Is Physician Mistrust Souring Your Growth Strategy?

When physician practices merge or integrate with hospitals or health systems, healthcare leaders say integration of practice teams and compensation are the biggest challenges. Trust ranks well down the list, according to a recently released HealthLeaders Media Intelligence Report. In reality, though, trust is at the heart of successful mergers of physician practices—and lack of trust contributes greatly to failure.

In "Physician Compensation: Shifting Incentives," 28% of healthcare leaders ranked integration with existing physician teams as the most challenging area for an acquisition. Compensation was the next concern; 23% of financial leaders cited integrating the acquired and acquiring practices compensation model, while 14% said the compensation expectation of the acquired physicians was the biggest issue. Trust was the number three hurdle (cited by 19%) of respondents), with governance issues (11%) rounding out the survey.

But integration, compensation, and governance issues in an acquisition all boil down to trust. Not only can an untrustworthy reputation (whether true or false) sour practice acquisition negotiations, it can ultimately slow the strategic growth of an organization.

"Physicians generally go into practice to be their own bosses; to be able to control their own destiny. As the world has changed around them, they realize that their original view of destiny is different from the reality and they're looking for ways to enhance their long-term future," explains Tom Gallagher, president and CEO of Seton Ventures and Alliances for the Austin, TX–based Seton Healthcare. Having completed numerous acquisitions over the years, not-for-profit Seton Healthcare is now the largest provider in Central Texas, consisting of five medical centers, two community hospitals, and two rural hospitals.

"There are lots of partnerships in terms of workshops at the hospital for physicians, but the physicians don't generally have a financial tie to the hospital. Trust is a more difficult commodity with that kind of a relationship," adds Gallagher.

Integration of physician practices depends a lot on trust. It's easy to get off on the wrong foot.

"There needs to be some sort of consistency in the deals. Though each deal is a little bit different, if you're bringing in a group of cardiologists and their deal is totally different than the last cardiology group's deal, you're going to end off with a big problem," says Robert Garrett, president and CEO of Hackensack University Medical Center in Hackensack, NJ. A not-for-profit teaching and research hospital, HUMC is the largest provider of inpatient and outpatient services in the state.

"At least in terms of overall structure there needs to be some consistency; however, within that structure, the hospital has to be somewhat flexible because one size does not fit all," Garrett adds.

Differences in compensation levels and structure between the acquiring and acquired entities are common. Negotiating these pitfalls requires trust, transparency, and a record of kept promises.

Gallagher says his organization typically brings physicians on board at their existing pay level, but sets the expectation that over time they will need to blend into the existing pay structure. "We're not going to ask people to take a reduction in pay to become part of our organization," he says. "But eventually there has to be some uniformity in the [hospital's] compensation structure, too."

For instance, a cardiology practice that's being acquired may be using a productivity-based compensation model based on volume metrics. However, the acquiring hospital may have a cardiology group that is using a productivity-based compensation model that includes volume, quality, and patient satisfaction metrics.

In this scenario, two problems could arise. First, if the newly acquired group's compensation structure causes the new doctors to earn more or less than the hospital's cardiology group, resentment and outright conflicts between the two teams can erupt. The hospital may need to adjust pay levels for new or existing physicians to arrive at parity. Second, in order to align the new practice with the hospital's strategic goal of achieving high quality care and an excellent patient experience, the acquired practice's compensation structure needs to be redesigned.

Transparency is the key, says Jeffrey D. Limbocker, CFO for the 700-bed Our Lady of the Lake Regional Medical Center in Baton Rouge, LA. "You have to set the [physicians'] expectations before the merger happens and make sure everyone understands all the complexities of the compensation model," he says.

Though governance ranks low on the list of CFOs' concerns in the Intelligence Report, it's the ultimate trust issue. "Then there's the governance issue, and I'd be nervous about this if I was in [physicians'] shoes too," Limbocker says. "Governance is the decision making; they need to understand who will decide what happens in the practice every day once the agreement is signed. Certain decisions the physicians used to make may now rest with the [hospital] CEO and the board."  

Unfortunately, even if a hospital is trustworthy and transparent in its dealings, misunderstandings can still occur. It's a pitfall to watch for, says Garrett.

"From the physician's perspective, the biggest frustration would be that the hospital potentially could oversell the deal, in terms of how it's going to work. For the hospital, the biggest frustration is finding out the physician's expectations are different than the ones the hospital presented to them. Once the partnership goes into effect, if there's a difference of opinion in the terms, then each party will say the other didn't deliver on what was promised," he explains.

To stave off miscommunication and the resulting mistrust, it helps to be able to trade on a good reputation.

"The only way you can convince physicians to trust your organization is to have them talk to others who have gone before them," Gallagher says. "And you must deliver what you say you're going to deliver; it's something an organization has to do every time, so the physician doesn't have a reason to doubt what you're saying."