As Physicians Opt for Salaried Positions, Will Health Care Costs Rise?

An increasing number of American physicians have opted out of private practice and chosen hospital employment.  Many of these physicians have expressed concerns about the complex health care market and diminishing reimbursement from payers.  While primary care physicians have taken the lead, specialty physicians are now following.

According to Merritt Hawkins ,one of the nation’s leading physician placement firms, 64% of job offers filled involved hospital employment; this compares with only 11% in 2004. The firm anticipates a rise to 75% in the next two years.  American Medical Association surveys  indicate that about 60% of family doctors and pediatricians, 50% of surgeons and 25% of surgical subspecialists are employed by hospitals.

Most health economists agree that the traditional “fee-for-service” system, in which physicians receive payment for each procedure and test performed, contributes to increasing health care costs.  However, the current change from private practice to salaried jobs may not offer less expensive or better care.  Robert Mechanic,  Executive Director of the Health Industry Forum at Brandeis University, has said that “In many places, the trend will almost certainly lead to more expensive care in the short run.”

The principle of consolidating care in a single facility should lead to reduced costs, if physicians are rewarded for quality of care and not quantity of care.  In many of the new salaried arrangements, the physicians are offered bonuses linked to the quantity of billing they generate.  In theory, this could encourage physicians to order more tests and procedures to generate a higher bonus. Becker’s Hospital Review  indicates that the base salaries of physicians who become employees are still related to the income they can generate, ranging from under $200,000 for primary care physicians to $663,000 in neurosurgery.

In order to keep health care costs under control, many in the health care field agree that the focus needs to shift from quantity-based reimbursement to quality-based reimbursement.  Current initiatives include the Medicare Shared Savings Program , which attempts to facilitate coordination among providers to improve the patient’s quality of care and reduce unnecessary costs.  These and other quality-based programs have been gradually making their way into the health care mainstream.   Whether the financial incentives are strong enough to attract physicians and also contain costs is yet to be seen.


Nancy Clark is a Manager in the Health Care Services Group. Her expertise focuses on coding and documentation audits, which includes chart review and report compilation.

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