Rising PCP hospital employment may be increasing healthcare costs

August 31, 2011

Hospitals and primary care physicians (PCPs) may benefit from the growing numbers of PCPs employed in hospital-owned practices, but patients and third-party payers may be harmed by the trend, at least in the short term, according to a recent study.

Hospitals and primary care physicians (PCPs) may benefit from the growing numbers of PCPs employed in hospital-owned practices, but patients and third-party payers may be harmed by the trend, at least in the short term.

A recent study by the Center for Studying Health System Change (HSC) concludes that the rise in PCP hospital employment may be increasing healthcare costs overall without also improving quality of care.

Hospitals and physicians view close alignment, or employment, as a way to prepare for payment reforms such as accountable care organizations and bundled payments that move away from fee-for-service to methods based on outcomes and cost-control, according to HSC. Until those changes are implemented, however, researchers noted that the payment environment continues to offer incentives for a higher volume of services. Productivity-based compensation plans-now standard in employment contracts-reinforce those incentives for employed physicians.

At the same time, both patients and payers may be subject to increased fees based on hospital policies that charge facility fees for physician visits, even when they are done in the physician’s office, and as increased physician/hospital alignment creates greater pricing leverage for providers.

Fueling the trend is that fact that young physicians particularly are finding hospital employment to be an appealing option as a way to reliably pay off medical school debt and achieve a desirable work-life balance, researchers found. In 2008, 22% of residents said they were “most open” to hospital employment, up from just 4% 5 years earlier.

The trend has continued with the Medical Group Management Association finding that in 2009, 49% of residents or fellows accepted positions with hospital-owned practices, and physician recruitment firm Merritt Hawkins reporting that, last year, 56% of the firm’s searches were for hospital employment.

Family practice and internal medicine dominated Merritt Hawkins’ search assignments in 2010, in keeping with comments made to HSC researchers. “There is a mad grab to hire primary care physicians,” they quoted one market observer as saying, in large part because of hospitals’ desire to direct the referrals from internists and family physicians to the specialists already employed.

HSC notes that the trend toward hospital employment, although widespread, is not universal. In areas such as New Jersey and the Miami region, a strong culture of physician independence prevails, and California law prohibits hospitals from employing physicians directly. In other cities, such as Boston, the study noted, physician hospital organizations closely align physicians with dominant area hospitals via contracts that stay short of employment.

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