Several years ago I was meeting with an orthopedic surgeon from the largest orthopedic group in Kansas City on one of my cases. I was taken to his office where he was talking on the telephone.
I tried not to be an eavesdropper, but I could tell that he and his partners were contemplating starting a surgery center. Not too long after that conversation, three orthopedic groups joined together to build the Kansas City Orthopaedic Institute in Leawood, Kan.
All of the doctors were and are on the staff of St. Luke’s Hospital and do occasionally perform surgery at the St. Luke’s affiliated hospitals, but much of the surgery is performed at the Institute, which is at the doctor-owned surgery center. I have actually had knee surgery at the Orthopedic Institute and it is a well run machine.
It was a very wise business decision by the orthopedic surgeons to start their own specialty hospital as they could derive revenue from performing surgery and from their own hospital where the surgery is performed. I suspect this business decision was driven in part by the decline in their revenue caused by health insurance companies.
I have a good friend who practiced orthopedic surgery for several years. He suffered a nerve injury during his own spine surgery and was no longer able to perform surgery. He fortunately had great disability insurance that replaced the revenue he lost from his practice. His disability insurance was based on his past revenue and I recall him telling me how lucky he was that he became disabled when he did as his revenue was rapidly declining.
Many of the surgery centers you see are owned by physicians. It is hard to fault them for being entrepreneurs and deriving revenue from the hospital side of medicine. The beauty of a surgery center is that it gets to control the patients that come through its doors.
I had cataract surgery last April at a surgery center partially owned by the ophthalmologist. I was required to pay my share of the cost prior to surgery and so there was a full guarantee that the doctor would be paid at the time surgery was performed by me and my health insurer. The surgery center has no accounts receivable other than the short term accounts that are based on insurance company promises to pay. The surgeon derives revenue from performing the surgery and also from his ownership interest in the surgery center. Physician-owned surgery centers have had a substantial effect on the revenue of hospitals, although the hospitals also have built outpatient surgery centers to compete with the physician-owned facilities.
Another phenomenon has also occurred which has occurred as a result of the economics of health insurance. Hospitals have been acquiring physician practices. In most instances the doctor is not a direct employee of the hospital, but the owners of the hospitals have established legal entities fully controlled by the hospital which then employ the doctor.
Page 2 of 2 - This phenomenon began occurring in the early 1990’s when capitation began as a method of reimbursing health care providers. Under capitation, providers received a fixed, per-member, per-month payment to provide care. Primary care physicians emerged as the gatekeepers, since they determined the type and volume of patients received. Hospital executives determined that controlling primary-care physicians would allow them to control the flow of patients to expensive services and specialists. Capitation quickly died, but hospital executives are still employing doctors and not just in primary medicine.
The hospitals have created a closed system whereby all of a patient’s needs are managed by doctors employed by the hospital or its affiliates. Hospitals can also gain market advantage by employing the premier specialists. Then, as the hospital or health care network’s power increases, so does its ability to negotiate with health insurers. Also, the hospital does not have to worry about competition with physicians for office-based procedures because they get all of the revenue.
There is also an advantage for the physician who does not have to worry about the business side of medicine. However, there are potential flaws in such a system. Some hospitals put pressure on their doctor employees to perform more surgeries, and base bonus income on the number of surgeries performed. We can only hope that no unnecessary surgeries are performed and that the decision to operate is based on the patient’s needs and not the hospital’s financial needs.
Another drawback to hospital-owned medical practices is that physicians may be pressured to refer patients to other physicians employed by the hospital and not to the best physicians available.
This phenomenon of hospitals employing physicians has coincided with the consolidation of hospitals as witnessed by the recent acquisition of St. Mary’s Medical Center and St. Joseph Medical Center by HCA. As fewer hospital networks exist, their negotiating power also increases.
The combination of the loss of physician independence and hospital consolidation may have substantial negative impacts on the quality of healthcare. The Hippocratic Oath is an oath historically taken by physicians to practice medicine honestly. There are many physicians who do practice medicine honestly, but we can only hope that health care decisions are based on what is best for the patient and not for the pocket books of health care providers and the large corporations which own our hospitals.
Bob Buckley is an attorney in Independence. Email him at email@example.com