How hospitals' 'land grab' for doctors may be pushing up health costs

Physicians are selling practices to hospitals for higher reimbursements

Topics: Medicare, Reimbursement, Finance, Payer Relations

November 27, 2012

More physicians are selling their practices to hospitals—partly influenced by diminishing Medicare reimbursement and rising overhead costs—but the trend may be driving up health spending, Bloomberg News reports.

For example, the number of cardiologists in private practice has decreased 23% between 2007 and 2012, while the number of cardiologists employed by hospitals has more than tripled, according to the American College of Cardiology (ACC).

By selling their practices to hospitals, physicians are able to earn higher incomes and often offer better-quality coordinated care to their patients. In turn, patients  and payers are billed more for the same services—hospitals may earn three times what individual physicians would in reimbursement for the same cardiology treatments.

According to ACC, Medicare pays hospitals:

  • $400 for an echocardiogram;
  • $180 for a cardiac stress test; and
  • $25 for an electrocardiogram.

In contrast, Medicare pays a private practice:

  • $150 for an echocardiogram;
  • $60 for a cardiac stress test; and
  • $10 for an electrocardiogram.

When "a physician becomes employed by a hospital," the "payer, like Medicare, has to start paying more," according to president of the Center for Studying Health System Change Paul Ginsburg. Essentially, the government's plan to reduce health care costs is driving them up in the short-term, Ginsburg suggests.

Cardiologists are particularly sought-after because they attract patients needing expensive surgeries and tests, such as magnetic resonance imaging and stents to prop open clogged arteries, according to Sheryl Skolnick, an analyst for CRT Capital.

"It's become a land grab for physicians groups," Skolnick said. "If you have got the doc and own their practice, they are probably not going to be on staff anywhere else in your marketplace so you also are likely to get that volume."

Long term, Medicare's payment model may slow rising costs as hospitals are being pushed to accept lump-sum payments to treat a condition or manage a patient's overall health, rather than charging separate fees for every service, according to Bloomberg News.

And like the Affordable Care Act, the payment model is intended to reinforce preventive medicine and penalize unnecessary services in the future. But for now hospitals are getting paid more on the quantity of their services rather than the quality, according to Bloomberg News (Pettypiece, Bloomberg News, 11/19).

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