The Implications of Increasing Physician Hospital Employment

Several years ago, Dr. Jack had a popular, solo internal medicine practice in Phoenix. However, over a period of about 15-20 years, the profitability of Jack’s private practice dwindled and he was working 60+ hours per week to keep his head above water. This is not what he planned in his mid-50’s when he hoped to be settling into a comfortable lifestyle in anticipation of retirement. Jack eventually closed his practice and took a job as a hospital-employed physician. Jack’s story has become all too common. The majority of physicians are now hospital-employed (1).

The increase in hospital-employed physicians raises at least 2 questions: 1. How can a busy private practice not be profitable? and 2. Is it good to have most physicians hospital-employed? Like Jack, it seems most physicians seek hospital employment for financial and lifestyle reasons. But how can a primary care practice like Jack’s not be profitable when the cost of healthcare has risen so markedly?

To understand why a practice can be busy but not necessarily profitable we need to follow the money. First, reimbursement for private practice has decreased in real dollars (Figure 1) (2). 

Figure 1. Inflation and Medicare physician fee schedule (MPFS) growth in percent from 2006-2017 (2).

Private practice physician reimbursement is the only major cost center that the Centers and Medicaid Services (CMS) has singled out for asymmetrical negative annual fee schedule adjustments. The other major cost centers—hospital inpatient and outpatient, ambulatory surgical centers, and clinical laboratories—all had fee schedule adjustments that were nearly equal to and typically greater than inflation (2). Of course, private insurance companies follow CMS’ lead and so reimbursement to private practice physicians dramatically decreased (3).

In addition, increased requirements for documentation and paperwork were imposed by CMS and quickly picked up by private insurers. These required more physician time and/or the hiring of additional personnel. In addition, there were increasing annoyances and burdens placed on physicians to review and sign forms and prescriptions which already been electronically submitted. Often these annoyances were so the durable medical equipment provider, pharmacy, etc. could be reimbursed. These later burdens now take up to one-sixth of a physicians’ time, decrease office efficiency, and not surprisingly, greatly decrease physician job satisfaction (4).

The second question is whether hospital-employed physicians is a good thing for patients. Although hospitals have argued that hospital-based physicians provide better care, patient outcomes appear to be no different (5). Hospitals have engaged in a number of practices resulting in physicians being financially squeezed. The American Hospital Association (AHA) has lobbied CMS and Congress for payments that are much higher than independent physicians’ offices, assuring hospital profitability. However, under the Trump administration, CMS proposed to pay the same rate for services delivered at off-campus hospital outpatient departments and independent doctors' offices (called site neutrality) (6). This would result in about a 60% cut to the hospitals for these services (7). Not surprisingly, hospitals complained and lobbied Congress to rescind the rule (7). Later the AHA sued CMS challenging the "serious reductions to Medicare payment rates" as executive overreach (8). The case is currently pending before the courts.

Hospitals have also engaged in a number of practices to limit competition from physicians’ offices. First, several have employed a non-compete clause as a condition of obtaining staff privileges. These clauses mean that should a physician leave a hospital, the physician is unable to reestablish a practice within a specified distance of the hospital (often within a radius of 50 miles) (9). Of course, in a metropolitan area this means the physician has to leave the city, or in the case of a large hospital chain, the physician may have difficulty finding areas to practice even in the same state. Second, with the “hospitalist movement” many hospitals have seized on the opportunity to essentially self-refer. That is, the hospitals schedule follow-up appointments with primary care or other physicians employed by the hospitals.

A study documents that healthcare costs for four common procedures rose with increasing hospital physician employment (10). A 49% increase in hospital-employed physicians led to CMS paying $2.7 billion more for diagnostic cardiac catheterizations, echocardiograms, arthrocentesis and colonoscopies delivered in hospital outpatient settings than it would for treatment in independent facilities. CMS beneficiaries footed an additional $411 million.

Although many decry a fee-for-service healthcare system as being too expensive, the increase in hospital-employed physicians seems to only have increased healthcare costs. Action by CMS is needed not only for site neutrality but also a number of other areas to ensure health competition in healthcare.

