Hospitals and PCPs: it's the referrals

It’s well known that for most hospitals, taking on a new doctor translates into hefty costs. So why the hiring frenzy?

Aug 09, 2011 · Doximity Insider

Editor’s note: Doximity Advisory Board member Peter Alperin, MD, is a
board certified internist currently practicing at the San Francisco VA Medical
. He previously led informatics at Brown and Toland Medical Group,
and has also worked at Epocrates.

The number of doctors on hospital payroll has shot up by almost 75% over the
past decade, according to data from the Medical Group Management
. More than half of practicing physicians are now employed by a
large hospital or integrated medical group, a figure that’s poised to grow:
Almost three-quarters of hospital leaders say they plan to add more doctors
within the next three years.

It’s well known that for most hospitals, taking on a new doctor translates into
hefty costs. Over the first three years of employment, these can run as high as
$250,000 a year (and they rarely dip below $150,000), After that, losses tend
go down by about half, but they never full disappear. To break even, a newly
hired primary care physician has to increase his or her patient volume by about
30%. This, according to a recent report in the New England Journal of

In light of so much loss, then why the hiring frenzy? The data lays it out:
It’s the referrals. Traditionally, hospitals have been set up to profit from
treating the sick rather than preventing illness in the well. But now we’re
seeing a radical shift in the system–one that requires hospitals themselves,
ironically, to become the focal point in keeping people out of hospitals. The
prospect of a single national payer coming down the line is shifting systems
more toward the model we now have in Kaiser or the VA. In other words, we’re
asking institutions that for 100 years have been set up to handle illness to
get into the prevention business. Faced with this radical change of course,
hospitals are betting on patient flow. By bringing more doctors into the fold,
tests and procedures that would otherwise be done privately or at other
hospitals will take place on-site, and specialist referrals are more likely to
be made internally.

Thanks to their broad patient pool, primary care physicians tend to be the main
target in these initiatives–and hospitals are willing to bid high. PCPs now
typically earn compensation of $192,116 in such a network, according to the
NEJM research. That’s over $12,000 more than the $179,688 expected for those
who choose to stay private. Another incentive to join: The increasing
challenges of maintaining a practice and a income. For many, the choice really
does feel like it boils down to this or forming a concierge practice. Moreover,
as opposed to the 1990s, when we saw a rapid hiring boom, followed by a bust,
primary care physicians can expect a fair amount of job security from these
deals: Already in 1998, less than half of internal medicine residents went
on to practice primary care. Now, those numbers are dramatically lower. By
2025, the American College of Physicians is anticipating a shortage of
between 35,000 to 44,000 PCPs.

For specialists, it is slightly different set of issues. In many locales, there
are too many specialists, so they need to be careful to be part of the large
systems that are forming so that they don’t find themselves without a chair
when the music stops. For example, if a hospital had two competing groups of
cardiologists, one group could lose out. This is, in part, because the more
specialists currently practicing at a given hospital, the greater the risk of
being frozen out when it comes to the referrals from PCPs that belong to
particular hospital system. Already, I know specialists who are asking
themselves not whether they should join, but when they should.

All these developments mean doctors will have to adopt new ways of thinking
about their jobs. In many respects, physicians are starting to resemble highly
compensated technical workers, such as airline pilots. Issues such as work
hours, and contracts with employers rise to the forefront. Because individual
doctors generally represent the weaker negotiating force in these
relationships, it will be critical to really scrutinize these employment
contracts, defining questions such as “what is productivity,” “how is my bonus
calculated,” and “what exactly does it mean to ‘be available’.”

If you choose not to join you need to think hard about where your referrals
will come from in the future. It’s difficult for a hospital to totally exclude
people because of anti-trust, but I wouldn’t be surprised if in the longer-run
those laws may be relaxed or changed. One final note: I predict that doctor
unions can and will become more prominent. It is a natural evolution of payer
and hospital consolidation. As a newly minted doctor 20 years ago, I would have
never thought this possible, but it’s the reality of where today’s market is

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