Employed Doctors Earn More Money Than Independent Physicians

This video provides an in-depth exploration of the significant and accelerating trend of physicians becoming employed by hospital systems, driven primarily by financial incentives and regulatory loopholes. Dr. Eric Bricker, the speaker, begins by establishing the dramatic shift in physician employment over the last decade, noting that the percentage of doctors employed by hospitals has doubled from 25% in 2012 to 51% in 2022, with 90% of new medical residents opting for employed positions. This trend is not only about employment but also about a widening income gap, where employed physicians, particularly cardiologists, are earning substantially more than their independent counterparts, and this gap is projected to grow further.

The core of the video delves into the "why" behind this financial disparity. Dr. Bricker explains that employed doctors can have their income subsidized by the substantial facility fees generated by hospitals when these doctors order tests and perform procedures within the hospital system. Using the example of a stress test, he illustrates that while a physician might receive a professional fee of around $120 for interpreting the test, the hospital can be reimbursed approximately $2,200 for the facility component. When a physician is employed, the hospital can effectively share a portion of this much larger facility fee as part of the doctor's overall compensation, something an independent physician without a direct hospital relationship cannot access.

The discussion then pivots to the regulatory implications, specifically the Stark Law, a federal anti-kickback statute designed to prevent hospitals from paying doctors for referrals. Dr. Bricker highlights that while joint ventures between hospitals and independent physicians (where doctors become minority owners to share in facility profits) often run afoul of the Stark Law, physician employment effectively circumvents its spirit. He cites a real-world example of the Texas Heart Hospital, which faced a $48 million settlement for violating the Stark Law through such a joint venture. This regulatory risk, combined with the financial benefits, further incentivizes physicians to seek employment. The video concludes by emphasizing that this vertical integration of physicians and hospitals, driven by financial and regulatory dynamics, breaks down the financial conflict of interest the Stark Law aimed to prevent, leading to higher pay for employed doctors and increased procedure volumes for hospitals, a trend that is unlikely to abate.

Key Takeaways:

• Accelerating Physician Employment Trend: The healthcare landscape is rapidly shifting, with physician employment by hospital systems doubling from 25% to 51% in just ten years (2012-2022). This trend is set to continue, as 90% of new medical residents are choosing employed positions.
• Significant Income Disparity: Employed physicians earn substantially more than independent physicians. A survey of cardiologists revealed employed cardiologists earned $645,388 annually, compared to $588,272 for independent ones, with the income gap widening as employed salaries rise and independent incomes fall.
• Facility Fees as a Key Driver: The primary reason for higher employed physician income is the ability of hospitals to subsidize doctor salaries with facility fees generated from tests and procedures ordered or performed within the hospital system. These facility fees are often significantly higher than professional fees.
• Circumvention of Stark Law: Physician employment by hospitals effectively circumvents the intent of the Stark Law, which prohibits hospitals from paying doctors for referrals. As employees, physicians can receive a portion of the facility fees as part of their salary without violating the law, unlike joint ventures or other arrangements.
• Regulatory Risks of Joint Ventures: While joint ventures between hospitals and independent physicians to share facility profits might seem appealing, they carry significant regulatory risk under the Stark Law. The case of Texas Heart Hospital's $48 million settlement serves as a strong warning against such arrangements.
• Ambulatory Surgery Centers (ASCs) as a Safe Harbor: Ambulatory Surgery Centers (ASCs) are explicitly granted a "safe harbor" from the Stark Law, making joint ventures for sharing facility fees legal in this specific setting, highlighting the nuanced and complex nature of healthcare regulations.
• Vertical Integration and Financial Incentives: The vertical integration of physicians and hospitals, through employment, breaks down the financial conflicts of interest that the Stark Law was designed to prevent. This leads to a symbiotic relationship where hospitals gain higher procedure volumes and employed physicians receive higher compensation.
• Impact on Healthcare Delivery: This trend has profound implications for the structure of healthcare delivery, influencing where patients receive care, how physicians practice, and the overall financial dynamics within the healthcare system.
• Understanding Payer Mix and Reimbursement: The video briefly touches on the complexities of reimbursement, noting that Medicare and Medicaid pay less, while commercial insurance pays more, creating a "payer mix" that influences hospital revenue and, consequently, physician compensation.

Tools/Resources Mentioned:

• American College of Cardiology Survey: A survey of 2,894 cardiologists that provided salary data.
• Stark Law: A federal law intended to prevent hospitals from paying doctors for referrals, particularly related to Medicare and Medicaid.

Key Concepts:

• Professional Fee: The payment a physician receives for their professional service (e.g., interpreting a stress test).
• Facility Fee: The payment a hospital or facility receives for the use of its equipment, staff, and overhead associated with a test or procedure.
• Stark Law: A U.S. federal law that prohibits physicians from referring Medicare or Medicaid patients to entities in which they or their immediate family members have a financial relationship. It aims to prevent conflicts of interest and reduce healthcare fraud.
• Joint Venture: A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task, often used in healthcare to share profits from services.
• Ambulatory Surgery Center (ASC) Safe Harbor: A specific exception within healthcare regulations, including the Stark Law, that allows certain financial relationships (like joint ventures) in ASCs that would otherwise be prohibited in other settings.
• Vertical Integration: The merger of two businesses that are at different stages of the production process, in this context, hospitals acquiring physician practices or employing physicians.

Examples/Case Studies:

• Cardiologist Salary Comparison: Specific data showing employed cardiologists earning $645,388/year versus independent cardiologists earning $588,272/year, with a widening gap.
• Stress Test Reimbursement: An example illustrating the disparity between a physician's professional fee ($120) for interpreting a stress test and the hospital's facility fee ($2,200) for performing it.
• Texas Heart Hospital Settlement: A real-world example where the Texas Heart Hospital, connected to Baylor Scott and White, paid a $48 million settlement due to a Department of Justice investigation stemming from whistleblower complaints about a joint venture violating the Stark Law.