“Seismic shift” lifts primary care's impact on hospital revenues

A survey finding specialists accounting for less revenue to hospitals reflects changes putting more emphasis on primary care as the Affordable Care Act is implemented.

By — Posted May 20, 2013

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For the first time, primary care physicians are driving more revenue on a per-doctor basis to hospitals than are specialists, according to a survey of hospital chief financial officers by physician recruiting firm Merritt Hawkins. It's expected that this result is not a fluke, but a reflection of the growing emphasis on primary care by hospitals and the health care system in general.

For 2013, the median revenue per primary care physician ascribed by about 3,000 hospital chief financial officers is nearly $1.6 million, and it is a little more than $1.4 million for specialists. In 2010, the last time Merritt Hawkins did such a survey, primary care was at more than $1.4 million, and specialties were at nearly $1.6 million. Specialists have outpaced primary care in Merritt Hawkins' survey, which began in 2002, continued in 2004 and has been conducted every three years since. The survey includes both inpatient and outpatient revenue generated for hospitals, and it does not give an aggregate total of the revenue generated by primary care and specialty physicians.

Merritt Hawkins said there were major shifts in the health care system from 2010 to 2013 that put pressure on all physicians, particularly specialists. One major factor is the 2010 Affordable Care Act, which has several pieces that put more onus on primary care to cut overall costs and keep patients healthy, especially those with chronic conditions or who otherwise would delay care until they are seriously ill. The rise in primary care contributions came as overall per-physician revenue for hospitals fell — from more than $1.5 million in 2010 to more than $1.4 million in 2013. It's the lowest median in the 11 years Merritt Hawkins has conducted the survey.

In the last three years, physicians began seeking employed positions in much greater numbers rather than own their own practices, and hospitals were happy to oblige, especially in primary care. Eleven percent of Merritt Hawkins' physician search assignments were for employment in 2004, but that number increased to 63% in 2012. Only 36% of practicing physicians will hold a practice ownership stake by the end of the 2013, down from 57% in 2000, according to Accenture's analysis of data from the American Medical Association and MGMA-ACMPE, an organization of medical group practice managers. With more primary care physicians employed, hospitals are capturing more revenue directly instead of relying on doctors who merely refer patients.

Experts also cite payment cuts in Medicare and from other payers to specialists in recent years, which have produced a greater desire for hospital employment. So hospitals have more control over the costs of specialists, mitigating declines in revenues.

“A seismic shift is taking place in medicine, away from specialists and toward primary care physicians,” said Mark Smith, president of Merritt Hawkins, in a statement. “Primary care physicians are increasingly employed by hospitals and in new delivery models, such as accountable care organizations. They are taking a greater role in driving both the delivery of care and the flow of health care dollars.”

Merritt Hawkins said its survey is designed to help hospitals determine what specialties to recruit, and to set compensation based on their financial worth to the facilities. But David May, MD, PhD, chair of the board of governors of the American College of Cardiology, said after reading the report that using it in such a way would be misguided. He said hospitals should focus more on whether care was appropriate than how much money physicians generated. The report “reflects how chief financial officers view physicians, which are as money-makers, and that's the problem,” Dr. May said. Noninvasive and invasive cardiology's per-physician revenue declined from 2010 to 2013.

The Merritt Hawkisn report noted that quality of care, as well as financial considerations, should be taken into account.

Which specialties rose and fell

The survey details per-physician revenue among 18 specialties. Among primary care doctors, family physicians had the largest gain in per-physician revenue generated, up to $2 million in 2013 compared with $1.7 million in 2010. Internal medicine also was up, while pediatrics declined.

The uptick in primary care revenue makes sense, because as more people gain access through the ACA, such as through allowing insured patients to get certain preventive care with no co-pays, primary care physicians will take on greater roles in health care, said Perry A. Pugno, MD, MPH, vice president of education for the American Academy of Family Physicians.

“Primary care physicians are taking the lead and are being recognized in health care and delivery,” he said.

In the category of specialists, noninvasive cardiology, invasive cardiology, gastroenterology, general surgery, neurology, neurosurgery, ophthalmology and pulmonology showed decreases from the 2010 survey, while hematology-oncology, nephrology, obstetrics-gynecology, orthopedic surgery, psychiatry and urology went up. Otolaryngology was added to the survey for the first time in 2013.

A few specialties had notable declines from 2010 to 2013. Ophthalmology fell from $1.7 million to $725,000. Neurology dropped from $940,000 to less than $700,000. Neurosurgery declined from $2.8 million to $1.7 million.

