Hospitals seek best ways to achieve physician alignment

Physicians increasingly are looking to hospitals as employers. An uptick in physicians wanting to sell their practices to health systems is also being seen.

By Victoria Stagg Elliott — Posted April 12, 2010

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More physicians want to work directly for hospitals, and hospital executives are happy to have them, according to health care industry officials.

Interest in hospital and health system employment, joint ventures, medical directorships and various management agreements is increasing. The shift has been attributed to physicians' increasing desire for a work-life balance as well as to the diminishing viability of small practices, experts said at the American College of Healthcare Executives' congress on health care leadership in Chicago. Physician alignment was the focus of several panels at the March conference.

For their part, hospital executives see this increased interest as an opportunity to strengthen ties between physicians and hospitals.

"We have got to partner and work together to make the system better, make patients safer, lower costs and retain the economic viability of both sides," said Chris Van Gorder, president and CEO of Scripps Health in San Diego and chair of ACHE.

Recent surveys have shown some smaller practices facing financial challenges and physicians looking for alternate means of employment. The Medical Group Management Assn., for example, released a survey on Oct. 1, 2009, showing practice revenues declined by 1.9% from 2007 to 2008. Bad debt increased by 13% over the same period. A November 2009 report by the American Hospital Assn. further said that 74% of hospital CEOs were being approached more frequently by physicians seeking employment. In addition, 36% of hospital CEOs noted an increase in the number of physicians asking them to buy their practices.

"We used to meet with doctors, and they would say, 'We want to increase our income and grow our practice.' In the last five years, doctors have been saying, 'I would like to try and maintain what I have,' " said Ken Mack, president of Mack/Voyten and Associates in Brecksville, Ohio, whose presentation was titled, "Physician alignment: the best growth strategy."

Both the recession and potential changes with the recently passed health system reform legislation have compelled health care executives to bring more physicians into the fold. For example, many executives believe there will be increased implementation of both bundling and the use of medical homes, as well as some forms of payment connected to outcome. Executives are preparing for accountable care organizations to play a larger role in the health care system as well, according to experts.

Physicians now are being perceived as bringing value to a hospital. A survey by Merritt Hawkins & Associates released March 17 indicated that each affiliated physician leads to an average of $1.5 million in annual revenue for the hospital, although this varies widely by specialty.

"We have to find ways to work together so patients get taken care of and we can all still stay in business," said Kenneth H. Cohn, MD, a general surgeon and CEO of in Boston, who presented on physician recruiting, contracting and retention strategies.

Health care executives say they are hoping to learn from the mistakes made in the mid-1990s, the last time health system reform became a big legislative issue and large numbers of physicians aligned in some way with hospitals.

Many primary care practices in that era were purchased outright, with bidding wars between hospital systems and physician practice management companies inflating prices. The majority of those deals unraveled before the decade was out. Experts now hope to do things differently. For example, specialty physicians are included in this renewed interest, and hospitals generally pay nothing for goodwill, the community reputation and other intangible assets of a practice, which had been a major factor in running up prices.

"It's really critical that hospitals get it right this time," said Todd Sagin, MD, national medical director of HG Healthcare Consultants in Laverock, Pa., and one of the authors of Creating the Hospital Group Practice: The Advantages of Employing or Affiliating with Physicians. "They didn't get it right the last time. They didn't provide good homes for physicians."

Employment contracts also are more closely tying compensation with the institution's performance, experts said.

"Rewarding people for productivity is not enough. Quality, safety and patient satisfaction incentives in one way or another are important," Dr. Cohn said.

Direct employment is not the only option being increasingly explored by health care executives, however. Officials from the Scripps Medical Foundation, which provides physician services to Scripps Health, presented their model of physician alignment. California law does not allow health systems to directly hire physicians, so the Scripps foundation contracts with physicians to provide professional services.

This still allows physicians to be aligned with this institution, but the financial relationship makes it easier to negotiate with health plans and allows for better care-coordination, according to Scripps officials. The arrangement requires constant communication and clear divisions of responsibilities. For example, the foundation handles much of the contracting, billing and strategic planning. The medical groups hire and fire physicians.

"We found that physicians are much harder on each other than we could ever be on them," said Larry Harrison, MPH, chief executive of Scripps Clinic.

But experts say that whatever the arrangement, the relationship is most likely to endure only if physicians maintain control of clinical issues.

"Physicians and hospitals don't always agree, but they are working together," Mack said. "There are lots of ways to partner, but physicians really have to manage clinical things for it to work."

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