Bloomberg News

Hospital Medicare Cash Lures Doctors as Costs Increase

November 19, 2012

Doctors Succumbing to Hospitals Garnering Medicare Cash

Under Medicare’s tangled payment system, hospitals get higher reimbursements than individual doctors for cardiology mtreatment, as they do for other specialty services, in some cases as much as three times more. Photographer: Marcus Vogel/laif/Redux

(Corrects spelling of Ginsburg in fourth paragraph.)

Thomas Lewandowski, a Wisconsin heart doctor, was faced with a dilemma after his Medicare payments were cut and his overhead costs soared: Fire half his staff to keep his practice open, or sell it to a local hospital.

He decided to sell, becoming one of more than 6,000 employees at Thedacare, which runs five hospitals and numerous clinics in northeast Wisconsin. It’s a decision being made increasingly in the U.S., creating a new dynamic that threatens to raise the price of health care, even as the federal government and states strain to keep a lid on costs.

Under Medicare’s tangled payment system, hospitals get higher reimbursements than individual doctors for cardiology treatment, as they do for other specialty services, in some cases as much as three times more. At the same time, the added bargaining power gained by controlling more of the heart care in a geographic market has given large hospital systems added leverage in negotiating reimbursements from insurers, such as UnitedHealth Group Inc. (UNH) and WellPoint Inc. (WLP)

“Clearly, in the short run, it raises costs,” said Paul Ginsburg, president of the Center for Studying Health System Change, a Washington-based nonprofit research group. “We have a case where a physician becomes employed by a hospital and now a payer, like Medicare, has to start paying more.”

In Wisconsin, the number of heart doctors in private practice has declined to 11 percent from 62 percent of cardiologists in 2007, according to the American College of Cardiology, whose main offices are in Washington. The trend is similar nationwide. The number of heart doctors working for U.S. hospitals has more than tripled, while the number in private practice has fallen 23 percent over five years, the ACC said.

Trade Offs

The advantage of more doctors joining large health-care systems is the prospect of higher-quality and more coordinated care for patients, especially in the better hospital systems. In the meantime, the trend continues to push up costs.

Medicare (USBOMDCR), the U.S. government’s health program for the elderly and disabled, pays a hospital $400 for an echocardiogram, $180 for a cardiac stress test and more than $25 for an electrocardiogram, according to data from the American College of Cardiology. At a private physicians office, Medicare pays $150 for an echocardiogram, about $60 for a cardiac stress test and $10 for an electrocardiogram.

Those payments to doctors in private practice have been slashed over the past five years, a main force pushing doctors to hospitals. Jay Alexander, a cardiologist who co-owned a practice in Lake County, Illinois, said his Medicare revenue dropped 35 percent over two years causing him to fire workers, cut salaries and borrow money to stay open. The revenue loss drove him to sell his practice to a local hospital in 2010.

‘Heads Examined’

“If this was government’s solution to reducing health-care costs they should have their heads examined because it is probably increasing health-care costs,” Alexander said. “This is an unfortunate consequence of bad planning.”

The cuts he faced, though, didn’t apply to hospitals, which saw Medicare reimbursements rise over the same period under a different set of government formulas, according to ACC. After selling his practice to a hospital in 2010, Medicare now pays Alexander three times as much for doing the same tests and procedures he did in private practice.

Nonprofit hospitals and companies such as HCA Holdings Inc. (HCA), the largest for-profit hospital chain, and Tenet Healthcare Corp. (THC) will also be able to command higher prices than individual doctors from private health insurers when negotiating reimbursement rates as they gain a bigger share of the cardiology market, said Sheryl Skolnick, an analyst at CRT Capital in Stamford, Connecticut.

Pay Negotiations

“It’s sort of like collective bargaining,” she said.

Cardiologists are being targeted in particular because they attract patients needing expensive surgeries and tests, such as magnetic resonance imaging and stents to prop open clogged arteries, Skolnick said.

This year, HCA increased the number of doctors it employs through acquisitions and direct hiring by about 150 to 200 for a total of 3,200, said Samuel Hazen, president of operations for HCA, on a conference call Nov. 1 with analysts. The Nashville, Tennessee-based company plans to continue expanding the number of doctors it employs, though at a slower pace than over the past several years, he said.

Tenet spokesman Rick Black said acquiring physician practices is part of the company’s effort to “ensure our hospitals provide the medical services needed by the communities they serve, and to foster the development of ongoing clinical initiatives that improve the quality of care that is delivered to patients and control costs.” He declined to comment on how many physicians Dallas-based Tenet has added through acquisitions.

‘Land Grab’

“It’s become a land grab for physicians groups,” Skolnick said. “If you have got the doc and own their practice, they are probably not going to be on staff anywhere else in your marketplace so you also are likely to get that volume.”

Simon Gisby, a principal in the life science and health care practice at Deloitte Corporate Finance LLC in New York, said the trend fits with changes starting to take place under the 2010 Affordable Care Act designed by the Obama administration to overhaul health care.

Longer term, the expectation is that those changes will help slow rising costs. The law encourages hospitals to move toward accepting lump-sum payments to treat a condition or manage a patients’ overall health, rather than charging separate fees for every test and procedure. The payment changes would reinforce preventative medicine and penalize duplicative services, a shift in priorities that forces hospitals to better coordinate care with doctors. Still, that shift isn’t widespread yet, with most hospitals still getting paid based on the amount of services they provide.

Managing Health

“It is part of the broader trend where physicians and hospitals are not only getting paid for the number of patients they treat but how they manage the health of their patients,” Gisby said in a telephone interview.

For cardiologists, the move to hospitals has good and bad aspects, according to Lewandowski, the Wisconsin heart doctor who sold his practice in 2010. While they may gain more stable incomes, doctors often have less freedom over how they care for their patients under strict hospital protocols. Some doctors are also under pressure to see more patients each day when they are employed by a hospital, he said.

“I miss being in private practice and being my own boss,” said Alexander, the Illinois cardiologist. “I would have said 30 years ago that I planned on dying with my boots on, and practicing until I couldn’t practice anymore.

‘‘Now, do I look forward to retirement?’’ he asked. ‘‘Yes. Do I plan on working forever? No.’’

To contact the reporter on this story: Shannon Pettypiece in New York at spettypiece@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net


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