Hospitals Launch Medical Practices to Corral Well-Insured

April 10, 2012

April 10, 2012 — America's hospitals are busier than ever expanding into new and affluent geographic markets to corral well-insured patients, a strategy that could drive up costs as well as jeopardize independent physician practices, according to a new study published in the April issue of Health Affairs.

Staking out new territory takes the form of buying or building hospital facilities, establishing free-standing emergency departments, and buying or creating medical practices, write lead author Emily Carrier, MD, a senior health researcher at the Center for Studying Health System Change (HSC), and coauthors. The researchers conducted 539 interviews on the subject of hospital geographic expansion in 12 communities during 2010.

Ventures into ambulatory care help explain why the number of physicians employed by hospitals is snowballing. The outlook for independent physicians, however, may not be so rosy, the HSC study suggests.

Dr. Carrier and coauthors report that the Cleveland Clinic in Ohio, for example, has spread out into suburban Cleveland by erecting outpatient facilities, typically along freeways, and filling them with employed physicians.

The Cleveland Clinic is "disrupting practices of individual doctors that have been...there for a while," a market observer is quoted as saying. "This has to be creating major turmoil.... [The system's] bet was to create their own network and not have to deal with individual [local] doctors."

David Bronson, MD, the president of Cleveland Clinic Regional Hospitals, said that his far-flung organization is simply following patients.

"Healthcare providers and physicians are locating their services where patients choose to live to make it more convenient and continue to meet their healthcare needs," Dr. Bronson said in a statement issued to Medscape Medical News.

Independent physicians, he added, are alive and well in his organization, accounting for more than half of the clinicians it works with and serving on hospital boards. Nevertheless, "independent physicians are increasingly challenged by the current healthcare system and are choosing to join bigger organizations," said Dr. Bronson. "This provides physicians with access to electronic medical records and frees them from the increasingly difficult business and reimbursement challenges of medical practice."

In fast-growing and well-insured Greer, South Carolina, there are no more independent primary care practices left to compete with hospital-owned counterparts, according to the HSC study. The nearby Spartanburg Regional health system recently bought the last such practice in Greer in its turf war with Greenville Hospital System University Medical Center.

Bigger Health Systems Mean Greater Negotiating Clout

The central concern of the HSC study is not the fate of independent medical practice, but the overall effect of hospital expansion on the quality and cost of patient care.

Hospital administrators told the authors that their growth campaigns have widened access to care, improved its quality, and made it more efficient. Care coordination, for example, gets better in integrated systems. Some hospitals justify their push into new neighborhoods as a belated response to population shifts. Interestingly, administrators who praised their own institution's growth strategies castigated those of their rivals as thoughtless, according to the study authors.

In contrast, employers and insurers warn that by planting new buildings and medical practices in affluent outlying areas, growth-minded hospitals will drive up the cost of care in several ways. They will pass on the cost of growth to insurers and patients in the form of higher prices. If competing hospitals load up an area with more inpatient beds, diagnostic equipment, and specialists than are warranted, they may encourage higher, unnecessary, use of these services "through supplier-induced demand." In addition, larger cohorts of hospitals and physicians will enjoy greater leverage in negotiating lucrative contracts with payers. In response, hospitals say higher costs only reflect the higher-quality care they are delivering to new patient populations.

At the same time, hospital systems that place their bets on wealthy suburbs may let their facilities in poorer urban areas wither on the vine, reducing access to care in those communities, write Dr. Carrier and coauthors.

"[H]ealth care providers' market imperative to grow may conflict with other mission and policy goals," the authors conclude. "As our study shows, this tension persists and remains unresolved."

The study was funded by the Robert Wood Johnson Foundation and the National Institute for Health Care Reform. The authors have disclosed no relevant financial relationships.

Health Aff. 2012;31:827-835. Abstract

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