Richard A. Robbins, MD

Editor, SWJPCC

References

1. Kane CK. Updated data on physician practice arrangements: For the first time, fewer physicians are owners than employees. Policy Research Perspectives. American Medical Association. 2019. Available at: https://www.ama-assn.org/system/files/2019-05/prp-fewer-owners-benchmark-survey-2018.pdf (accessed 5/11/19).
2. Cherf J. Unsustainable physician reimbursement rates. AAOS Now. October, 2017. Available at: https://www.aaos.org/AAOSNow/2017/Oct/Cover/cover01/ (accessed 5/11/19).
3. Clemens J, Gottlieb JD. In the shadow of a giant: Medicare's influence on private physician payments. J Polit Econ. 2017 Feb;125(1):1-39. [CrossRef] [PubMed]
4. Woolhandler S, Himmelstein DU. Administrative work consumes one-sixth of U.S. physicians' working hours and lowers their career satisfaction. Int J Health Serv. 2014;44(4):635-42. [CrossRef] [PubMed]
5. Short MN, Ho V. Weighing the effects of vertical integration versus market concentration on hospital quality. Med Care Res Rev. 2019 Feb 9:1077558719828938. [CrossRef] [PubMed]
6. Robbins RA. CMS decreases clinic visit payments to hospital-employed physicians and expands decreases in drug payments 340b cuts. Southwest J Pulm Crit Care. 2018;17(5):136. [CrossRef]
7. Luthi S, Dickson V. Medicare's site-neutral pay plan targeted in hospitals' lobbying. Modern Healthcare. September 25, 2018. Available at: https://www.modernhealthcare.com/article/20180925/TRANSFORMATION04/180929928/medicare-s-site-neutral-pay-plan-targeted-in-hospitals-lobbying (accessed May 11, 2019).
8. Luthi S. Hospitals sue over site-neutral payment policy. Modern Healthcare. December 04, 2018. Available at: https://www.modernhealthcare.com/article/20181204/NEWS/181209973/hospitals-sue-over-site-neutral-payment-policy (accessed May 11, 2019).
9. Darves B. Restrictive covenants: A look at what’s fair, what’s legal and everything in between, Today’s Hospitalist. April 2006. Available at: https://www.todayshospitalist.com/restrictive-covenants-a-look-at-whats-fair-whats-legal-and-everything-in-between/ (accessed May 11, 2019).
10. Kacik A. Hospital-employed physicians drain Medicare. Modern Healthcare. November 14, 2017. Available at: https://www.modernhealthcare.com/article/20171114/NEWS/171119942/hospital-employed-physicians-drain-medicare (accessed May 11, 2019).

Cite as: Robbins RA. The implications of increasing physician hospital employment. Southwest J Pulm Crit Care. 2019;18(5):141-3. doi: https://doi.org/10.13175/swjpcc025-19 PDF 

A Labor Day Warning

Today is Labor Day, a public holiday honoring the American labor movement and the contributions that workers have made to the strength, prosperity, laws, and well-being of the country. Though this holiday dates back to the end of the nineteenth century, the concept of organized labor is under increasing attack. While many of the physician and nurse readers may think that “labor” does not apply to them, after all they are professionals, management would likely disagree.

In Arizona v. Maricopa County Medical Society in 1982, the Supreme Court ruled that when physicians negotiate collectively with insurers about fees, and as a consequence do not compete with one another, such negotiations represent a horizontal agreement among competitors to fix prices (1). This was based on the concept of physicians being independent from hospitals or healthcare systems. However, more physicians are now hospital employed which has been in no small part due to cuts in physician compensation by Medicare with the insurers rapidly following. This increase in physician employment has been associated with increased billings leading to increased profits and decreased physician compensation (2,3).

The Nation’s largest healthcare system is the Department of Veterans Affairs (VA). The pace of VA hiring has not kept pace with the growth of patients leading to prolonged wait times first reported in Phoenix (4). Two recent decisions will likely affect physician hiring and retention at the VA. First, President Trump announced cancellation of the the planned salary increase for civilian employees (5). Second, VA Secretary Robert Wilkie, cancelled collective bargaining rights when it comes to professional conduct and patient care by VA providers (6). In the private sector, hospital employed physicians seem to becoming increasingly discontented because of 1. Having to deal with a lot of rules; 2. Having to deal with a large bureaucracy. 3. Not having a staff under their control; and 4. Having little control over compensation models (7).

All in all, this does not bode well for physicians or patients. The data suggest that the Medicare has helped destroy independently employed physicians while over compensating hospital employed physicians whose fees are collected by the hospital (7). This trend will likely continue until Medicare realizes that the existence of the independent practitioner keeps healthcare costs down. By financially squeezing the independent practitioner Medicare’s actions lead to decreased competition and increased healthcare costs.

