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Hospital Marketing Perspectives: Capture Market Share and Referrals by Hiring Physicians

By Stewart Gandolf, Chief Executive Officer

leaping doctorThe Center for Studying Health System Change (HSC) took another look at the shift of physician employment from private practice to hospital employment. The top-line observations are not too surprising: Physicians are looking for security and hospitals are looking for increased market share, referrals and admissions. But, the study observes, this mutual attraction doesn’t assure quality improvements or reduced costs.

Their report is based on HSC’s 2010 site visits to 12 nationally representative metropolitan communities: Boston; Cleveland; Greenville, SC; Indianapolis; Lansing, MI; Little Rock, AR; Miami; northern New Jersey; Orange County, CA; Phoenix; Seattle; and Syracuse, NY. HSC has been tracking change in these markets since 1996. The HSC Issue Brief—Rising Hospital Employment of Physicians: Better Quality, Higher Costs?is available online here.

Some of the key findings may have influence on hospital marketing. These include:

Physician perspective: Stagnant reimbursement rates, coupled with the rising costs of private practice, and a desire for a better work-life balance make hospital employment attractive to some physicians. In markets with high hospital concentration, physicians face pressure to align closely with one hospital system or another.

Hospital perspective: To date, hospitals’ primary motivation for employing physicians has been to gain market share, typically through lucrative service-line strategies encouraged by a fee-for-service payment system that rewards volume. More recently, hospitals view physician employment as a way to prepare for payment reforms that shift from fee for service to methods that make providers more accountable for the cost and quality of patient care.

Quality and Integration: While greater physician alignment with hospitals may improve quality through better clinical integration and care coordination, hospital employment of physicians does not guarantee clinical integration.

Costs: The trend of hospital-employed physicians also may increase costs through higher hospital and physician commercial insurance payment rates and hospital pressure on employed physicians to order more expensive care. Numerous physician respondents noted that employed physicians face pressure from hospitals to order more expensive testing alternatives.

National health reform: Hospital executives also increasingly cited physician-hospital integration through physician employment as key to preparing for expected Medicare payment reforms, including bundled payments, accountable care organizations and penalties for preventable hospital readmissions.

Change without moving: Hospitals routinely charge facility fees for office visits and procedures performed in formerly independent physicians’ offices, where the physicians have converted to hospital employment. In short, it is possible for a physician practice to be acquired by a hospital, not change locations or even practice operations, yet the hospital now receives significantly higher Medicare payments.

Exceptions Noted: Across most of the 12 communities, hospital employment of physicians is growing rapidly. Exceptions are Orange County, where California law bars hospitals from directly employing physicians, but physicians tend to be tied closely to hospitals through other means; Boston, where physician organizations keep non-employed physicians tightly aligned with the dominant hospital system; and northern New Jersey.

We’d like to hear from you.

How does your situation compare to these findings? Are these nationally representative communities reflective of your area or your perspective?

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