Hospitals hire doctors to control services and shore up market share, study says

Hospitals' hiring of individual physicians and purchase of physician practices is driven in large part by a desire for improved market share, consistent referrals and control of ancillary services, according to a survey of health care leaders by the Center for Studying Health System Change.

Physicians' incentives to become employed include a higher income potential than in private practice and a desire for work-life balance, as well as anticipation of potentially costly and overwhelming changes to physician payment arrangements, according to the survey, released Aug. 18.

The survey didn't include any numeric figures on hospital hiring or the reasons for it. The report is based on analysis of hundreds of interviews with health care executives and medical professionals in 12 communities around the country.

Though both sides have good reasons to align, and the outcome potentially could be an improvement in the quality of care because of better communication, the report's authors cautioned, "Hospital employment of physicians does not guarantee clinical integration." The authors also warned that hospital ownership of physician practices could drive up costs because of pressure on doctors to order more tests and create a higher volume of profitable procedures for their new employer.

Joel Sauer, now a health care consultant in New Haven, Ind., was part of a practice purchase in 2009, when he was CEO of The Heart Center in Fort Wayne, Ind., and it was acquired by Lutheran Health Network. Now he consults with hospitals that are making the same type of purchases. He agreed that clinical integration isn't a given when hospitals hire physicians.

He said Medicare cuts and a decline in physician payments have made employment more attractive for physicians. In the meantime, hospitals are looking to integrate care because their payments depend on their quality of services.

"Hospitals are nothing but hotels if they don't have their caregivers," Sauer said. "If physicians are struggling and the hospital doesn't offer a lifeboat, the group will migrate. The hospital that just ignores it does so at its own peril."

The report by the Center for Studying Health System Change was based on nearly 550 interviews with physician group leaders, hospital executives and "other knowledgeable market observers."