Consolidation

The healthcare industry has been undergoing consolidation for many years. The newest trend involves hospitals purchasing physician practices, taking over office administration, adding the doctor and his employees to their payroll. On the surface, this doesn’t seem like it would make much difference, but when we look deeper, the impact on costs is significant.

Let’s say that a hospital wants to purchase a physician practice.  The hospital would approach the doctor, and the conversation might sound something like this:

Hospital: How would you like to make more money, have more time off, and no longer deal with office administration?

Doctor:  That would be fantastic!

Hospital: Okay, great! If you sign on with us, we will pay you a salary and take over all your office work.

Doctor: That’s wonderful! I don’t see a downside.

Hospital: That’s right! More time off, more money, less office work, and we will even cover your malpractice insurance if you move your surgical procedures to the hospital instead of doing them in your office.

Doctor: Where do I sign?

In a Merritt Hawkins study done in 2016, data was collected on the revenue that a physician generates for a hospital. The numbers are incredible. A single physician generates an average of $1.5 million per year in net revenue for the affiliated hospital. According to another source, the number of cardiologists working for hospitals, rather in private practice, more than tripled in 5 years.

Insurers and patients pay more when a procedure is performed in a hospital rather than in the doctor’s office. Simple procedures typically cost a patient as little as $75 if done in the doctor’s office. The same procedure may cost upwards of $1,800 when done in a hospital setting.

This is great business for both the doctor and the hospital, but patients, insurers, and employers lose.

There are ways around these problems. Implementing proper health insurance plan designs creates fair pricing models that hospitals will follow. When the right plans and partners are in place, focusing on a fee for value rather than a fee for service model, everyone wins. Patients and employers save money, doctors and hospitals still make a reasonable profit.

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