The Effects of Employing Physicians on Hospital Financial Performance

• In Event: Hospital Performance and Nonprofit Accountability

Abstract

This study is the first to empirically assesse the association between hospitals’ employing referring physicians and hospital financial performance using a nation wide hospital sample while distinguishing between revenue, expense, and net income effects. Aligning the disparate financial incentives of physicians and hospitals is a significant challenge. Physician fee-for-service reimbursement lends to wide practice variation and overuse contributing to rapidly rising costs and prompting hospital leaders to seek financial alignment with referring physicians. Toward that aim, and like the late 1980s and early 1990s, employing physicians is the prevailing model. Between 2000 and 2010, the number of employed physicians increased by 32 percent, according to the American Hospital Association. The trend is expected to accelerate, according to the Bureau of Labor Statistics, with a projected 24 percent increase of physician employment from 2010 to 2020. The resulting impact on hospital financial performance; however, is largely uncertain due to the lack of empirical analyses. Research in this area supports hospital decision makers’ pursuing an informed strategy with their medical staff as well as lawmakers and other persons interested in lowering overall health care system costs.
Using data from the AHA Annual Survey and CMS Cost Report from 2005 through 2009, this study investigates the impact of physician employment on the financial performance of non-governmental, non-primary teaching, general acute care hospitals. Results show that both the total and change in the number of hospital-employed referring physicians are positively related to net patient revenue. Contrary to the expected observation; however, the number of employed physicians is negatively associated with net income and positively associated with total hospital operating expenses; cautionary evidence for hospital leaders and physicians seeking to improve their bottom line through physician employment. Nonetheless, finding common ground where hospital leaders and physicians can effectively and efficiently work together to drive down costs without compromising quality or access is imperative for sustaining the U.S. healthcare system.

Authors

• Benedikt Markus Quosigk, Kennesaw State University

• Richard J Priore, Hunter Partners, LLC