Hospitals stand to gain big by hiring docs

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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.


  • Actually
    Unfortunately dr. dolittle is wrong here. This is all part of the evolution of healthcare in the US to get away from paying "for doing". Part of bundle payment move will be to migrate to fixed payments, thus here is your pot of money to take care of your patient population. It will need to be figured out how to do this best. The problem with your statement is that you feel it is the hospital or doctors responsibility to monitor your lifestyle to maintain your health. If there is one thing healthcare does great in the US it is to fix the problems most patients bring on themseleves through sedentary lifestyles complicated further by many bad habits such as smoking, diet etc. Evoltuion of the health system is upon us, and while hospitals, doctors, health systems and care givers will help lead the way, the consumers better jump on board and start accepting personal responsibility for the ills they bring on themself.
  • Wary of the mis truths
    Where are you coming from? The insurance ompanies such as Wellpoint are the pushers of one payment and let the kids fight over it. The hospiatl and physicians decided the paitient was their first concern and fighting with insurance companies took up too much of the doctors' time and money. They wanted to pursue the best service to the patient. So working with the hospital made sense. No fighting and wasting the health care dollar over who gets paid. Instead one check with a contract from the hospital made sense. However I am sure the commerical Insurance companies will work on putting a wedge between the only people truly interest in the patient's health. The insuranc companies are only interested in their bottom line and their shareholders pockets. The money they spend on their suite at Lucas Oil stadium would supply health care servies for almost all the children who have no insureance in Indiana. So who is wasting the health care dollar. You and I who pay for commercial insurance pay for that luxury suite. For MARKETING??? Why does a business that has a near monopoly need to market itself. So do not critize the hospital and the physicaians who work hard everyday from sunup to sundown to servie it's citizens.

  • Hospitals will want the whole cheese
    There is some movement toward payment for "episodes of care"; one payment for everything related to dealing with a broken hip, for instance. The hospitals are lobbying to be the one the check comes to, and they will apportion it out to the internist, surgeon, anesthesiologist, etc. When that time comes, the hospital will want not only the $4.65 per buck of physician salary; they will take the buck, too. Your doctor will be a de facto employee of the hospital, and will be subject to working for the hospital's interest instead of the patients. Be afraid.
  • As usual...
    ...follow the money. Unfortunately Doc is wrong here, all this will lead to is more of the same, pushing more unnecessary procedures on ignorant victims, er, patients, who don't know any better for the purpose of enriching the hospital/ surgery center and physicians...they won't pay primary care docs to help keep folks healthy but they'll pay BIG bucks for expensive procedures, equipment, kickbacks, etc.
    • Article title assuming too much from data?
      Isn't is jumping to conclusions a little to claim that "Hospitals stand to gain big by hiring doctors" when the data only compares salary to revenue? The costs of insurance, equipment, administrative records and submissions, regulatory compliance, and those costs in paragraph 4 all have to be covered by that "not bad return on investment" the article balances in that paragraph's two sentences.

      In defense of the article, it's reporting on the results of a survey and these other costs are not identified in that report. However, my opinion is that the title of the article sets a tone that hospitals are wildly profitable when they hire physicians, when the true margin of a hospital is typically around 1% (sorry, I don't have a citation for that last bit).
    • Should be no surprise
      Physicians are the admitters to hospitals, of course they want to employ them. It is the same reason companies are eager to employ sales staff, or restauraunts cooks, without any of them, there is no revenue stream.

      Healthcare reform will drive this further. Incentives for physicians and hospital will be more closely aligned than ever, and each other's success will depend upon delivering high quality cost effective services.

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