Joining a hospital system has hidden consequences for urologists

Rarely a week goes by that I don’t receive a solicitation from a physician placement firm: “Urologist Needed,” “Be Busy from Day One,” “Earning Potential $500,000+++,” etc. Most of the pitches I receive are from hospitals, offering a hospital employment model. According to the American College of Surgeons, in 2009 about 5% of urologists were employed by hospitals (Bull Am Coll Surg 2012; 97:46-9). That number is likely to rise if the trend in hospital acquisition of practices continues.

Compensation, as I explain below, is a big reason that specialists are joining the ranks of the hospital employed. But there are many factors beyond compensation to consider in hospital employment, as I reviewed in a previous column, including the impact on patients. In this article, I will explore some of the hidden consequences of working for a hospital.

Why the hospital employment surge?

Health care reform and accountable care continue to drive integrated models, and there is some evidence that specialists-including urologists-may do well in these models. A 2013 Medscape survey suggests that compensation for employed urologists, and those identified as hospital based, is higher than that of solo independent urologists and close to the mean for all urologists. Urology Times’ 2012 State of the Specialty survey, while not asking specifically about compensation, found that financial satisfaction is higher among employed urologists and those in larger groups than those in solo or private practice.

The Wall Street Journal article, “Same Doctor Visit, Double the Cost” (Aug. 27, 2012), leads off with the story of a patient who faced a fourfold increase in the cost of diagnostic services after his cardiologist’s practice was acquired by a hospital. Why can a hospital charge and collect more than a physician-owned practice for the exact same services? The answer lies in market forces, additional fees, differential fee schedules, and government regulations.

Hospitals dominate market share

For starters, hospitals and hospital systems are often able to command higher rates than independent physicians for identical physician services simply because of dominant market share. The implied threats of contract termination and denying patient access to preferred hospital facilities are powerful negotiating tools employed by integrated delivery systems that result in higher fee schedules for hospitals than even the largest physician practices can command. According to the WSJ article, “Blue Shield of California said that after one group of physicians based in Burlingame, Calif., came under the umbrella of the powerful Sutter Health system in 2010, its rates for services increased about 140%. The insurer said it saw a jump of approximately 95% after a Santa Monica, Calif., group became part of the UCLA Health System in January 2011.”

A second reason that the hospital employment of physicians may drive up costs is that a hospital can charge a facility fee for office visits, a practice sometimes referred to as “split billing.” “Under federal regulations, health systems are permitted to charge a hospital facility fee for an outpatient service if it’s done in a clinic that is ‘hospital based’-meaning that the clinic is owned and operated as part of a hospital or health system, regardless of whether the clinic is physically located on the hospital grounds,” Jim Doyle wrote in a Nov. 27, 2011 article in the St. Louis Post-Dispatch.

Even a routine office visit may result in a separate charge to the patient for “use of the facility” that can amount to several hundred dollars-a significant amount of money that neither a physician can normally charge nor a patient may be able to afford.

Hospitals get more for ancillary services

A third reason that a hospital-owned practice may “charge more” that is especially germane to urology practices is that ancillary services can be billed at hospital rates, which are typically much higher than what is paid to physician owners of ancillary services. This fact has a historical basis in the increased expenses incurred by hospitals to deliver diagnostic and therapeutic services.

Medicare, for example, might reimburse an independent physician practice according to a fee schedule based on the resource-based relative value scale but reimburse a hospital based on the Outpatient Prospective Payment System for an identical ancillary service. Even identical outpatient surgical services are reimbursed at higher rates than when performed in an ambulatory surgery center, according to a white paper from the American Health Lawyers Association.

In summary, the impact of working for a hospital may extend beyond the basic physician compensation model. The integration of hospitals and physicians holds some promise for improving the quality of care, improving the health of populations, improving efficiencies, and controlling health care spending in the future. In the short term, though, there is some evidence that physician practices that are hospital owned and operated may not just shift dollars within the system but actually contribute to increasing the cost to the system. In our current system, those costs are borne by employers, the federal and state governments, and patients; even patients with insurance are facing higher deductibles and coinsurance and may share increased costs of care disproportionately.

Bottom line: If you work for a hospital or are contemplating the same, consider the hidden consequences of the existing payment disparities for yourself, the health care system, and especially patients.UT