The meaning of hospitals buying cardiology practices

Last week The Inquirer's Stacey Burling wrote about the large number of cardiologists who are selling their practices to hospital networks. Here is what that trend means.

1. Burling correctly mentioned that cardiologists are selling their practices because flat to declining reimbursements are stagnating their incomes while rising seas of red tape and capital demands (e.g., for converting to electronic medical records) expand their costs. What she didn't discuss was why hospital networks across the country are voraciously buying up practices in cardiology, orthopedics and a few other specialties. Quite plainly, hospitals are trying to consolidate the provider side of health care in order to gain leverage over payers (e.g., insurers and large employers) and, thereby, negotiate more lucrative service agreements.

One way that hospitals can exercise leverage and gain higher reimbursements is by controlling costs. Cost control will become more likely when physicians work as hospital employees. In that role they will feel pressure to follow the uniform treatment protocols and formularies that have demonstrated optimal cost-effectiveness.

2. When physicians work as hospital employees, it means decisions about treatment will become a top-down process that follows the rational, data-driven procedures established by large institutions. For most aspects of medical care, the methods that individual physicians use to make decisions -- anecdote, seat-of-the-pants feelings, and the so-called "art of medicine" -- will be relegated to the medical dustbin alongside leeches and night vapors. Intuition and experience will continue to have their role in medicine, but it will be a smaller one.

Replacing the gut feelings of individual physicians, the hospital and payer decisions will result from the retrospective analyses of large, real-world, patient databases. The clinical trials designed and sponsored by pharmaceutical and device companies will carry less weight.

3. The large health insurers are not standing by idly while hospitals seize control of health care. To the contrary, insurers are fighting back by buying hospital networks and by forming joint ventures with others. For example, Highmark Blue Cross here in Pennsylvania acquired two large hospital networks in Pittsburgh, while United Health purchased group practices in Orange County, California, thereby turning 2,300 physicians into employees. At the same time, some large hospital networks are becoming payers within their local areas.

What this trend suggests is a gradual movement in the United States toward a private version of the UK's National Health system. There the government is both the payer and the owner of most hospitals and practices. Here, both components of health care will be a private oligopoly.

4. The whole idea behind consolidating the provider side of health care -- onesie-twosie practices into groups, groups into hospitals, hospitals joining together with payers -- involves a recognition that the only way to squeeze some cost out of health care is by eliminating some middlemen.

Health insurers and hospital networks all recognize that in a world where health care will consume 20 percent of GDP, they have to justify their existence by demonstrating an ability to control costs. Each level of middlemen demands to extract its own measure of profit from the overall health care system. That remains an iron law of capitalism. By eliminating or seriously reducing the private practice level from health care, the hospitals-payers are relieving the system of that cost component. In so doing, the hospitals and payers can make the case for their own continuing role in health care.

5. The declining ability of cardiologists and other specialists to make median annual incomes of $500,000 will likely improve the character profile of people who go into medicine.

Right now a fair number of people who go into the more lucrative specialties have the same Type A personalities as those who become CEOs at major corporations. Some are unashamed materialists. Others are essential narcissists who view other people as mere instruments to serve their personal desires. A substantial proportion of medical specialists simply feel an entitlement to seven-figure annual incomes.

If the medical profession won't accommodate a large percentage of specialists making outsize incomes, then the field will be less attractive to such personalities. What it will draw instead are young people from the lower-middle class who have traditionally gone into fields such as nursing, civil service, teaching, public safety, and library science. Instead of going for the big bucks, people from this social class are more concerned with stability and security. They will be happy to enter a field where they know they can always have a job that pays them around $130K a year.

That's good for them and this larger consolidation process can benefit the rest of us.