Physician income dips when hospitals buy practices: Health Affairs

Dive Brief:

The acquisition of independent physician practices by hospitals, a trend that has accelerated rapidly in recent years, is linked to a modest drop in doctor compensation, a report published in the December issue of Health Affairs found. The 0.8% reduction in average income suggests physicians may not see direct financial benefits from hospitals buying practices, according to the researchers.
The findings contrast with evidence that hospital systems' profits tend to increase as prices and spending rise after integration of physician practices.
Larger reductions in doctors' income were seen when medical practices were acquired in more competitive hospital markets and by nonprofit hospitals, which could reflect differences in bargaining power, the report found.

Dive Insight:

Hospitals and other corporate entities now own about half of all U.S. physician practices, and the COVID-19 pandemic accelerated the pace of such acquisitions, according to research this year from Avalere for the Physicians Advocacy Institute, a coalition of state doctors' groups. That study found almost 70% of U.S. doctors are now employed by a hospital or corporate entity.

The Health Affairs report examined the period from 2014 to 2018, during which hospital ownership of physician practices increased by 89%. Conducted by researchers from the Rand Corporation, University of California Berkeley, Doximity and Harvard Medical School and approved by Rand's Institutional Review Board, the study combined extensive national survey data on physician pay and practice ownership.

Compensation differences were found among physician practice specialties. Nonsurgical specialists saw a 2.4% reduction in average income, or $9,652, under hospital ownership, while surgical specialists saw their income rise 2.1%, or $10,741, on average. Primary care physicians saw a 1.2% gain, or $3,179, in their compensation.

The small reduction in compensation for nonsurgical specialists and small boost for surgeons is particularly notable given that other studies have estimated hospital revenue goes up 19% after a practice is acquired, the Health Affairs report found.

In total, the study tracked 41,648 physicians, of whom 48% were in independent practices and 52% were in hospital-acquired practices. It also found that compared with physicians in independent practices, those employed by a hospital or health system had lower annual Medicare billing ($109,795 versus $221,626), were in practice for fewer years (22.7 years versus 24.8 years) and reported working more hours per week (59.4 hours versus 56.7 hours).

So why do so many physician practices opt to integrate with hospitals? Although doctors may not benefit directly in the form of higher income, physician practices may choose to merge into hospitals or health systems because of concerns about losing referral privileges, difficulty implementing electronic health records, or other administrative challenges, the report's authors wrote.

Receiving steadier compensation than the income derived from owning a practice, which is a form of risk protection, is another possible motivation, they said. Billing and regulatory compliance services provided by hospitals, allowing physicians more time to practice medicine, could be another reason.

The Federal Trade Commission is currently studying the impact of physician and healthcare facility mergers on competition to assess antitrust concerns. The large project is likely to take several years to complete, the FTC has said.