Physician Referrals: How Do Doctors Make their Decisions?

Almost every patient will, at some point, require a physician referral, typically from a primary care doctor. Much of the time, patients aren’t provided options. Referrals are made based on a number of factors, the most significant one being who is in their healthcare system. That’s not true all the time, especially in rural areas where specialists are hard to find. But how do doctor referrals work? And why does it matter to you, a supplier or provider to the healthcare industry? Let’s explore these questions.

Keeping Business In-House

Patients are really no different than consumers in the modern world of for-profit healthcare. And that means that just as any business doesn’t want to lose customers to competitors, physicians are trying to prevent the same thing. They often refer to this as “leakage,” and patient retention is becoming a huge emphasis for healthcare systems.

Most primary care doctors work directly for hospitals. So, if the time comes that a patient needs to see a neurologist or cardiologist, that referral will go directly to the physicians underneath their same umbrella. Large healthcare systems will often state that keeping referrals in-house improves the quality of care and care coordination as well as reduces costs.

The additional reality of keeping patients in the same network is that it’s a substantial revenue source for these health systems. According to a Merritt Hawkins revenue survey, a hospital earns an average of $2.13 million annually from a primary care physician’s admissions, referrals, and other services.

That’s a substantial amount per doctor, and something no health system wants to see decrease. These doctors aren’t technically required to make a referral to the hospital staff, but they can be aggressive in directing physician referrals. This model will continue to grow as more hospitals acquire physician practices.

What Impacts Referral Patterns?

Besides in-house referrals being a driver of physician referrals, what else matters? If a physician is not affiliated with a hospital or healthcare system, then the referral may be based more on convenience. In this situation, convenience means that physicians are more likely to refer out to others they know and have worked with in the past.

Other times, convenience may mean that a medical practice simply looks at what specialists accept the patient’s insurance. They may just randomly pick a name if they aren’t familiar with any of the options.

When it comes to insurance and how they treat referrals, they are mostly concerned with costs. The referral may be to a surgeon or other physician that can complete the procedure at the best price. Skill and experience are not often factors here.

Patients are, of course, incentivized to stay in-network by their insurance companies. Going outside the network will lead to skyrocketing costs, which most people cannot afford.

While it may seem that referrals are somewhat sketchy in how they generate income for health systems, there are anti-kickback laws in place that prohibit doctors from paying for referrals. However, the Affordable Care Act (ACA) did include allowances for keeping referrals in the same network.

Some experts even believe that the ACA diluted the anti-kickback provisions in place. The thought behind the language in the law was to reduce costs, but doctors whose practices are owned by hospitals may receive a fee-for-service payment for keeping referrals internal.

What Are Referral Development Consultants?

​Another niche business that has come about in the world of physician referrals are referral development consultants. They partner with specialists for a fee and “pitch” the physician to other doctors in the area. This is a rather small part of referral business, but it’s something that could expand as the competition for referrals heats up.

Physician Familiarity Decreasing for Primary Care Doctors

A primary care doctor or internist once had a much larger network of doctors they were familiar with for referrals. Now, many primary care doctors don’t have this as they are less likely to round or have hospital privileges. It’s part of the changing dynamic of primary care doctors. They were once the center of care coordination but now may see patients only as a liaison to specialists. Because there is basically a specialist for everything, primary care doctors serve the role of handing patients off.

This isn’t always true, especially in rural areas where specialists are almost nonexistent. A recent Washington Post article highlighted these “medical deserts,” where there may only be one doctor for vast areas of land. In these circumstances, doctors have no opportunities for referrals and may be left to treat a variety of ailments.

How Physician Referrals Matter to You

Understanding how physicians refer is just another foundational piece of information that you, as a provider or supplier to the field, should be intimately aware. This evolving dynamic could provide opportunities for your company, especially if you offer tools or products that streamline, measure, or track physician referrals.

Regardless of your place in the healthcare industry, having this kind of knowledge will make you more likely to understand your buyers (healthcare providers) and the challenges they face. You can boost your performance and accelerate the path from prospect to customer with help from Carevoyance. See what we offer and why it could revolutionize how you sell to the healthcare community. Learn more by reading about how physician compensation.