Corporate Medicine (and Physician Productivity)

Get used to hearing that term.  There is no doubt that the trend is increasing for doctors to be employed.  Right now, about half of America’s physicians are in solo or small group private practices.  By the end of this decade, I would expect that 25% or fewer will be, as the pressures on managing a private practice continue to build.  On the one hand, all the overhead is determined by market forces, yet the reimbursements are determined by Medicare fee schedules, which are not keeping pace with inflation.  Even physicians willing to add discretionary services such as cosmetic surgery and injectables (Botox, fillers) only helps so much, since these are becoming more competitive – with resulting downward price pressure.

The physician-employment trend was seen in the 1990’s, but it was gradually unwound as productivity tended to suffer.  Now, most employment involves compensation tied to productivity.  The problem with this however, is that under such a situation overutilization and procedural activity is not going to be reduced.  Reduction of excess is one of the tenets of the current healthcare reform effort.  Tying compensation to productivity makes sense for the hospital.  But for the system as a whole, it does little to change the so called “perverse incentives” that drive the overall volume of services.  What makes sense is for each medical department to be evaluated on overall outcomes.  The problem is that good outcomes may not come with high revenue.  This problem will be passed along to the employed physicians in the form of lower pay.  At some point, physician compensation will have to be tied to the market supply/demand of each specialist, rather than the productivity achieved by that specialist.  The more that reimbursement continues to lag increases in inflation, the more likely this will become.

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