NEJM: Hospitals devour docswhat does it mean for the bottom line?

In response to healthcare reform, hospitals across the country have accelerated their hiring of physicians; but with clinical hires on average bringing in six-digit losses to institutions, what are hospitals anticipating from healthcare reform, and how will it impact patients? Citing surveys showing dramatic increases in physician hires at hospitals, the authors of a March 31 New England Journal of Medicine perspective argued that much is at stake for physicians in the economics of these decisions.

Recent surveys released by the Medical Group Management Association (MGMA) showed that since 2000, hospitals (distinct from outpatient facilities and practices) now employ 75 percent more physicians, while 74 percent of hospital leaders surveyed indicated that they plan to continue adding physicians to their payrolls within the next three years.

“U.S. hospitals have begun responding to the implementation of healthcare reform by accelerating their hiring of physicians. More than half of practicing U.S. physicians are now employed by hospitals or integrated delivery systems, a trend fueled by the intended creation of accountable care organizations (ACOs) and the prospect of more risk-based payment approaches,” explained Robert Kocher, MD, from the McKinsey Center for U.S. Health System Reform and the Brookings Institution, both in Washington, D.C., along with co-author Nikhil R. Sahni, BS, from Harvard Business School and the university’s John F. Kennedy School of Government, in Boston.

And yet, in spite of the hiring spurt, Kocher and Sahni pointed out that hospitals lose between $150,000 and $250,000 during the first three years of each new physician's tenure. Although these losses eventually get sliced in half, they do not get reversed. What is more, the authors noted, “Outpatient office practices of employed physicians seldom turn a profit for hospitals.”

However, the math is a bit complex. The catch comes from more complicated patients—when accounting for tests, referrals and all ancillary care, the tabs that physicians generate redeem their hefty salaries and costliness. In this way, specialists are particularly profitable for hospitals, while some skeptics say that relying on a network of primary care physicians for referrals—rather than employing them directly—represents the shrewder financial choice for hospitals, the authors continued.

Kocher and Sahni posited that ACOs and potential overhauls to reimbursements are driving the hiring spree because of the payment shift to rewarding quality and cost savings. Several related factors will fuel the savings generated by employed physicians, the authors argued, including the use of evidence-based medicine to achieve cost-effectiveness, stronger adherence to clinical guidelines, enhanced use of IT and shuffling schedules in order to maximize utilization.

With greater physician employment, Kocher and Sahni expressed their expectation that hospitals will maximize their savings by maximizing their physicians—pushing for greater productivity and improved patient outcomes by means of incentives, or pay for performance.

What should physicians and patients expect? “In the future, physicians should anticipate a shift from guaranteed salaries to incentive-driven compensation linked to productivity and clinical behavior—with base compensation that is lower than their previous earnings but incentives that can increase it to that level or higher. This approach attempts to maintain productivity levels, while encouraging physician behaviors that reduce costs or increase revenues,” Kocher and Sahni contended.

As for patients, the implications of reform are less clear. The authors looked to Massachusetts Attorney General Martha Coakley’s findings that the price of healthcare to patients depends not on the “quality of care, the sickness or complexity of the population being served, the extent to which the hospital is responsible for caring for a large portion of patients on Medicare or Medicaid, or whether the hospital is an academic teaching or research facility.” Instead, hospitals can pick their price range largely depending on the share of the healthcare market that they control.

“Although ACO-type organizations that integrate physicians and hospitals offer the promise of better care coordination, fewer complications and cost savings,” Kocher and Sahni concluded, “it is unclear whether these benefits will be passed along to patients as lower prices.”