Who Does Your Physician Work For?

By Richard Gunderman
(Wikimedia Commons)

Physicians in the United States are in the midst of a historic shift toward hospital employment. Between 2000 and 2010, the percentage of physicians who went to work for hospitals increased by one-third, and the rate appears to be increasing in the years since. Today, fewer than half of U.S. physicians are self-employed, down from over three quarters in 1983, and in 2014 it is estimated that three in four of all physicians hired will go to work for a hospital. What is driving this trend toward hospital employment, and is it good or bad news for patients?

A number of forces at work in contemporary health care are pushing physicians toward hospital employment. For one thing, they face rapidly increasing regulatory and administrative burdens, which weigh disproportionately heavily on physicians in solo and small-group practices. A related issue is the shift toward the use of increasingly sophisticated and expensive information technology, which again favors larger organizations that can support sizable IT staffs. These changes are making the old Marcus Welby model of medical practice increasingly untenable.

Another set of factors driving physicians toward hospital employment is financial. One is downward pressure on physician incomes. In many cases, hospitals can offer physicians more money than they are currently making, and employment contracts often guarantee income levels for a period of three to five years. A related factor is malpractice insurance costs, which pose an increasing financial burden for self-employed physicians but are typically covered by hospitals when physicians become employees. At least in the short term, these factors make hospital employment seem attractive.

Another important set of factors concerns the typical environment in which future physicians are trained. Most medical schools are parts of large hospitals systems, and in many of these settings, the physician is a salaried employee. As a result, medical students and residents often have relatively little contact with self-employed physicians in solo or small-group practice. When the time comes to look for a job, they naturally tend to prefer what they know. In most surveys, the number of medical students saying they want to go into independent solo practice is only 1 or 2 percent.

Still another set of factors driving hospital employment of physicians operates primarily from the hospital side. In the current predominately fee-for-service health care payment system, boasting large physician networks can increase a hospital’s negotiating power with health care payers. With the transition now underway to accountable care, which will base payments at the population level and reward less for care provided than for controlling costs, hospitals want to retain revenue that would otherwise be lost to lower-cost care options. Exerting more influence over physicians can help make this happen.

Even if the hospital appears to lose money on each physician it employs, from a longer-term and broader point-of-view it can profit in a number of ways. One is by better coordinating patient care to reduce inefficiency and waste. For example, by better integrating information systems between different physicians and the hospital, it may be possible to reduce unnecessary testing, avoid inappropriate duplication of medications and procedures, reduce failure and complication rates, and ultimately perhaps to improve the quality of patient care.

Hospitals also have a strong incentive to acquire more control over patient referral patterns and increase their market share. In a medium or large size community, when it comes to referring a patient for specialty care or hospital admission, physicians often have multiple choices. Under federal fraud and abuse statutes, it is illegal for a hospital to offer a physician any financial inducement to refer a patient to a particular organization or facility. However, there is an exception to this policy: when the physician is a hospital employee. 

Hospitals also fear the possibility that physicians might band together to form large multi-specialty groups that direct patient care and health care utilization free of hospital control. In this scenario, physicians can become successful competitors to hospitals. In some cases, instead of the physicians being employed by hospitals, hospital administrators in effect find themselves working for physicians. Intriguingly, some of the best hospitals in the country, such as the Cleveland Clinic and the Mayo Clinic, are run by physicians and correspond rather closely to this model. 

Is what is good for hospitals good for patients? Not necessarily. There is always a danger that as hospitals acquire larger and larger market shares they will seek to exploit this power to reduce competition and drive up prices. When the Attorney General of Massachusetts examined this possibility, she discovered that health care prices tend to be highest not where quality of care, complexity of care, or the percentage of Medicaid patients is highest, but instead where hospitals enjoy the greatest market share. Even in systems that make care more efficient, savings are not necessarily shared with patients.

The American Medical Association, the largest physician organization in the U.S., is sufficiently concerned about the dangers of hospital employment that it has issued guidelines. These state first that employed physicians should be members of the hospital medical staff, the same as non-employed physicians, to ensure that they are subject to the same bylaws and due process. More importantly, the AMA stipulates that employed physicians must be “free to exercise their professional judgment” and should not be considered to have breached their employment agreement when they do so.

In other words, physicians should always remain free to do what they believe to be best for their patients, even when such decisions do not benefit—or even redound to the detriment—of the hospital that employs them. In some cases, a physician may judge that the best care plan for a patient is not the one specified by the hospital, or that the patient would be better served by referral to an outside organization. In this case, the AMA asserts, the physician’s first obligation is to do what is best for the patient, not what is best for the hospital.

At stake here are fundamental questions. Do patients exist for hospitals, or do hospitals exist for patients? Who is the best guardian of the welfare and interests of patients, a hospital administrator who typically never meets the patient, or the physician who is caring for patient face to face—and who has often been doing so for many years? Physician employment by hospitals is not necessarily a bad thing for patients, but it is important that both patients and physicians remain ever vigilant in keeping hospitals honest, ensuring that they never fail to put the patients' interests first.

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