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How hospitals restrict trade by keeping referrals “in house”

How times have changed from when insured patients could see practically any physician of their choice! This was the time when over 90 percent of CHR’s new patients were referred to us by a physician. Then insurance companies started the concept of provider networks, and patients, for the first time, found themselves restricted from seeing their preferred physicians if they were not members of a patient’s insurance network. Restrictions became even more stringent once HMOs came into the market and provider networks shrunk even more in size. With the arrival of ACA, the promise of “if you have a physician you will keep your physician,” likely, became the most consequential presidential misrepresentation since “read my lips: no more taxes” under Bush Sr.

In parallel to these insurance-driven developments, the Internet evolved. As physicians became progressively less able to direct referrals of their patients, the Internet slowly became a major referral source. At all of these stages, even with choices increasingly restricted, patients still maintained some free will because, within geographic areas, provider lists usually encompassed physicians from different hospitals.

As a recent article in The Wall Street Journal, however, now suggests, these last vestiges of patient choice are also slowly disappearing. In an article by Anna Wilde Mathews and Melanie Evans on December 28, 2018, they report that “hospitals push (their) doctors to keep referrals in-house.” What this means is that hospitals, much more aggressively than before, want to “own” all medical aspects of every patient.

Keeping patients in-house is by no means a new concept. Especially in large cities like New York, where rivalries between large institutions are the norm, most doctor-to-doctor referrals have, traditionally, been kept in-house. This pattern, however, initially did not evolve at instruction of the hospital administration (as it frequently does now) but was more often the product of camaraderie and social interactions between physicians at the same institutions. According to the _WSJ _article, hospital administrations have now, however, become much more aggressive in preventing what they call “leakage” of patients.

All of this started a number of years ago, when hospitals fell back on the old idea (first pursued in the 1990 but at that time almost as quickly again abandoned) of purchasing primary care (and other) practices in order to have these “purchased” primary care doctors refer their patients to the hospital for highly lucrative tests, like MRIs, and even more lucrative surgeries. In parallel, hospitals staffed up with full-time physicians (i.e., physicians salaried by the hospital) to provide all of these new costly services within the hospital.

As the article also noted, what makes these services so profitable for hospitals is that insurance companies (as well as government programs) pay hospital outpatient facilities significantly higher fees for services than they would pay private doctor-owned facilities for exactly the same procedures or tests. Based on research the WSJ conducted through the Health Care Cost Institute, the article listed the 10 services with the greatest cost differences, and the numbers were astounding: The difference for a biopsy, the 10th largest cost difference found, was $1240; the largest difference noted, for a sigmoidoscopy and anoscopy, was a whopping $2,597 ($207 vs. $ 2,804). No wonder Medicaid and Medicare are on the verge of bankruptcy, and health care costs are spiraling out of control!

By buying private practices and integrating them into the hospital’s ambulatory care system, the hospital industry, thus, instantly increases overall health care costs without creating any obvious outcome advantage for patients. Though quite a number of studies have demonstrated this effect before, interestingly, neither Democrat nor Republican administrations ever did anything about this obvious abuse of power by the hospital industry. With the hospital lobby in Washington, DC, one of the strongest and best-financed, this should not surprise.

Aggressive practice purchases by hospitals are continuing, not necessarily because physicians wish to sell out (though some do), but because many physicians are left with no choice if they want to maintain their hospital privileges and survive economically in a medical market place, increasingly defined by a small number of large hospital networks. In most locales, hospitals are also aggressively merging, forming ever larger and economically more powerful organizations, frequently even becoming monopolies. These developments have created incredibly powerful negotiation partners for insurance companies and government programs, who in some areas can practically dictate cost structures. For private practice, these trends represent doom and gloom and, though very little talked about, point out the rapidly approaching end of most private medical practices in the U.S.

These trends are interesting for yet another reason: In countries where socialized medicine has been the rule for many decades, hospital-managed medical care has usually been the standard, with private practice nonexistent or as marginal offerings to wealthy patients. Yet, in many such places, private practice has over the last two decades, paradoxically, greatly expanded, not the least because it successfully competed with hospital-based medicine based on quality of care as well as lower costs.

Equally paradoxically, while private practice is experiencing a resurgence in developed countries from Scandinavia to most of Europe, to Israel and Australia, here in the U.S. where private practice used to rule the medical world, the country appears on an expedited track toward burying what once used to represent the best medical practice model in the world, successfully mixing private and hospital-based medicine. As in politics the middle class finds itself increasingly squeezed by left and right, the medical “middle class” of private practitioners is getting squashed by combined efforts of much better organized and financed interest groups demanding socialized medicine on the left and large hospital corporate interests on the right, united in driving toward an exclusively hospital-controlled practice model. This county, therefore, appears destined to repeat mistakes that other developed countries already made decades ago and now are in the process of fixing. One really wonders, why are we not learning from those experiences by just skipping the bad parts?

This is a part of the January 2019 CHR VOICE.

Norbert Gleicher, MD

Norbert Gleicher, MD, FACOG, FACS

Norbert Gleicher, MD, leads CHR’s clinical and research efforts as Medical Director and Chief Scientist. A world-renowned specialist in reproductive endocrinology, Dr. Gleicher has published hundreds of peer-reviewed papers and lectured globally while keeping an active clinical career focused on ovarian aging, immunological issues and other difficult cases of infertility.

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