Stanley Feld M.D.,FACP,MACE
Unfortunately, the relationships between hospitals and physicians have always been adversarial. However, when insurance carriers presented a dizzying array of fees for services, hospital systems stepped in and volunteered to “help” physicians form negotiating organizations called IPAs (Independent Physician Associations). I assume the hospital systems consultants told the administrations of the hospital systems that organizing was the only route to survival. It also seems that every hospital system organized its staff simultaneously.
These associations would negotiate fees for the physicians who practice at that hospital. The independent physicians could either opt in or out of the contract at their own free will. The fees for joining an Independent Practice Association (IPA) ranged from $1,000 to $10,000. What was strange to me was that in all of the IPAs I was involved, the hospital systems knew the physicians negotiated fees but the physicians never knew the deal the hospital made with the insurance company and their various managed care products. Nor did we know the fees they were getting for the services we ordered in the hospital. I always had the feeling the physicians were at a disadvantage. However, I did not have any proof. Most of the physicians were confused about the contracts. They could not keep up with the various prices the various Managed Care Companies (MCOs) were paying for their services. The physicians did not have sophisticated enough information systems to keep track of the changing fees. The physicians’ income was going down. It seemed that hospital systems’ net profit was increasing.
Hospitals increased expansion and renewal of their physical plants with the increase income. This increased profit could only occur if the hospital systems were getting a better deal from the insurance industry or Medicare than we were. In order to decrease costs, more services and procedures were paid for as outpatient services. Many of these workups and procedures could only previously be done in hospital at great expense. Complete workups for illness could easily be done as an outpatient in the physicians’ office at a much lower cost to the insurance company. The insurance industry was started paying for outpatient workups to reduce their costs.
Hospitals then went into the outpatient business in direct competitors to their staff physicians. However, independent practicing physicians on the hospital systems staff were hesitant to refer patients to the hospital owned and controlled staff. It was clear that one could workup and treat a patient as an outpatient cheaper than as and inpatient in the hospital. Presently hospital outpatient clinic workup is more costly than a workup in a physician’s office. Please note Dr Westbrook’s x-ray example.
Hospitals had very high brick and mortar investments. This investment was now being underutilization, as they continued to pour money into expansion and improvements to the structures. Hospital systems now became interested in buying physicians’ practices. The hospital systems viewed practicing physicians as a hard working labor force that could be very profitable to the hospital. Physicians had a difficult time keeping track of their collections and negotiated fees, while trying to practice medicine. With the hospitals’ “sophisticated” information systems that they paid millions for, collections by the hospitals seemed to be a no brainer to hospital administrators.
The hospital systems also saw that if they controlled physicians’ practices they would be in a more powerful negotiating position with the Managed Care Organizations. Many hospital systems bought physicians practices cash plus a guaranteed salary for 3 to 5 years. The hospital took over the debt and the administration of the practices.
What happened next was disastrous to all, patients, physicians, hospitals, insurance companies and the government. Everything seems to be going from bad to worse.