Originally published on Healthcare Dive.
More physicians, especially young doctors, are turning to hospitals for employment rather than running their own practice, spurred by the rise of value-based payments and population health.
The trend can have the effect of raising costs, however, and there are signs it may be slowing.
A recent report from Avalere conducted for the Physician Advocacy Institute found a 100% increase in hospital-owned physician practices, as well as a 63% increase in the total number of physicians employed by hospitals between July 2012 and July 2016. There were 72,000 physician practices employed by hospitals in July 2016.
PAI CEO Robert Seligson said payment policies favor large systems and the current payer environment “stacks the deck against independent physicians” through “administrative and regulatory burdens.”
Patrick Padgett, executive vice president of the Kentucky Medical Association (KMA), has seen the trend in his state over the past decade. Most employment is through hospitals and hospital systems in Kentucky, especially in rural areas. He’s seen a similar trend of more physician-led practices employing doctors, such as multi-specialty practices, Padgett told Healthcare Dive.
Times have changed so much in Kentucky that the KMA stopped providing an annual seminar to new doctors on starting your own practice. Now, because nearly every new doctor is employed, the seminar focuses on employment contracting and personal finance education.
What’s causing more hospital-employed physicians?
Multiple factors are driving the trend. Payment policies are a major factor.
Population health and value-based care models are driving “more coordinated, integrated and consumer-centric healthcare delivery systems,” Katie Gilfillan, director of Healthcare Financial Management Association’s finance policy, physician and clinical practice, told Healthcare Dive.
As payers move to risk-based payments, reimbursements that reward value, quality and lowering costs are replacing fee-for-service payments.
However, hospitals have limited influence on costs and patient outcomes once the person leaves the facility. So, instead, hospitals are looking to scoop up physician practices as a way to stay connected to those patients when they’re not in the hospital.
Caroline Pearson, senior vice president at Avalere, told Healthcare Dive that this gives hospitals a better chance to manage care and reduce costs.
Another factor is connected to market share and payer negotiation leverage.
Physician groups are feeling the economic pressures of rising costs to deliver care, Gilfillan said. Smaller practices are increasingly looking to hospitals and larger physician-led practices, which they feel can influence care and share the burden of risk more than going it alone. Being part of a larger system can make former small practices more competitive with the ability to negotiate better rates.
Being part of an integrated system also reduces risk. Plus, it can lessen regulatory burdens put on medical practices, such as prior authorizations.
A recent American Medical Association survey found that medical practices average 29.1 prior authorization requests per week. Processing takes an average of 14.6 hours per week. About 34% of physicians said they rely on staff to work solely on data entry and other manual tasks connected to prior authorization. Instead, being part of a larger system brings with it a bigger staff to take over or at least spread around those types of tasks.
Costs associated with EHRs also play a role. “Many small practices simply could not afford installing and then maintaining such systems,” Padgett said.
And then there’s just personal preference. Going the employee route reduces operational and financial risks, which can be appealing to physicians, especially those new to the profession. Employment can also bring with it a more predictable schedule. The downsides, though, can be a lower salary and less control over practice designs and office management.
Many younger physicians are interested in practicing medicine and don’t want the hassle of running a practice or a small business.
In its Physician Practice Benchmark Survey in 2016, the AMA found that two-thirds of physicians under 40 were employees in 2016. That’s compared to about half in 2012. The share of employees among physicians 40 and older also increased in that time, but the increase was more modest.
What does the hospital-employed physician trend mean for costs?
A potential downside to the trend: rising costs.
Pearson said that’s because physicians employed by hospitals are more likely to perform procedures within the hospital setting, which are more expensive than at a lower-cost setting. “This can drive up costs,” she said.
An Avalere study in 2017 showed hospital-employed physicians increased Medicare costs for four services by $3.1 billion between 2012 and 2015. That study, also for the PAI, revealed that Medicare paid $2.7 billion more for four specific cardiology, orthopedic and gastroenterology services in hospital outpatient settings rather than in an independent physician’s office. Medicare beneficiaries spent $411 million more in out-of-pocket costs for those services compared to what they would have spent in an independent physician’s office, according to the report.
Given the trend toward hospital-employed physicians, Pearson expects payers will make changes. One way they may address these issues is through care payment site neutralization. For instance, insurers may pay more for complicated procedures and less for less complicated procedures rather than pay by care setting.
Is the hospital-employed physician trend slowing?
Though Avalere shows a doubling of hospital-employed physicians, the AMA said its numbers show that the trend is actually slowing. Physicians working for a hospital or in a practice with some ownership remained steady in 2014 and 2016 at 32.8%, according to the AMA.
Nevertheless, the group’s Physician Practice Benchmark Survey in 2016 marked the first time physician practice owners were not a majority portion of physicians since the organization began documenting practice arrangements. It found that more than half of physicians continue providing care in smaller practices (10 or fewer physicians). However, there is a gradual shifting toward larger practices.
Though the AMA said there is movement away from physician-led practices, Pearson wonders whether that will change. Physicians have increasingly led accountable care organizations and multi-specialty practices are willing to accept risk.
Physicians not affiliated with hospitals may see long-term savings if they assume risk and manage population health in the same way as a hospital in an ACO, she said.
“I think the pendulum may swing back to physician-led models,” Pearson said.
Gilfillan said there’s also a growing need for physicians in leadership positions, especially those who can “connect the clinical goals to the financial goals of the health system,” as well as running a “financially sustainable healthcare system.”
Future of hospital-employed physicians
More physicians are employed by hospitals than a decade ago, but is this a short-term trend or now a healthcare industry norm?
“I think it will continue to increase because there are a lot of drivers supporting that trend,” Pearson said.
That said, Pearson expects payers will change policies, such as payment incentives, which now push doctors into hospital-employed situations. Those changes will slow the trend curve. Also, eventually hospitals will run out of physicians interested in a hospital-employed situation, though new doctors prefer employment arrangements.
Something else to watch are proposed megamergers, which Padgett said seem to go against the hospital-employed physician trend.
“Recently proposed mergers, such as Humana/Walmart and CVS/Aetna, seem to be counting on more people getting their healthcare at store-based clinics. But the trend toward integrated care through a health system/clinic, along with technology changes, seem to be working against that trend. Unless they align with organizations that can provide different kinds of care through different specialists, I’m not sure how that will work out for them,” he said.
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