Hospitals are buying up medical practices at a feverish pace. According to data from the American Hospital Association, the number of physicians employed by hospitals grew by 34 percent between 2000 and 2010, and the pace shows no signs of slackening. In reviewing its data for the past decade, a large physician recruiting firm found that in 2004 only 11 percent of physician searches were conducted by hospitals, but by 2013 that figure had risen to 63 percent.
There are a number of reasons hospitals want to employ physicians. A major aim is to funnel patients to the hospital’s facilities. By law, it is illegal for hospitals to offer physicians inducements to refer patients to their facilities unless the physicians are hospital employees. A term that some hospitals use to describe the referral of patients to providers and facilities outside their system is “leakage.” Such leakage represents lost revenue, and by employing physicians hospitals hope to plug up the holes.
Of course, there are other factors. One is the ability to hospitals to charge more for a variety of procedures than independent physicians, by tacking on “facility fees.” By buying a physician practice, a hospital can charge more for the same test or procedure, even though it is performed in the same place by the same physician. In some cases, such facility fees can raise prices to Medicare by as much as 70 percent compared to what would be paid to an independent physician.