Richard A. Robbins, MD

Editor, SWJPCC

References

1. Halper HR. Arizona v. Maricopa County: a stern antitrust warning to healthcare providers. Healthc Financ Manage. 1982 Oct;36(10):38-42. [PubMed]
2. Lowes R. Hospital-employed physicians cost Medicare more, study says. Medscape. November 16, 2017. Available at: https://www.medscape.com/viewarticle/888772#vp_1 (accessed 9/3/18).
3. Kane L. Medscape physician compensation report 2018. Medscape. April 11, 2018. Available at: https://www.medscape.com/slideshow/2018-compensation-overview-6009667#12 (accessed 9/3/18).
4. Davidson J. VA doctor shortage fueled by management issues, poor pay The Washington Post. July 16, 2018. Available at: https://www.washingtonpost.com/news/powerpost/wp/2018/07/16/va-doctor-shortage-fueled-by-management-issues-poor-pay/?utm_term=.070275d06e2a  (accessed 9/3/18).
5. Liptak K. Trump cancels pay raises for federal employees. CNN. August 31, 2018. Available at: https://www.cnn.com/2018/08/30/politics/trump-cancels-federal-employee-pay-raises/index.html (accessed 9/3/18).
6. Department of Veterans Affairs. VA secretary clarifies collective bargaining authority for patient care. August 29, 2018. Available at: https://www.managedhealthcareconnect.com/content/va-secretary-clarifies-collective-bargaining-authority-patient-care?hmpid=cmlja3JvYmJpbnNAY294Lm5ldA== (accessed 9/3/18).
7. Mertz GJ. Physicians employed by hospitals. Medscape. January 01, 2018. Available at: https://www.medscape.com/viewarticle/891120#vp_1 (accessed 9/3/18).
8. Lowes R. Hospital-employed physicians cost medicare more, study says. Medscape. November 16, 2017. Available at: https://www.medscape.com/viewarticle/888772 (accessed 9/3/18).

Cite as: Robbins RA. A labor day warning. Southwest J Pulm Crit Care. 2018;17(3):95-6. doi: https://doi.org/10.13175/swjpcc106-18 PDF 

Changes in Medicine: Job Security

Reference as: Robbins RA. Changes in medicine: job security. Southwest J Pulm Crit Care 2011;3:72-4.  (Click here for a PDF version).

A Medscape article entitled the “Six Biggest Gripes of Employed Doctors” listed job security as a major concern of hospital employed physicians (1). When I left fellowship, most junior physicians joined an established, group practice either as a salaried associate or with a guaranteed income. Few ventured into solo practice, especially in pulmonary and critical care where night calls are frequent and days off are rare. Usually after a few years, the associate became a partner. Partners were entitled to share in profits that they generated, and usually profits of the group. Now that many physicians are employees of hospitals or corporations rather than physician-controlled practices, marked changes in physicians’ business hiring and business practices are occurring.

Some observers don't think job security is a problem for physicians. I would agree. Doctors are in demand and nearly every physician can find a job. Matt Robbins, Senior Director of Marketing for Delta Physician Placement in Dallas, points out that hospitals will hire more physicians as healthcare reform expands coverage and increases the emphasis on care coordination (1). However, the physicians of the future may question the cost of medical school, residency, and fellowship to enter into a “master-servant” relationship with an employer.

For example, a radiologist with a long term private practice relationship with a hospital for many years was told that the hospital was severing this relationship in order to form an all employee model. However, he and his private practice colleagues were given the opportunity of joining the new hospital radiology group. Now his income is dependent on his productivity. It is difficult for him to find time to teach, discuss cases with consultants, or participate in conferences without a financial penalty.

Several of the Phoenix pulmonary and critical care fellows were previously employed as hospitalists. One was jobless after the group that had provided hospital services for services for several years did not have their contract renewed. The hospital hired their own hospitalists, mostly young physicians just out of training. However, within a few months most had left because of dissatisfaction, especially with the workload.

Although lack of physician productivity, hospital financial losses or hospital mergers have been cited as reasons for terminating or modifying physician contracts, it would appear that maximizing profits is more likely. In the “master-servant” relationship inherent with a hospital-employed physician, the downside may be increasing workload, decreasing income and declining autonomy. Although some would argue that this increasing competition is good for the patient consumer, the rising healthcare costs with declining physician income argue against this.