It's likely that the rise of employed physicians is driving up primary care physician revenue for hospitals, said John A. Wilson, MD, vice chair of the Dept. of Neurosurgery at Wake Forest University School of Medicine in North Carolina and chair of the American Assn. of Neurological Surgeons' Washington Committee. But he said some declines by specialties might be overblown, because small hospitals were overrepresented in the survey. Merritt Hawkins said 62% of respondents represented hospitals with 100 beds or fewer, compared with a national percentage of 51%. “Small hospitals usually don't have a lot of neurosurgeons on staff,” Dr. Wilson said.

However, Merritt Hawkins said its survey reflected overall health care trends. The report singles out nephrology as a specialty whose per-physician hospital revenue contribution increased by 69% from 2010 to 2013, from $700,000 to nearly $1.2 million. The report said that is probably due to the higher number of cases and an emphasis on the care and tracking of diabetes.

Orthopedic surgery, which was the biggest median contributor to hospital revenue at nearly $2.7 million per doctor, is growing due to baby boomers' need for new hips, knees and other procedures, according to the report.

Shift in specialists' employment

Primary care physicians have cited rising expenses and a need for stable income among the reasons for hospital employment. Specialists gave the same reasons and cited the Merritt Hawkins numbers as evidence.

The decline in per-physician hospital revenue is in part a result of the pressures specialists face. For example, the income of cardiologists in private practice was down by 30% during the last four years because of Medicare fee schedule cuts, Dr. May said. The reductions in payments to cardiologists are coupled with increases in drugs, devices and the cost of treatments, he said. It's also possible that internists at small hospitals are handling some of the duties that cardiologists might take care of because of a shortage of specialists and other reasons, said Jim Stone, president of the Medicus Firm, a physician recruiter.

Many cardiologists have opted to become employed as a result, according to the Merritt Hawkins report. It's backed up by a February report by cardiology practice consultant MedAxiom, which found that 53% of cardiology groups were fully integrated with hospitals, up from 32% in 2011.

MedAxiom's report, based on a survey of about 150 practices with a total of 2,400 doctors, mirrors findings by the American College of Cardiology's September 2012 survey that said the percentage of cardiology practices owned by hospitals tripled in the last five years. The ACC survey found that 24% of groups were owned by hospitals in 2012, compared with 8% in 2007. The proportion of practices with physician owners declined from 73% in 2007 to 60% in 2012. The percentage of cardiologists employed by hospitals grew from 11% to 35%, but those at physician-owned practices went from 59% to 36%.

Dr. May said the Merritt Hawkins report showed not only a change in the status of primary care but also a “seismic shift” for other specialties.

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Hospital revenue: specialty vs. primary care physicians

Merritt Hawkins, a national physician search firm, asked hospital chief financial officers how much revenue doctors generated on a per-physician basis for their hospitals in the previous 12 months. For the first time, primary care doctors contributed more than specialists.

Specialty 2007 2010 2013
All physicians (combined) $1,496,432 $1,543,788 $1,448,458
Primary care (combined) $1,433,532 $1,385,775 $1,566,165
Internal medicine $1,987,253 $1,678,253 $1,843,137
Pediatrics $697,516 $856,154 $787,790
Family medicine $1,615,828 $1,662,832 $2,067,567
Specialties (combined) $1,509,910 $1,577,764 $1,424,917
Cardiology (noninvasive) $2,240,786 $1,319,658 $1,232,142
Cardiology (invasive) $2,662,600 $2,240,366 $2,169,643
Gastroenterology $1,335,133 $1,450,590 $1,385,714
General surgery $1,947,934 $2,112,492 $1,860,566
Hematology-oncology $1,624,246 $1,485,627 $1,761,029
Nephrology $865,214 $696,888 $1,175,000
Neurology $557,916 $907,317 $691,406
Neurosurgery $2,100,000 $2,815,650 $1,684,523
Obstetrics-gynecology $1,413,436 $1,364,131 $1,439,024
Ophthalmology $725,000 $1,662,832 $725,000
Orthopedic surgery $2,312,168 $2,117,764 $2,683,510
Psychiatry $888,911 $1,290,104 $1,302,631
Pulmonology $1,332,534 $1,204,919 $1,009,868
Otolaryngology N/A N/A $825,757
Urology $1,272,563 $1,382,704 $1,428,030

Source: Merritt Hawkins, 2013 Physician Inpatient/Outpatient Revenue Survey

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