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Hospital Consolidation Leads to Abuses and Higher Costs for the Government

Posted Dec 05 2012 12:00am

I recently discussed how the Medicare payment system discriminates against private physician practices by using a lower reimbursement schedule than for hospitals (see:  Why Is the Federal Government Hostile to Private Physician Practices ?). A number of hospitals now seem to be behaving badly as described in a recent NYT article (see:  A Hospital War Reflects a Bind for Doctors in the U.S. ). Hospitals identified in the article are bullying smaller hospitals, buying up local physician practices, and ensuring that their salaried physicians only refer patients to specialists on the hospital payroll. Some are also establishing bonus systems to incent their salaried physicians to admit more patients to the hospital and then discharge them quickly. The most profitable hospital admissions are short in duration but long in terms of lab test ordering and imaging which have better profit margins. Here are two quotes from the article:

[T]he consolidation of health care may be coming at a hefty price. By one estimate, under its current reimbursement system, Medicare is paying in excess of a billion dollars a year more for the same services because hospitals, citing higher overall costs, can charge more when the doctors work for them. Laser eye surgery, for example, can cost $738 when performed by a hospital-employed doctor, compared with $389 when done by an unaffiliated doctor, according to national estimates by the independent Congressional panel that oversees Medicare. An echocardiogram can cost about twice as much in a hospital: $319, versus $143 in a doctor’s office.

and

[T]he Justice Department reached a $9.3 million settlement with Freeman Health System, a hospital group in Joplin, Mo., which was rewarding doctors it employed partly based on how many tests they ordered. Freeman says that it alerted regulators to the potential violations and that patient care was not affected. Recently, the Office of Inspector General at the Health and Human Services Department sent a letter to emergency physicians across the country asking for information about inappropriate admissions. Federal regulators are also examining the higher numbers of physician contracts being created, searching for violations of laws that prevent hospitals from rewarding doctors for admitting patients or for ordering lucrative tests and procedures.

The die is already cast for the evolution of Big Medicine (see: Physician Private Practice Declines; the Last Barrier to Emergence of "Big Medicine"The Transition to "Big Med": Need for Emphasis on Standardization and CostMajor Transformational and Disruptive Changes That Will Affect Healthcare ). I can envision a continuing cat-and-mouse game in healthcare with the government issuing increasingly stringent regulations and the hospitals trying to game the system to increase their revenue. Hospitals owned by private equity firms will be leading the charge to maximize their return on investment. Physicians will be caught in a major squeeze play, trying to practice ethically while at the same time trying to satisfy their hospital employers. 

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