April 25, 2019 By: Ashley Herzog
Published by The Heartland Institute
From July 2016 to January 2018, hospitals in the United States acquired approximately 8,000 private medical practices. Over the same period, 14,000 physicians left private practice to work for hospitals. In 2012, hospitals operated 35,700 private practices. By 2018, that number had increased to more than 80,000. Currently, 44 percent of physicians work for hospitals.
The trend affects consumers because outpatient hospital services are typically more expensive than services delivered by private medical practices and corresponds with introduction of Obamacare which began enrollment in 2014.
Devon Herrick, a health care economist and policy advisor with The Heartland Institute, which publishes Health Care News,says there are several reasons for the trend.
“Solo or small practices have higher overhead, such that many doctors are tired of being self-employed,” said Herrick. “Enrollment in medical school is evenly split between the sexes now: 50 percent men and 50 percent women. Many women demand more work-life balance than is found in practices where physicians are self-employed.”
Doctors may also be attracted to the leveraging power hospitals have with third-party payers.
“Because hospitals get paid more for services performed in the hospital, the hospital can pay the doctors their previous salary while only requiring 40 hours of work a week rather than the 50 or 60 hours the doctors may have worked prior to being employed by the hospital,” Herrick said.
Hospitals are able to expand profits when they bring more physicians on staff.
“Hospitals tack on ‘facility fees’ for services performed in the hospital, including physician offices owned by the hospital,” Herrick said. “Hospital-employed physicians are also pressured to make all referrals to other hospital-employed physicians.”
Patients may be unaware of these facility fees, which hospitals can legally bill to Medicare, which increases the patient’s coinsurance.
“It could be the same physician they have seen numerous times in the past, not knowing the practice was sold to a hospital,” Herrick said. “It is often the very same office, so there is the appearance that nothing has changed, until a bill arrives,” Herrick said.
Costly ‘Provider Carousel’
Philip Eskew, founder of DPC Frontier, says hospital systems acquire private practices to offer all-encompassing care, which can result in higher costs to patients.
“Hospitals create incentives for patients to be referred around a provider carousel in their system so that the patients can be charged for three or four consults when one should have been enough,” said Eskew.
Like Herrick, Eskew says facility fees are a main driver for hospitals to acquire private practices.
“Why would Medicaid or Medicare pay a hospital more than a physician for delivering exactly the same service?” asks Eskew. “Realistically, there is no good answer. How did the hospital lobbyists make this argument with a straight face? Likely by arguing that their overhead was higher and thus justified higher reimbursement.”
Because the health care system is rife with third-party payments, consumers are not aware of the actual costs they incur. This lack of price transparency reduces incentives for health care providers, especially hospital systems, to keep costs down. Eskew says recent trends will only make matters worse.
“Independent practices are almost always a better value than going to a hospital-owned practice,” Eskew said. “Independent practices focused on price transparency, especially direct primary care practices, are the most important way out of our failing, insurance-driven health system.”
One way to decrease escalating costs is site-neutral payments, which would require third-party payers to remit the same amount for a service regardless of where it is performed.
“The easiest way to reduce the trend is for Medicare and governmental payers to stop paying hospitals more for services performed in hospitals than the same services performed outside the hospital,” Herrick said. “This makes sense because it creates competition to perform services in the most efficient manner.”
Calls for Consumer Power
Herrick says providers should give patients more decision-making power.
“A patient should have some discretion in referrals and should be told when a referral is in-house and be given the opportunity to seek care outside the closed referral process,” said Herrick.
“Patients need to always ask their physician, ‘How much does it cost?’” Eskew said. “If the physician cannot or will not answer this question, then start looking for a new physician.”
“Updated Physician Practice Acquisition Study: National ansd Regional Changes in Physician Employment, 2012-2018,” Physicians Advocacy Institute, February 2019,