Hospital Employment of Doctors Rising Rapidly

Ken Terry

September 14, 2016

The number of physician practices owned by hospitals and health systems jumped 86% from 2012 to 2015, according to a survey conducted by Avalere Health for the Physicians Advocacy Institute (PAI). The number of physicians employed by hospitals increased by nearly 50% during the same period, from 95,000 doctors in 2012 to more than 140,000 physicians in 2015, the survey shows.

Hospitals acquired 31,000 practices during the study period, and 1 in 4 medical practices were hospital owned in 2015. Moreover, 38% of physicians worked for hospitals in that year, the report said. In comparison, a 2014 survey conducted by physician recruiting firm Merritt Hawkins for the Physicians Foundation showed that only 35% of physicians identified themselves as independent; among family physicians, the percentage dropped to 31%.

It is possible that many physicians who used to own small practices have joined larger groups as employed doctors, whether or not those groups are hospital affiliated. But in 2012, when the American Medical Association (AMA) released its most recent figures on practice arrangements, nearly 60% of physicians still worked in practices that had fewer than 10 doctors. In the same year, 60% of doctors worked in physician-owned practices, and just 11% of practitioners were employees or contractors of those groups. Overall, the AMA found, 53% of doctors owned their practices, 42% were employees, and 5% were independent contractors.

Regional Trends

The PAI study showed that hospital employment increased steadily from 2012 to 2015. Just in the 6 months from July 2014 to January 2015, nearly 20,000 physicians shifted into hospital employment models, and 13,000 practices were acquired.

The report noted there were differences in the hospital employment trend across regions. Nevertheless, the overall rise in hospital employment of doctors was a nationwide trend. The growth rates for employed physicians from 2012-2015 were 58% in the Northeast, 59% in the South, 44% in the Midwest, 33% in the West, and 49% in Alaska and Hawaii. During the same period, practices owned by hospitals went up by 118% in Alaska and Hawaii, 106% in the Northeast, 98% in the South, 82% in the West, and 72% in the Midwest.

Analyzing the impact of the increase in physician employment, the Avalere researchers noted that working for a hospital can reduce the burdens of private practice. In addition, they said, "Government and private payer payment policies increasingly favor integrated health systems and make it challenging for physician practices to remain independent."

Higher Costs?

The report also observed that when physicians go to work for hospitals, the health systems can charge Medicare more for ambulatory care services than the doctors could charge when they were in private practice. That is because of a feature of Medicare reimbursement policy that defines the practice site of hospital-employed doctors as the hospital outpatient department (HOPD), where care is reimbursed at a higher rate than it is in an independent physician office.

An earlier PAI analysis developed by Avelere found that Medicare payments for three common services are up to three times higher when performed in an HOPD rather than in a physician-owned practice.

"Medicare spends less when patients receive treatment in a physician's office, yet the number of physician-owned medical practices is rapidly shrinking," said Kelly Kenney, PAI's executive vice president, in a news release. "The shift toward more physicians employed by hospitals could mean higher costs for the entire health care system. For patients, it impacts both where they receive and how much they pay for care."

In July, the Centers for Medicare & Medicaid Services proposed regulations that would introduce "site-neutral" Medicare payments to level the playing field between independent practices and HOPDs. Hospitals would receive a lower payment for the services of their employed physicians, because the doctors would be paid under the Medicare fee schedule, like their counterparts in private practice.

However, ambulatory care sites for which hospitals billed physician services prior to November 2, 2015, would be exempted from the new reimbursement approach. Only practices that hospitals acquired from that date onward would be covered, along with ambulatory care sites that changed their locations after that date.

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