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Photo illustration by 731; Photograph by D. Hurst/Alamy Photo illustration by 731; Photograph by D. Hurst/Alamy

Dr. Thomas Lewandowski, a Wisconsin cardiologist, had a tough choice to make in 2010 after the federal government yet again reduced the payments he received for treating Medicare patients: He could fire half his staff to keep his practice open, or sell it to a local hospital. He sold, becoming one of more than 6,000 employees at ThedaCare, which runs five hospitals and numerous clinics in the northeastern part of the state. Lewandowski is among thousands of once-independent doctors who are joining with hospital chains to stay afloat, a trend that threatens to raise the price of health care even as the federal government strains to keep a lid on costs.

Under Medicare’s tangled payment system, hospitals get higher reimbursements than individual doctors for cardiology treatment and other specialty services—in some cases a lot higher. The program pays a hospital $400 for an echocardiogram, $180 for a cardiac stress test, and more than $25 for an electrocardiogram, according to data from the American College of Cardiology. At a private physician’s office, Medicare pays $150 for an echocardiogram, $60 for a cardiac stress test, and $10 for an electrocardiogram.

Large hospital chains also have more power than individual doctors to negotiate reimbursements from insurers such as UnitedHealth Group and WellPoint. The result: Instead of controlling costs by keeping payments to doctors down, the federal government may be driving them higher. “Clearly, in the short run, it raises costs,” says Paul Ginsburg, president of the Center for Studying Health System Change, a nonprofit research group. “A physician becomes employed by a hospital, and now a payer, like Medicare, has to start paying more.”

Since 2007, when the government began repeatedly cutting Medicare payments to doctors, the number of cardiologists working for U.S. hospitals has more than tripled, while the number in private practice has fallen 23 percent, according to the ACC. Jay Alexander, a cardiologist who co-owned a practice in Lake County, Ill., says he sold out to a local hospital after his Medicare revenue dropped 35 percent. Now the government pays Alexander three times as much to perform the same tests and procedures—far more than he would have needed to keep his private practice open. “If this was government’s solution to reducing health-care costs, they should have their heads examined,” he says. “This is an unfortunate consequence of bad planning.”

Changes beginning to take place under the 2010 Affordable Care Act are supposed to help slow this cost creep. The law encourages hospitals to move toward accepting lump-sum payments to treat a condition, rather than charging separate fees for every test and procedure. “It is part of the broader trend where physicians and hospitals are not only getting paid for the number of patients they treat but how they manage the health of their patients,” says Simon Gisby, managing director of the Life Science and Healthcare practice at Deloitte Corporate Finance. But that shift may take years to complete, with most hospitals still getting paid piecemeal.

For cardiologists, working for a hospital has a good and a bad side. While they gain more stable incomes, they have to follow strict hospital guidelines that limit their ability to personalize treatment. They’re also pressured to see more patients each day. “I miss being in private practice and being my own boss,” says Alexander, the Illinois cardiologist. “I would have said 30 years ago that I planned on dying with my boots on and practicing until I couldn’t practice anymore. Now, do I look forward to retirement? Yes.”