This article appears in the November 2011 issue of HealthLeaders magazine.
With a struggling economy and imminent Medicare and Medicaid reimbursement cuts, physician practices nationwide are embracing employment at the hospitals and health systems they once eschewed. Doctors are being warmly welcomed by healthcare organizations eager to augment market share and leverage large numbers of employed physicians for payer rate negotiations. With growing numbers of physicians joining hospitals and health systems, how does the shift from independence affect the physician, the hospital, and the patient?
In the September 2011 HealthLeaders Media Intelligence Report Physician Alignment: The Collaborative Care Disconnect, 67% of survey respondents said they had received an increase in requests for employment from physicians. In the same report, 70% of healthcare leaders responded that they were planning to employ a greater percentage of physicians in the next 12 to 36 months, and they have been doing so.
Though employing physicians is often heralded as a smart path for hospital and healthcare system growth, does it mean the end of the independent physician? Moreover, what can having a large number of employed physicians mean for patient care and reimbursement rates?
“I don’t know if it will be the complete demise of the independent physician, but I think the economic environment and regulatory one is driving physicians to look for something else other than independent practice,” says Mark Nantz, CEO at Bon Secours St. Francis Health System in Greenville, SC, which is part of the Marriottsville, MD–based Bon Secours Health System, a $2.9 billion Catholic nonprofit that owns, manages, or joint ventures with 18 acute care hospitals in seven states, and owns many other types of healthcare facilities. Bon Secours St. Francis currently employs 225 of the 650 physicians who work on site.
“The reimbursement cuts hurt these [independent] physicians. Plus, there’s strength in numbers and these physicians are looking for some strength when it comes to their [payer] contracting—getting a negotiation position of influence when you’re a one- to two-doctor practice is hard to do,” explains Nantz. The physician trend of seeking employment at hospitals or systems over the past few years, he says, is not entirely unexpected, however. He believes it is an intended result of healthcare reform and reimbursement efforts.
“The opinion is widely held that the actions by the federal and state governments to cut payments are not just about budget deficits and controlling utilization; they were intentionally designed to drive a lot of physicians into an employed mode,” Nantz says. “If you make the number of players in the market smaller, it’s easier for the government to effect change. So it will be put on the large healthcare systems then to work in partnership with doctors to determine what the new standards of care will become.”
Max Reiboldt, CPA, is president and CEO of Coker Group in Atlanta; he agrees that more than economics are driving this shift in physician employment.
“From the physician’s perspective it is generally of greater financial benefit in the nearer term to be employed ... Hospitals aren’t experiencing as great reimbursement reductions yet, and may not,” he says. Though in the past the reason a hospital sought to employ specialists was to build service lines, such as cardiac or cancer care, Reiboldt says that now more frequently primary care physicians are being added to help capture referrals and to build an accountable care organization.
“Generally, when a hospital has the opportunity to acquire [a practice] they take it because they can increase market share of an ancillary, and essentially in doing so they are taking out a competitor,” says Reiboldt. “But there’s a macro issue at play with the healthcare reform legislation; it’s the introduction of the ACO and the changing reimbursement paradigm.
ACOs are only able to be formed as a result of a large ‘mega-group’ or significant number of physicians clinically integrated with a health system. Through the clinical integration, they need financial integration, and for that to happen it needs to be done through employment or a close-to-employment agreement. So, [the healthcare reform legislation] is driving the consolidation of hospitals and practices.”
Employing a large number of physicians is generally viewed by healthcare leaders as a mark of a hospital’s financial strength, not only for the referrals and income generated but also for the negotiating leverage a large network can use with payers.
“As you look to the future for most standalone entities and look at the level of [financial] support needed to continue to be a standalone, it will be tough [for these entities to survive],” says Jerry Youkey, MD, vice president for medical and academic services at Greenville (SC) Hospital System University Medical Center and dean of University of South Carolina School of Medicine–Greenville.
Nonprofit GHS employs 566 of its 1,200 physicians and is one of the largest hospitals in a market that has been employing physicians for at least two decades.
“Employing physicians is the most significant strategy for any organization these days. You must build an effective primary care and specialty care network,” Nantz says. “You’ve got to have the patients, and therefore you’ve got to have the physicians. And the physician-hospital employed model is the most likely relationship to encourage doctors to lead the charge toward [care] transformation—so we can all survive and thrive in a post-reform environment.”
Unquestionably, employing physicians is good for a hospital’s market share and the physician’s financial stability, and it also can have an impact on patient care. “Employment has the likelihood of eliminating duplicate and often not needed service offerings within a healthcare community,” says Nantz.
Moreover, he explains the physicians now have access to a common computer system that can help to defragment a patient’s care and prevent redundant tests. “If we keep the patient within the system, everyone has access to the same information and [patients] can pass easily through the system. We reduce duplicate tests and make sure they receive more efficient and thorough care,” Nantz says.
Essentially, the employed physician refers within network, thus improving the continuity of care and the hospital’s efficiency by preventing the unnecessary duplication of services. Fewer unnecessary tests also results in a decrease in cost for the payers and patients.
“We believe that by having a large hospital system and medical group that you not only have market leverage, but that gives us the ability to work with the payers to identify where we can partner to reduce costs and the number of initiatives,” says Greg Rusnak, COO at GHS. “We are aligning our group to focus on outcomes, cost of care, and patient satisfaction. You can’t do that without physicians being integrated and to the degree you do that it can have an effect on market share.”
Payer leverage is what most hospitals are striving for, says Nantz, and payers are looking for a strong comprehensive physician network to give beneficiaries access to the doctors they want.
Heated negotiations between a payer and a provider can leave patients caught in the middle. Such was the case with Select Health of South Carolina, which lost access to GHS’ network and physicians when the pair had a payment rate dispute in 2010. GHS dropped the contract, resulting in patients needing to be referred to a hospital 90 miles away for certain services, such as pediatric inpatient and subspecialty care.
Reiboldt says the natural forces at work within the market will keep this situation in check. Indeed, earlier this year, the American Medical Association released a statement to the Subcommittee on Health of the U.S. House Ways and Means Committee stating that the consolidation of the insurance industry could “exacerbate the harm caused by the exercise of market power.” As Nantz suggested earlier, employing physicians helps strengthen the negotiation power of the provider to equal that of a payer in the market.
How much, or if, individual consumer cost of care could be influenced by the rise in physician employment is hard to discern and being carefully watched by lawmakers. However, Reiboldt says ultimately the individual markets will dictate. “I don’t think the employed physician is presenting any harm to quality of care or driving up prices. Competition between hospitals should keep prices at bay.”
This article appears in the November 2011 issue of HealthLeaders magazine.
Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media.
