Hospitals stand to gain big by hiring docs

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.

 

Please enable JavaScript to view this content.

Editor's note: IBJ is now using a new comment system. Your Disqus account will no longer work on the IBJ site. Instead, you can leave a comment on stories by signing in to your IBJ account. If you have not registered, please sign up for a free account now. Past comments are not currently showing up on stories, but they will be added in the coming weeks. Please note our updated comment policy that will govern how comments are moderated.