Hospitals Rush to Employ Physicians to Shore Up Referrals, Admissions

Improved Care Coordination Takes a Back Seat to Hospitals' Push for Market Share

News Release
Aug. 18, 2011

Alwyn Cassil (202) 264-3484 or

WASHINGTON , DC—While not new, the pace of hospital employment of physicians has quickened in many communities, driven largely by hospitals’ quest to increase market share and revenue, according to a study released today by the Center for Studying Health System Change (HSC).

To date, hospitals’ primary motivation for employing physicians has been to gain market share, typically through lucrative service-line strategies encouraged by a fee-for-service payment system that rewards volume, according to the study. At the same time, stagnant reimbursement rates, coupled with the rising costs of private practice, and a desire for a better work-life balance have contributed to physician interest in hospital employment.

While greater physician alignment with hospitals may improve quality through better clinical integration and care coordination, hospital employment of physicians does not guarantee clinical integration, according to the study. The trend of hospital-employed physicians also may increase costs through higher hospital and physician commercial insurance payment rates and hospital pressure on employed physicians to order more expensive care.

“The acceleration in hospital employment of physicians risks raising costs and not improving quality of care unless payment reforms shift provider incentives away from volume toward higher quality and efficiency,” said HSC Senior Health Researcher Ann S. O’Malley, M.D., M.P.H., coauthor of the study with Amelia M. Bond, an HSC research assistant; and HSC Senior Consulting Researcher Robert A. Berenson, M.D., of the Urban Institute.

The study’s findings are detailed in a new HSC Issue Brief—Rising Hospital Employment of Physicians: Better Quality, Higher Costs?—available online at The study, funded by the Robert Wood Johnson Foundation and the National Institute for Health Care Reform, is based on HSC’s 2010 site visits to 12 nationally representative metropolitan communities: Boston; Cleveland; Greenville, S.C.; Indianapolis; Lansing, Mich.; Little Rock, Ark.; Miami; northern New Jersey; Orange County, Calif.; Phoenix; Seattle; and Syracuse, N.Y. HSC has been tracking change in these markets since 1996.

Other key findings include:

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The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nation’s changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is affiliated with Mathematica Policy Research.