Physician-Hospital  Consolidation -  The Downsides

Most physicians will be compelled to consolidate with other practitioners, become hospital employees, or align – with large hospitals and health systems for capital, administrative, and technical resources.

Physician Foundation Report, “Health Reform and the Decline of Private Practices, “  October, 2010

December 2, 2012 -  For physicians, the health reform handwriting is on the wall – consolidate and abandon private practice to survive.  A similar message applies to hospitals. Given proposed Medicare cuts – consolidate into bigger systems, collaborate with physicians and dominate your regional market. Acquire  physician practices, make physiians salaried employees , or otherwise keep physicians in tow or risk inevitable shrinkage or closure.

No hospital CEO, or hospital executives in the so-called C-suite, to my knowledge , has been hired to shrink or close a hospital.  Instead,  hospital executives, and hospital physician hospital leaders, exist to grow the hospital or health system, strengthen its competitive position, position the institution as a comprehensive consumer-centered community health care catch-all,  attract and generate sufficient capital, administrative, and technical resources to comply with government mandates, e.g. to develop and maintain  an interoperative electronic health record system, and create enough efficiencies and scale to stay in the health care game.

These developments help explain why single hospital systems dominate markets in many American cities and regions, e.g. in  Boston, Sacramento, Pittsburgh, Roanoke, and Charlotte,  and why the costs of care are soaring for private care.  

If you give the matter any thought at all,  you will realize when hospitals are forced to provide care for Medicare and Medicaid at lower costs than it takes to provide that care, the only market left is the private market, which accounts for 35% of total health costs.   This emphasis on the private pay  requires cost shifting from the public to private sector.  

This may be why Obamacare has resulted in $2500 rises in health premiums per family rather than $2500 decreases are promised under the health law. It may also be why for-profit hospitals dominate 75% of the nation’s regional markets.  When you dominate a regional market,  you can negotiate higher prices from private plans.  Big health plans, with their HMOs and PPOs, dominate 90% of regional markets.

So what is happening?  

In the December 2 New York Times, there is a piece entitled “ A Hospital War Reflects a Bind for Physicians.” The article describes how two hospitals in Boise, Idaho  have gone to war into how many physician practices they can acquire or control.  The two  hospitals employ more than half the 1400 physicians in southwestern Idaho.   These physicians include ER physicians,  general practitioners,  cardiologists, and orthopedic surgeons.

The hospitals, according to doctors,  set financial, performance, and productivity targets for the doctors – how many patients to admit,  what tests and procedures to order,  how many patients to see each hour, what prices to charge.   The prices charged by the hospital for physician services, for  example, imaging procedures,  and for service lines such as cancer often soars under the hospital, with the explanation that these things were previously “seriously underpriced” in physician practices.  This may be so, but it will be difficult to persuade health plans, consumers, and government using this rationale. 

PS - The  New York Times article mentioned above cited a health care corporation called Health Management Associates (HMA) for pressuring  doctors to admit patients to hospitals:

"Health Management Associates, a for-profit hospital chain; EmCare, a Dallas-based emergency room staffing company for hospitals; and other hospitals have disclosed that they are the subjects of federal investigations. Regulators are looking into whether the hospitals improperly pressured physicians to admit patients. "

"According to two emergency room doctors who worked at Carlisle Regional Medical Center in Pennsylvania, the message could not have been clearer: more patients needed to be admitted. "

"The doctors were employed by EmCare, whose parent company was later acquired by the private equity firm Clayton, Dubilier & Rice in 2011 as part of a $3.2 billion deal. EmCare, in turn, was under contract to provide emergency room doctors for the hospital, which is owned by Health Management Associates. In interviews, doctors said that hospital administrators created targets for how many patients they should admit. More admissions translated into more dollars for the hospital. "

In response to The Times article,   Lou Goodman, President, and Tim Norbeck, CEO of the Physician Foundation,  wrote this letter to The Times.'We would like to submit the following letter in response to the important subject article. Thank you."

"At the very same time that many independent physicians are struggling just to remain in private practice due to increased office expenses and declining reimbursements, large hospital entities--under the guise that bigger is better and cheaper--have been incentivized to gobble up those physician practices and become true monoliths in our health care system. But what a shocker! This consolidation, to no one's surprise but to the chagrin of many, demonstrates that not only is bigger not better, it isn't cheaper , either!"

"What a colossal shame for patients (and payers) that physicians were not accorded the same incentives to save their practices. With independent physicians, and unlike those consolidators, there is no question about loyalties to the patient or advocacy issues. And as the spokesperson for the FTC's Bureau of Competition stated: "Historically, what we've seen with the consolidation in the health care industry is that prices go up, but quality does not improve." How sad that neither patients nor physicians had any say in this evolution. Perhaps the worst impact of consolidation on the patient: unless there are new incentives developed quickly to help physicians, say goodbye to the private practice of medicine."

Lou Goodman, PhD, President, The Physicians Foundation, Tim Norbeck, CEO, The Physicians Foundation

PPS -  Following closely on the heels of the New York Times article came a December 2 CBS "60 Minutes" report titled "The Cost of Admission."  In essence, the report was an expose on the business practices of  Health Management Associates (HMA),  a corporation with $5.8 billion of revenues that owns 70 hospitals, mostly in nonurban areas.   Three doctors, an administrator,  and a former FBI agent who worked for HMA testfied that the corporation pressured ER doctors to meet admission qoutas of 20% overall and 50% for Medicare patients.  Further, they maintained, the  company had installed a software program in every ER called Pro-Med that automatially ordered a battery  of laboratory tests, whether the tests  were requested by a physician or not.   Doctors who did not meet admission quotas were threatened with firing. The motivation for inappropriate hospital admissions, according to those who appeared in 60 minutes,   was money -  not quality  of care, but quantity of care.   A Health Management Associates executive denied the allegations, which are being investigated by the Justice Department.. 

Tweet:  To comply with government regulations,  hospitals and doctors are consolidating. The result may be increased costs and market monopolies.