However, if a physician is unhappy, he or she can always leave. After all the relationship is “master-servant” not “master-slave” and most contracts can be cancelled with a few months notice. However, more and more contracts have noncompete clauses, requiring a physician not to practice within a certain distance after leaving (1). With many hospitals or hospital corporations expanding, many physicians may have to move from their previous practice area, even from a large metropolitan area. There is also the possibility that if the separation is acrimonious, the quality assurance process can be used make a physician’s relocation even more difficult. While the hospital administrator has the option of complaining about a physician, the reverse is often not true. Hospital employed physicians are frequently required to sign contracts stating that they cannot discuss their employment.

The negative side of hospital employment should cause physicians to pause and carefully examine a contract. The negatives may outweigh the positives. Furthermore, with hospital mergers and administrators frequently changing, even the best situation could quickly deteriorate.

What is needed is increased oversight of the physician-hospital relationship. First and foremost, an administrator directing or pressuring physician employees to order certain tests, prescribe certain medications, etc. is an unlicensed practice of medicine by the administrator. It increases the cost of healthcare by the ordering of unnecessary testing, procedures, or therapy where profit margin is more a consideration than patient benefit. This should be reported to state licensing agencies. Second, it is questionable that hospitals should be allowed to hire physicians. California has a law prohibiting hospital or corporation ownership of physician’s practices (2) but the law is complicated and appears to be largely unenforced (3). As hospitals hire more physicians, laws to protect both patients and physicians from unscrupulous hospital administrators need to be both enacted and enforced. Third, physicians should be wary of noncompete and no discussion clauses in contracts. These are red flags that could signal potential dire professional and financial consequences to a physician who is in a difficult employment which they wish to leave.

Richard A. Robbins, M.D.

Editor, Southwest Journal of Pulmonary and Critical Care

References

1. Terry KJ. Six biggest gripes of employed doctors. Medscape Business of Medicine 2011. http://www.medscape.com/viewarticle/737543 (accessed 8-22-11).
2. http://www.mbc.ca.gov/licensee/corporate_practice.html (accessed 9-23-11).
3. Fichter AJ. Owning a piece of the doc: state law restraints on lay ownership of healthcare enterprises. Journal of Health Law 2006:39:1-76.

The opinions expressed in this editorial are the opinions of the author and not necessarily the opinions of the Southwest Journal of Pulmonary and Critical Care or the Arizona Thoracic Society.

Changes in Medicine: the Decline of Physician Autonomy

Reference as: Robbins RA. Changes in medicine: the decline of physician autonomy. Southwest J Pulm Crit Care 2011;3:49-51. (Click here for a PDF version)

Thirty years ago when I left fellowship, there were predominantly two career paths, private practice or academics. I had chosen academics by virtue of doing a fellowship at a heavily research-based program, the National Institutes of Health (NIH). However, even at the NIH many of my colleagues eventually ended up in private practice, which was more lucrative and much more common than the academic practice I chose. Now a third path has become more common, practice as a hospital employee. I became a hospital employee over 30 years ago when I became a part-time, and later, full-time physician at a Department of Veterans Affairs (VA) medical center affiliated with a university. Apparently I was ahead of my time. In an article entitled “Majority of New Physician Jobs Feature Hospital Employment” 56% of physician search assignments by the national physician search firm Merritt Hawkins in 2011 were for hospitals (1). This had increased from 51% in 2010 and 23% in 2006. In contrast, only 2% of the firm's 2011 search assignments featured openings for independent, solo practitioners, down from 17% in 2006. "The era of the independent physician who owns and runs his or her practice is fading," according to Travis Singleton, a senior vice-president at Merritt Hawkins.

The reason that hospitals want to employee physicians is obvious-money. By increasing market share and collecting professional fees, hospitals profit from physician employment. Physicians may be fearful of the cost of setting up a private practice with the increasing uncertainties of reimbursement, making a salaried hospital position attractive. This is especially true for a new physician not wishing to add to the debt incurred during training or seeking less than full-time employment for family or personal reasons (2).

Although quality or efficiency is often touted as a major reason for hospitals to employee physicians, recent research suggests that neither result. Kuo and Goodwin (3) reviewed over 50,000 Medicare admissions and found that hospital length of stay was 0.64 day less and costs $282 lower among patients receiving hospitalist care compared to primary care physician care. However, this reduction in inpatient costs under the care of hospitalists was more than offset by a $332 increase in charges after discharge.  Furthermore, patients cared for by hospitalists were less likely to be discharged to home; more likely to have emergency department visits; more likely to be readmitted to the hospital; less likely to have a follow up visit with their primary care physician; and more likely to be admitted to a nursing facility. As the authors point out this is nothing more than cost shifting, and hospitalists, who are typically hospital employees, may be more susceptible to behaviors that promote cost shifting. Consistent with this concept, O’Malley et al. (4) state that hospital employed physicians increase costs by higher hospital and physician commercial insurance payment rates and hospital pressure on employed physicians to order more expensive care.

