Total annual healthcare spending in the United States topped the $2 trillion mark in 2005, according to Center for Medicare and Medicaid Services (CMS), and is projected to exceed $3 trillion in 2011. That’s more than the gross domestic product of every country in the world except the U.S., Germany, Japan, China and Great Britain.

In an industry this huge there naturally are a lot of powerful players, including the federal government, insurance companies, medical equipment manufacturers, drug companies, and health systems. But who is really driving the bus in healthcare today?

As big as health care has become, and as much as medical technology has changed in recent years, physicians are still at the center of the system. Just about every significant event in the continuum of patient care is driven by a doctor. It is almost always a physician who diagnoses a patient’s illness, who orders medical tests, who prescribes drugs, admits the patient to the hospital, conducts procedures, and orders therapy and other follow-up treatments. Most of the care delivered in the U.S., and most of the spending on this care, at some point is initiated by a physician.

The chart below shows how the U.S. healthcare dollar is allocated.

How the Healthcare Dollar is Spent
Hospital care - 30 cents
Physician/clinical services - 21 cents
Prescription drugs - 10 cents
Administration - 7 cents
Nursing home care - 6 cents
Other (dental, durable products, over the counter drugs, etc.) - 25 cents
Source: Center for Medicare and Medicaid Services

It is physicians who admit patients to hospitals, driving the first item above. Physicians provide clinical services, driving item two above, and physicians prescribe drugs, driving item three.

Because they initiate hospital care through a signature, approve procedures with a signature, and prescribe drugs with a signature, it is not an exaggeration to say that the most powerful tool in healthcare today is a physician’s pen.

Hospitals to some extent understand this and that is one reason why most hospitals in the United States are actively engaged in physician recruiting. Merritt, Hawkins & Associates seeks to quantify the revenue physicians generate for hospitals through a survey we conduct of hospital chief financial officers (CFOs). In our 2007 Survey of Physician Inpatient and Outpatient Revenue, CFOs indicated that, on average, a doctor will generate about $1.5 million a year in net revenue for his or her affiliated hospital.

The graph below shows average annual net revenue generated for hospitals by physicians in several specialties (see www.merritthawkins.com for complete survey results).

Annual Revenue Generated for Hospitals by Medical Specialty
Cardiology (invasive) - $2,662,600
Orthopedic surgery - $2,312,168
Neurosurgery - $2,100,000
Family practice - $1,615,828
Source: Merritt, Hawkins & Associates 2007 Physician Inpatient/Outpatient Revenue Survey

Despite their importance, doctors do not always appreciate their primary role in the system because to a large extent the fees they are paid are dictated to them by third parties such as Medicare and insurance companies.

Nevertheless, several trends are tipping the field even more in their favor. One of these trends is the physician shortage, which has created a seller’s market in physician recruiting where doctors can ask more for their services in terms of salaries, benefits and time off. Another is medical technology, which is allowing doctors to do more tests and procedures in their offices, thereby achieving independence from hospitals. A third is the way in which payment systems discourage inpatient care and encourage the kind of outpatient care doctors can perform in their offices.

Those healthcare organizations (hospitals, in particular) that hope to thrive in today’s environment are finding ways to partner with physicians rather than conflict with them. The process begins with sound recruiting strategies that bring in the right physicians and that position them for both professional and personal satisfaction and success. As the role of the physician is enhanced, the role of the recruiter is enhanced. This should be seen as a positive development advancing the prestige and professionalism of our field.

Kurt Mosley is Vice President of Business Development for Merritt, Hawkins & Associates, the leading physician search firm in the United States and a division of AMN Healthcare (NYSE: AHS). He can be reached at kmosley@mhagroup.com.