Employed for Higher Pay? How Medicare Payment Rules Affect Hospital Employment of Physicians

American Economic Journal: Economic Policy, Vol. 11, No. 4, November 2019

Following Medicare rule changes in 2010, hospital billings for outpatient procedures have risen, and an increasing number of physicians have chosen employment at hospitals over independent practice. Analysis Group Vice President Christopher Ody and affiliate David Dranove of Northwestern’s Kellogg School of Management have published a study in American Economic Journal: Economic Policy indicating that higher Medicare payments after 2010 did, in fact, have a causal impact on these increases.

Dr. Ody and Professor Dranove examined claims data from both before and after the Medicare rule change, as well as physicians’ billing patterns and employment locations from the same time period. With the new 2010 Medicare reimbursements, a physician employed by a hospital could bill at a higher rate than an independently employed physician. In what they call a “sobering” result, Dr. Ody and Professor Dranove’s analyses indicate that, after 2010, approximately 20% of the physician shift toward hospital employment and 75% of the increase in hospital-billed outpatient procedures could be attributed to the higher Medicare reimbursements.


Dranove D, Ody C