians also benefit. Because of low reimbursement rates and growing overhead costs, physicians look to hospitals as a safety net to protect them from upcoming cuts.

Despite the belief that hospital employment will improve care coordination and quality, it does not guarantee clinical integration. “Hospital employment of physicians theoretically can improve quality by encouraging better integration of care and communication among clinicians, but respondents indicated that clinical integration does not occur automatically once physicians become employees,” the report stated.

Additionally, the report pointed out that while many look toward hospital employment as a means to cut spending, costs may actually increase in the short term. These hikes may be due to the fact that physicians continue to practice in the fee-for-service environment, which provides incentives to increase the volume of services delivered, and they may feel pressured by the hospital to perform and order more expensive care.

The report noted that patients may gain in the end. “Increased hospital employment of physicians appears to affect patients’ access to care in a variety of ways,” according to the report. “From the patient perspective, physician employment by a hospital may be invisible as many employed physicians continue to work in the same offices they occupied when independent.” However, physician-hospital alignment will facilitate access to specialists, especially for low-income or disadvantaged patients.

“While the potential of hospital-employed physicians to improve quality and efficiency has received attention, the potential for higher costs has received less attention,” according to HSC. “The existing fee-for-service payment system that encourages hospital strategies to use employed physicians to increase referrals and admissions, coupled with the market power of hospitals to gain higher payment rates, risks overshadowing potential quality gains.”

Unless payment systems are reformed, HSC concluded that hospital employment will continue to raise costs and not improve care.