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Increased Hiring of Hospital Physicians May Drive Up Healthcare Costs

The trend of hiring more hospital physicians might be driving up healthcare costs, and not improving quality of care, says a new study from the Center for Studying Health System Change (HSC).

The pace of hiring hospital-employed physicians has quickened largely due to hospitals’ quest to increase market share and revenue, the study says. At the same time, 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.

But instead of improving care, hospital pressure on employed physicians to order more expensive care is driving up costs, a trend that will continue unless the FFS payment system that rewards volume is revised, the study says.

The study, funded by the Robert Wood Johnson Foundation and the National Institute for Health Care Reform, is based on HSC’s 2010 site visits to 12 nationally representative metropolitan communities, including Boston, Cleveland, Indianapolis, Miami, northern New Jersey, Phoenix and Seattle.

Other key findings include:

  • Hospitals usually negotiate health plan contracts on behalf of employed physicians, gaining higher rates to offer more attractive compensation than independent physicians could negotiate on their own.
  • 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.
  • It is possible for a physician practice to be acquired by a hospital, not change locations or even practice operations, yet the hospital now receives significantly higher Medicare payments.
  • Hospital consolidation continues to be an important factor in physician employment by hospitals. In markets with high hospital concentration, physicians face pressure to align closely with one hospital system or another.

Following enactment of national health reform in March 2010, hospital executives also increasingly cited physician-hospital integration through physician employment as key to preparing for expected Medicare payment reforms, including bundled payments, ACOs and penalties for preventable hospital readmissions.

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Source: The Center for Studying Health System Change, August 18, 2011


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IMPORTANT NOTICE: This information is designed to provide accurate and authoritative information on the business of healthcare. It is distributed with the understanding that Healthcare Intelligence Network is not engaged in rendering legal advice. If legal advice is required, the services of a competent professional should be retained.



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