An increasing number of doctors are opting out of private practice in favor of hospital employment. According to the Bureau of Labor Statistics, employment of physicians and surgeons is projected to grow 14% between 2014 and 2024, “much faster than the average for all occupations.”
A recent report by Accenture predicts that only one-in-three physicians will remain independent by the end of this year.
Why physicians are seeking employment
There are a number of factors contributing to the move from private practice to employment, including:
- The shift from fee-for-service to alternative payment models (e.g., MACRA, MIPS);
- Administrative burdens;
- Overhead costs;
- Challenges related to the use of information technology;
- Increased demand for healthcare services by the growing and aging population;
- Improved work/life balance;
- Improved access to referrals; and
- Increased negotiating power.
Effects on hospitals
A new study for the National Bureau of Economic Research, a nonprofit research organization, suggests patients tend to choose hospitals in which their doctor is employed, which of course is a benefit to hospitals. In the report, Lawrence Baker, Daniel Kessler and Kate Bundorf of Stanford University, say that owning medical groups “dramatically increases” the probability the medical group patients will choose the hospitals in which their doctors are employed.
Dr. Halee Fischer-Wright, CEO of Medical Group Management Association, told Modern Healthcare that hospitals are losing around $190,000 annually on average per employed physician when salary, bonuses, overhead and insurance expenses are subtracted from the revenue they produce. But Fischer-Wright also said having “doctors available in the community as access points for patients is so critical in the new value-based reimbursement paradigm” that hospitals are willing to suffer the loss.
The tradeoff is that patients will hopefully remain in the system for specialty care and diagnostic services, which can help cover physician practice losses.
Due to the opportunity for increased physician referrals, hospitals need to be mindful of the Stark Law. The law forbids physicians from referring Medicare patients for certain services to an entity with which he or she (or an immediate family member) has a financial relationship.
The Anti-Kickback Statute could also be an issue when it comes to referrals. It prohibits hospitals from compensating physicians in an effort to induce or reward patient referrals for services covered by Federal healthcare programs.
When acquiring physician practices, hospitals need to consider potential antitrust violations, as antitrust cases appear to be on the rise. In an article for Turnaround Management Association, Shawn Riley, Cleveland managing member, and Rick Hindmand, member, both at McDonald Hopkins, say the Federal Trade Commission and state regulators have been inclined “to challenge some hospital acquisitions of physician practices on antitrust grounds, even when an acquisition is likely to have positive effects on patient care.”
Productivity may also be an issue, as employed physicians don’t have as much incentive to work as hard as those in private practice. “The conventional wisdom of many healthcare experts is that physician employment is on the rise, and is the likely panacea to achieve satisfactory physician engagement and success in a value-based healthcare environment,” says Wesley Curry, MD, FACEP, President and CEO, CEP America. But Curry says other recent studies have shown in certain situations, physician employment – particularly in certain specialties – is more costly and results in less productivity.
Safeguards for hospitals
To protect against potential risks, hospitals should consider the following:
- Have all contracts or other financial arrangements with physicians reviewed by an attorney who is familiar with healthcare law.
- Develop a referral policy, with input and overview by your attorney, to ensure physicians are aware of what types of referrals are acceptable under Federal regulations. Conduct audits to make sure the policy is being followed.
- Perform due diligence to see if there’s a cultural fit between physicians and the hospital.
- Hire a qualified consultant to look into any potential antitrust issues prior to an acquisition.
Safeguards for physicians
An article in The National Law Review cautions that physicians should also consult with their attorneys before signing any contracts, as there is usually very little wiggle room in hospital contract terms. Physicians who have been practicing for a long time and have large patient bases will have more negotiating power than those who are new to practice.
Will this trend continue?
Curry believes overall, the increase in physician employment by hospitals will not be successful long term, despite what the experts are saying. “I think hospitals in the future will have to ‘choose wisely’ their various specialty physician partners, with a focus on the value they can bring in integrating the care of the patients they serve across their transitions of care,” he says. “I expect a hybrid model of employment and outsourcing will emerge that is tailored to achieve the optimal physician alignment in the local healthcare environment of each hospital, where payment in the future will be tied to the patient experience, quality, and cost.”