Study: Hospital-doc hookups raising costs

August 22, 2011

Whether hospitals employing doctors improves quality and efficiency remains to be seen, but it is certainly raising costs.

That’s the conclusion of the latest report by the Center for Studying Health System Change, a Washington, D.C., group that tracks Indianapolis and 11 other markets around the country.

“In markets with particularly high levels of physician employment, such as Greenville and Indianapolis, insurers reported growing difficulty containing both hospital and physician payment rate increases,” wrote report authors Ann O'Malley, Amelia Bond and Robert Berenson.

The center’s study is based primarily on interviews with hospital CEOs, physicians and insurance executives, who are all promised anonymity in exchange for their candid comments.

For example, one Indianapolis physician said local hospitals’ bidding wars for physicians have pushed some doctors’ compensation from hospitals through the roof, with the result being that “hospital costs are going up dramatically in our market.”

“Hospitals are paying cardiologists over $1 million a year,” the doctor said, adding, “You are seeing a number of compensation offers that are multiples of what physicians had made historically.”

Nationally, invasive cardiologists—those implanting stents and doing bypass surgeries—command average pay packages of $532,000 a year, according to physician recruitment firm Merritt Hawkins. But invasive cardiologists also bring in more than $2.2 million per year in hospital revenue, according to Merritt Hawkins.

The Center for Studying Health System Change authors concluded that hospitals’ main motivation for acquiring physician practices was to grow market share, particularly in the most lucrative service lines, such as cardiology, cancer and orthopedics.

Only after the passage of the 2010 health care reform law did the study authors hear hospital executives commonly describe their employment of physicians as preparation for “clinical integration.” The law encourages hospital-physician integration through new Medicare payment arrangements, such as accountable care organizations and bundled payments, which hinge part of the money on quality and efficiency of care.

“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,” O’Malley, Bond and Berenson wrote.

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