Another important set of factors concerns the typical environment in which future physicians are trained. Most medical schools are parts of large hospitals systems, and in many of these settings, the physician is a salaried employee. As a result, medical students and residents often have relatively little contact with self-employed physicians in solo or small-group practice. When the time comes to look for a job, they naturally tend to prefer what they know. In most surveys, the number of medical students saying they want to go into independent solo practice is only 1 or 2 percent.

Still another set of factors driving hospital employment of physicians operates primarily from the hospital side. In the current predominately fee-for-service health care payment system, boasting large physician networks can increase a hospital’s negotiating power with health care payers. With the transition now underway to accountable care, which will base payments at the population level and reward less for care provided than for controlling costs, hospitals want to retain revenue that would otherwise be lost to lower-cost care options. Exerting more influence over physicians can help make this happen.

Even if the hospital appears to lose money on each physician it employs, from a longer-term and broader point-of-view it can profit in a number of ways. One is by better coordinating patient care to reduce inefficiency and waste. For example, by better integrating information systems between different physicians and the hospital, it may be possible to reduce unnecessary testing, avoid inappropriate duplication of medications and procedures, reduce failure and complication rates, and ultimately perhaps to improve the quality of patient care.

Hospitals also have a strong incentive to acquire more control over patient referral patterns and increase their market share. In a medium or large size community, when it comes to referring a patient for specialty care or hospital admission, physicians often have multiple choices. Under federal fraud and abuse statutes, it is illegal for a hospital to offer a physician any financial inducement to refer a patient to a particular organization or facility. However, there is an exception to this policy: when the physician is a hospital employee.

Hospitals also fear the possibility that physicians might band together to form large multi-specialty groups that direct patient care and health care utilization free of hospital control. In this scenario, physicians can become successful competitors to hospitals. In some cases, instead of the physicians being employed by hospitals, hospital administrators in effect find themselves working for physicians. Intriguingly, some of the best hospitals in the country, such as the Cleveland Clinic and the Mayo Clinic, are run by physicians and correspond rather closely to this model.