Business

Hospitals returning to hiring physicians

The strategy is aimed at enhancing physician-hospital integration.

By Katherine Vogt — Posted Nov. 14, 2005

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Once again, hospitals appear to be warming up to the idea of directly employing physicians after a decade of licking their wounds from costly, failed experiments with the strategy, a recent report said.

In a September report on hospital-physician integration strategies, Moody's Investors Service said nonprofit hospitals and health systems were increasingly returning to the physician employment models that were rampant in the mid-1990s.

Although the trend back then was fueled by the looming threat of capitation, now hospitals are looking at physician employment as a means of protecting market share and volume, Moody's said. And this time, physicians are contributing to the trend as they seek stability in the face of declining reimbursements and soaring liability premiums.

The report said that hospitals appear be eschewing practice acquisitions in favor of "less complex employment arrangements," such as direct employment. However, hospitals haven't completely abandoned the practice acquisition strategy. The report did not specify how many physicians are employed by hospitals, either through direct employment or a contractual arrangement.

David Lechner, MD, a family physician in Helena, Mont., said his practice had been a joint venture with St. Peter's Hospital in Helena, but the group decided to sell its remaining stake to the hospital in 2003. It was more efficient to have one entity in charge of management duties and some of the physicians wanted to spend less time running the practice and more time with patients.

"Particularly with younger physicians there's a growing group of doctors who want less and less in terms of running their practice," said Dr. Lechner. "It's a generational shift."

With the hospital's financial assistance, the group has been able to keep offering obstetrics despite rising liability insurance premiums and is getting help adopting new technology. Dr. Lechner said the benefits haven't come with too large a price tag.

"In terms of some of the hiring of staff for the office, some of the autonomy is gone. But that's not been a huge issue. In terms of clinical decisions, we have not had any decision that the doctors wouldn't have made otherwise," he said.

Lisa Goldstein, author of the report and senior vice president for Moody's, said employed physicians give hospitals a better grip on market share and therefore more clout when dealing with managed care payers, who have gained power as they have consolidated in recent years.

The report said hospital market share is being threatened as key service lines such as lucrative surgeries and imaging are being lost to physician-owned facilities or are migrating to doctor offices. In defense, hospitals are turning toward physician integration strategies such as employment.

"People typically don't go to a hospital, they go to a doctor. So if you want to increase your hospital's business you find ways to link up with physicians, and physician employment is a way to do that," said Jeffry Peters, president of the Chicago consulting firm Health Directions.

Darrell Schryver, a principal and consultant with the Denver-based Medical Group Management Assn. Consulting Group, said it makes financial sense for hospitals to try to stay connected to physicians.

If the hospital can't keep physicians in its service area, Schryver said it's just "an empty hotel with bad food. The hospital lives and dies by its relationship with physicians. It's a matter of survival for the hospital."

But not all hospitals are ready to start hiring. Many of them got burned by their experiments with physician employment in the 1990s, particularly with overpaying to acquire physician practice assets. Still, Goldstein said hospitals now are banking on some of the lessons they learned.

"The financial repercussions from the strategy in the mid-1990s were challenging, putting it mildly. There were large losses. A lot of them learned their lessons, albeit painfully. It appears they are going about it [now] much more methodically, more disciplined," she said.

That includes using carefully constructed contracts and income arrangements that have clearly defined links to productivity standards, the report said.

Some hospitals are returning to the strategy simply by using short-term employment. Peters said it's like an "incubator" because the hospitals hire physicians, let their practices grow until they become financially viable and then transition them into private practices.

The hospitalist movement may also be driving the employment trend, said Rick Wade, spokesman for the American Hospital Assn. "Where the hospitalists have been introduced, when it's done successfully, the general cry from the medical staff has been, 'More!' " he said.

The Philadelphia-based Society of Hospital Medicine estimates that there are 15,000 hospitalists practicing in North America and that number could grow to as many as 30,000 by 2010. By comparison, in 2001 there were between 4,000 and 5,000.

Goldstein said hospitalists were part of the trend but not all of it. "We're also seeing hospitals looking to employ specialists. With some specialists that may be the only way you can look to bringing them to your organization, through employment," she said.

Looking ahead, Goldstein expects the trend to persist for at least a few years, though she won't predict whether physician employment is the wave of the future.

"We're still in the early stages of the return of this strategy. It will be a case-by-case basis as to how hospitals do financially and whether they return to this strategy," she said.

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