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Why Hospitals Are Beating the Bushes for Primary-Care Doctors

Hospitals are again snapping up primary care physicians as they prepare to become accountable care organizations (ACOs), says Becker's Hospital Review. To qualify for Medicare's future shared-savings program, ACOs must include a strong primary-care component, so PCPs are essential to this strategy. The result will be to drive more primary-care doctors into hospitals' arms in search of higher pay than they can earn in private practice. And that adds to the evidence that the days of small independent practices are numbered.

While hospitals are also vying for procedural specialists such as cardiologists and orthopedists, general internists and family physicians are in short supply. So hospitals are paying annual compensation packages of $232,500 to family doctors and $265,500 for internists, says the Delta Companies, a recruiting firm. This is far more than hospitals were paying primary-care physicians in 2009, according to a survey by Merritt Hawkins, another physician recruiter. While the higher amounts apparently include the value of benefits and perhaps signing bonuses, they may also signal heightened competition for these doctors.

The Merritt Hawkins research shows that hospitals make far more off of primary-care doctors than they do from specialists. Including employed physicians and those who receive income guarantees from hospitals, the average revenue generated for hospitals by all physicians was $1.54 million in 2009. Neurosurgeons, cardiologists, and orthopedists generated $2.81 million, $2.24 million, and $2.12 million, respectively. By contrast, internists rang up $1.68 million and family physicians, $1.62 million, in the value of their referrals to hospitals. But while the specialists generated hospital revenues that were four to five times their salaries, the ratio was nine times salary for internal medicine and 9.4 times for family practice. So even if hospitals have to pay a bit more for primary-care doctors in the current environment, it's still a very good deal for them.

The big problem that hospitals have had in owning primary-care practices is that they don't manage them well. While hospitals say they've learned their lesson and are now providing better productivity incentives, the latest figures from the Medical Group Management Association (MGMA) suggest that it's still difficult to get doctors to work as hard for hospitals as they do for themselves.

According to the MGMA, over the past five years, privately owned multispecialty groups reported a 13 percent increase in one measure of physician work per patient, while multispecialty groups that were hospital-owned saw an 18 percent decrease.

In other respects, however, the hospital-owned practices have fared better than the independent groups. For example, over the past five years, the number of patients seen by each provider has increased 9 percent in hospital-owned groups and dropped by about the same amount in the private practices. And while total medical revenue jumped 2.4 percent from 2008 to 2009 for the hospital-owned practices, it decreased slightly for independent groups.

MGMA doesn't explain these contrasts between the two sets of group practices. But they might indicate that as hospitals employ more and more primary-care physicians, those doctors are funneling all of their referrals to specialists affiliated with those hospitals. In that case, the continuing decrease in the number of generalists in private practice will also affect the ability of specialists to remain independent.

The one firm conclusion that can be drawn from all of this data is that hospitals will increase their dominance of the healthcare system, partly as a result of healthcare reform. This may have some positive effects, such as reducing the fragmentation of the system and increasing coordination of care. But it will also accelerate the corporatization of medicine and hasten the demise of the small primary care practice.

Image supplied courtesy of Wikimedia Commons.

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