The Race Is On: Hospitals and Physicians React to Health Reform by Herding Together

U.S. hospitals have begun responding to the implementation of health care reform by accelerating their hiring of physicians. More than half of practicing U.S. physicians are now employed by physicians or integrated delivery systems, a trend fueled by the intended creation of accountable care organizations (ACOs) and the prospect of more risk-based approaches.

Robert Kocher, MD, and Nikhil Sahni, “Hospitals’ Race to Employ Physicians – The Logic behind a Money-Losing Proposition,” New England Journal of Medicine, May 12, 2011

One reaction to health reform is already abundantly clear. Hospitals and doctors are herding together to protect themselves.

Off to the Races

Hospitals are racing to hire physicians, physicians are racing to be employed, the government is racing to herd them into accountable care organizations, and hospitals and physicians are racing together to form ever larger hospital conglomerates, which are racing to add health insurance and claims processing functions (Philip Betbeze, “Get Ready for Healthcare Conglomerates,” Healthleadersmedia.com, April 14, 2011).

The Racing Percentages

According to a Physician Compensation and Production Survey by the Medical Group Management Association, over the last six years (2003-2009), the percentage of physician practices owned by physicians had declined from 70% to 49%, and the percentage of active primary care doctors employed by hospitals has grown from 22% to 38% and specialists from 6% to 18%.

The Irony and the Potential Payoff

The irony of hospital employment of physicians is that hospitals lose $150,000 to $250,000 per year over the first three years of employing a physician. For hospitals to break even, newly hired primary care specialists must generate 30% more visits than they do at onset, and specialist 25% more referrals.

But, given the health reform threats of lower reimbursements and higher risks, both hospitals and hired doctors feel employment is worth the risk in the long run. Hospitals envisage closed integrated systems with higher efficiencies and the ability to negotiate higher rates based on better performance ratings, better outcomes, and more market dominance. Doctors envisage economic security and more balanced lifestyles.

Whether 'Tis Better or Worse

Whether herding together will translate into improved productivity, outcomes, patient experiences, and lower prices is unknown at present. And whether the government, and accountable care organizations will be good shepherds in the herding process remains dubious in the minds of independent physicians.

As Aldous Huxley (1894-1963) observed in Themes and Variations, “From the point of view of individual lambs, rams, and ewes, there is no such thing as a good shepherd.” Individual practitioners openly worry and wonder whether they are being led to slaughter, whether the wool is being pulled over their eyes.whether they will be culled from the herd, and whether the shepherd is a lion in disguise.