A new report published in Health Economics, Policy and Law July 6 argues that hospital-affiliated physicians, not private equity-backed physicians, are the most likely to steer care toward higher-cost sites of service — a finding the authors say complicates the prevailing narrative that private capital is the primary driver of rising healthcare costs.
The authors — Lauren Makhoul, Owen Ayers and Shareef Ghanem, MBA, built their argument around an analysis of 32 CPT codes across cardiology, gastroenterology, orthopedics and urology, comparing site-of-care decisions and total service costs across four physician affiliation models: unaffiliated private practice, private equity-affiliated practice, corporate and hospital.
Editor’s note: The report’s authors disclose they are paid consultants to the private equity industry.
Six takeaways for physician leaders:
1. Physician practice costs have risen roughly 50% since 2001, while Medicare physician reimbursement climbed less than 10% over the same period. The authors said that gap is a key force pushing physicians out of independent practice and into hospital or corporate employment.
2. About 80% of US physicians were employed by a hospital or other corporate entity as of 2023, according to data cited in the report. Among the specialties the authors studied, just 12% of physicians remained in unaffiliated private practice by 2022.
3. Hospital outpatient department reimbursement ran 1.2 to 8.6 times higher than the same service performed in an ASC or physician office under Medicare, and 1.1 to 13.4 times higher under commercial insurance, according to the cost analysis.
4. Hospital-affiliated physicians were the least likely of any affiliation model to deliver care in a lower-cost setting, choosing the ASC or office just 37% of the time across the 32 codes studied. Private equity-affiliated physicians made that choice 63% of the time — the highest rate of any model.
5. The authors attributed part of the gap to referral constraints inside integrated systems. Hospital-employed physicians, they said, often have limited ability to send patients to a lower-cost setting outside their own system, even when it is clinically appropriate to do so.
6. The report recommends the CMS Innovation Center pilot payment models that raise physician professional fees for procedures performed in ASCs, rather than cutting hospital reimbursement outright. As one example, the authors modeled a 15% professional fee increase for total knee replacements performed in an ASC as a way to shift volume toward lower-cost care.
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