Although the disadvantages of hospital employment are several, “Ultimately, the loss of control over their own professional lives is what irks employed doctors the most…” (5). As someone who worked as a hospital employee for the VA for over 30 years, I found an increasing “master-servant relationship” particularly annoying. Decisions were often based on financial or political considerations by nonphysicians or under-qualified clinicians. For example, some have recommended propofol as a standard in conscious sedation (6). It offers a number of advantages including ease of titration and short duration of action. Propofol has been used by our group for years in the ICU. Our group applied for “privileges” to use propofol for bronchoscopy which was endorsed by the pharmacy and therapeutics committee. Yet, the clinical executive board denied the application which our group found puzzling.  I was later told by a quality assurance nurse that the basis of this decision was that propofol is what killed Michael Jackson.  Hopefully medical decision making meets a higher standard than the singular example of what may have happened to a pop star.

Another example is the guidelines from groups like the Institute for Healthcare Improvement (IHI) that quickly becomes hospital mandates. Many of these guidelines are, at best, weakly evidence based (7). Furthermore, the guidelines are bundled, i.e., several guidelines are grouped together. Bundling makes it difficult, if not impossible, to determine which guidelines are effective. Most have probably had little impact on patient outcomes, but at least one proved to be catastrophic. Tight control of blood sugar in the intensive care unit was mandated and monitored by the VA based on IHI recommendations. However, as demonstrated in the NICE-SUGAR study, tight control actually resulted in a 14% increase in patient mortality (8). This increase in mortality would translate to 9503 excess deaths at all VA hospitals between 2002 and 2009 or about 1 death for every 84 patients treated with tight control of glucose. After publication of the NICE-SUGAR study the IHI dropped the issue from its web site and the VA switched to also monitoring hypoglycemia. One might think that a guideline which resulted in a 14% increase in ICU mortality would cause an outcry to punish those responsible, but instead resulted only in a deafening silence.

I am hopeful that we have trained our young physicians to practice for their patients’ benefit, rather than the financial or political well-being of the hospital. Yet, I fear that the financial pressures of beginning practice and protecting one’s reputation and livelihood may be too great a pressure to resist. Until physicians are not supervised by non- or under-trained administrators in a “master-servant” relationship, incidents such as the increase in ICU mortality secondary to tight control of glucose are bound to reoccur.

Richard A. Robbins MD

Editor, Southwest Journal of Pulmonary and Critical Care

References

1. Crane M. Majority of New Physician Jobs Feature Hospital Employment. Medscape 2011. http://www.medscape.com/viewarticle/744504?sssdmh=dm1.695421&src=nldne (accessed 8-22-11).
2. Robbins RA. Changes in medicine: medical school. Southwest J Pulm Crit Care 2011:3:5-7.
3. Kuo Y-F, Goodwin JS. Association of hospitalist care with medical utilization after discharge: evidence of cost shift from a cohort study. Ann Intern Med 2011;155:152-9
4. O'Malley AS, Bond AM, Berenson RA. Rising hospital employment of physicians: better quality, higher costs? Center for Studying Health System Change (HSC) 2011. http://www.hschange.com/CONTENT/1230/#ib5 (accessed 8-23-11).
5. Terry KJ. Six biggest gripes of employed doctors. Medscape Business of Medicine 2011. http://www.medscape.com/viewarticle/737543 (accessed 8-22-11).
6. Eichhorn V, Henzler D, Murphy MF. Standardizing care and monitoring for anesthesia or procedural sedation delivered outside the operating room. Curr Opin Anaesthesiol 2010;23:494-9.
7. Padrnos L, Bui T, Pattee JJ, Whitmore EJ, Iqbal M, Lee S, Singarajah CU, Robbins RA. Analysis of overall level of evidence behind the Institute of Healthcare Improvement ventilator-associated pneumonia guidelines. Southwest J Pulm Crit Care 2011;3:40-8.
8. The NICE-SUGAR Study Investigators. Intensive versus conventional glucose control in critically ill patients. N Engl J Med 2009; 360:1283-97.

The opinions expressed in this editorial are the opinions of the author and not necessarily the opinions of the Southwest Journal of Pulmonary and Critical Care or the Arizona Thoracic Society.