Hospitals stand to gain big by hiring docs

April 7, 2010

To understand why hospitals are so eager to employ physicians—and prevent them from owning their own facilities—look no further than the latest data on how much doctors are paid compared with how much revenue they generate for hospitals.

Texas-based Merritt Hawkins & Associates released survey results last week that describe how much hospitals are paying to hire physicians as well as how much money those physicians are generating for the hospitals each year.

The firm found that physicians are generating $4.65 in hospital revenue for every dollar they receive in salary. By employing physicians, hospitals hope in part to make sure lucrative procedures are performed at its facilities instead of a competitor's.

Hospitals, of course, have to use that revenue to employ nurses and other staff, and finance the buildings where medical procedures take place. Still, it’s not a bad return on investment—if you can get it.

And, increasingly, community hospitals are the only ones who can get it. A part of the health care reform bill signed by President Obama last month would effectively prevent any new physician-owned hospitals from starting up.

Clarian Health is still reviewing the new law but has no physician investors in the Saxony hospital it is building at Interstate 69’s Exit 10 near Fishers. It is scheduled to be complete by the end of 2012. But the new law says hospitals with physician ownership will be ineligible to receive reimbursement from the federal Medicare program unless it is open by the end of 2010.

The law also says existing hospitals with physician ownership have to apply for special waivers if they want to expand, and can do so only on their existing campuses. That somewhat clouded the future of an orthopedic surgery center being built in Greenwood by the OrthoIndy group of orthopedic surgeons.

In a statement, OrthoIndy spokeswoman Kasey Prickel said, “Regardless of the passing of the health care bill, we are still committed to providing orthopaedic care to the residents on the south side. OrthoIndy and the Indiana Orthopaedic Hospital are proceeding with the Greenwood facility as planned.”

When physicians perform a procedure on a patient, such as knee surgery, they generate two fees from Medicare and most health insurers: a professional fee for their time and a technical fee for the facility.

Orthopedic surgeons generate an average of $2.1 million per year for hospitals, according to Merritt Hawkins. But the going rate to hire an orthopedic surgeon is $481,000. It makes sense why OrthoIndy started its own hospital back in 2003 and has since added a satellite facility in Avon and the forthcoming one in Greenwood.

The facility in Greenwood also sparked a lawsuit from St. Francis Hospital & Health Centers, which used to have OrthoIndy surgeons perform procedures in its Indianapolis hospital. St. Francis argued that OrthoIndy breached its contract by opening a competing facility near St. Francis’ hospital.

In March, St. Francis acquired a six-doctor orthopedic surgery practice that operates primarily in St. Francis’ Mooresville hospital. Last summer, it absorbed a 23-doctor cardiology practice that worked in Indianapolis' hospital.

Clarian, St. Vincent Health and Community Health all have signed employment agreements with multiple physician practices in the past year.

For Merritt Hawkins’ complete listing of the costs of benefits of hiring physicians, go here.

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