The world of medicine is changing. When I began my practice in 1984 the only doctors employed by the hospitals were radiologists and pathologists. Everyone else was a private practitioner.
In that arrangement, hospitals considered doctors their primary customers because the doctors determined where their patients would be treated. Hospital administrators understood they were in competition to attract doctor referrals so they treated the doctors well to earn their business.
Today, everything has changed and not necessarily for the better. A study by Avalere Health in 2016 found 42% of all doctors are now employed by hospitals. While the majority is still in privately-owned practices, this is a significant change.
Hospitals no longer look to private practitioners to fill their beds and their outpatient schedules. They expect that to come from the physicians they employ. They track the referral patterns of every physician and confront those who fail to refer consistently to their hospital.
Anna Wilde Mathews and Melanie Evans, writing in The Wall Street Journal, report on the Phoebe Putney Health System, based in Albany, Georgia. The doctors in the affiliated physician group receive regular reports breaking down their referrals to specialists or services. If the share of in-house business wasn’t viewed as adequate, administrators would press them to improve.
Doctors generally are more concerned with the quality of the service they can expect their patients to receive than the name of the hospital owner. Good patient experience after referral reflects well on them and leaves both patient and referring doctor happy. But hospital administrators are more concerned with their bottom line.
Hospitals refer to lost referrals as “leakage.” But efforts at “keepage” may mean higher costs for patients and the employers that insure them – and poorer quality results when doctors must refer to someone with a poorer reputation.
Health services are frequently more expensive when delivered in a hospital setting instead of in the doctor’s office. This is the motivation behind hospitals pressuring physicians to refer to them. This is also a major reason behind the rising cost of healthcare, which has now reached $3.5 Trillion per year according to the Centers for Medicare and Medicaid Services (CMS). The graphic below shows the cost of the service provided in a doctor’s office on the left and in the hospital on the right.
The impact of these differences is not just more money to the hospital – it is also more money out of the patient’s pocket. For a patient with employer-provided insurance, the average cost of a complicated drug administration – such as chemotherapy – was $612 when performed in hospital-affiliated facilities, and $247 in a doctor’s office in 2016.
A study this year by Yale University found that patients whose doctors worked for hospital systems were 27% more likely to get their MRIs at a hospital where their scans cost $267 more on average – and about $90 of that extra expense was paid by the patient. (Even more is absorbed by the patient indirectly in higher premiums.)
Individual experiences can be even more dramatic. Jim Wood, a business executive in Illinois was referred to SwedishAmerican hospital for his annual lab tests in 2015 and the cost was $529. The next year the same tests were done at an independent lab and cost $57. He was sent for a shoulder MRI to the hospital and it cost $2,507 and when he compared this to a local imaging center the estimate for the same MRI was under $300, not including the doctor’s fee.
These dramatic differences can mean significant expense to the patient without necessarily providing higher quality. Is this practice wide spread and how dramatic is the shift of referrals when a hospital acquires a private physician practice?(The answers to these questions in Part II of this post next time.)