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Dialing Up Physician Networks

Joe Cantlupe, for HealthLeaders Media, November 2, 2012

This article appears in the October 2012 issue of HealthLeaders magazine.

Fiscal changes in healthcare delivery over the years have driven a continuous evolution of physician-hospital relationships. Physicians have joined groups, left groups, and become independent again, spurred by alterations in payment models and competition.

As the nation moves from pay-for-performance to value-based care, there has been a rush of independent physician practices joining larger groups and hospital systems for security and reimbursement.

Indeed, physicians and hospitals have been effectively shuffling a deck of healthcare affiliation cards, looking for a handsome payoff through the creation of primary care physician networks.

With physicians eager for hospital positions, and hospitals trying to align their clinical care with an eye toward medical homes and accountable care organizations, the two sides are increasingly joining forces in primary care physician networks. These networks are seen as providing a significant foundation for improving care and efficiency, while bolstering programs that include employed physicians and independent providers.

But as hospitals integrate physicians into their systems, managing such networks is both fiscally challenging and an intricate dance requiring precise coordination. Hospitals are carrying out primary care acquisition strategies that include a focus on patient demographics while seeking improved market share. For greater efficiency, hospitals are also partnering with other healthcare organizations to enhance IT development, considered crucial to buttress physician networks.

With the uncertainty of new payment models, the stakes are higher than ever. In running a business, there's always the part that is a gamble, and physician networked hospitals are taking a calculated risk with money-losing initial investments and counting on an eventual payoff, in profits and medical outcomes, when all the cards are dealt and the players show their hands.

Developing or expanding physician networks is not instant made-money for hospitals. Hospital officials concede that initially there are often financial losses, but despite that, such networks may become a boon not only for improved patient care but also for developing programs such as medical homes.

"The reality is when you recruit new providers and are building a vibrant network of primary care physicians and you try to grow those networks, you will have operating losses," says Donald Martin, vice president of physician enterprises for St. Peter's Health Partners, which runs the 432-staffed-bed St. Peter's Hospital in Albany, N.Y.

Although they may stumble over low fiscal returns early in the game, hospital officials say improving and initiating primary care physician networks is a crucial piece of any proposed innovation, such as an ACO or a medical home. "It's like a house of cards, and you require every card to stand up," Martin says of the fiscal issues facing healthcare leaders. "The reality is you need a vibrant network of primary care physicians, especially as the government ratchets down what it pays physicians. Survival is in partnership."

At the University of Pennsylvania Health System, whose flagship hospital is the 772-bed Hospital of the University of Pennsylvania in Philadelphia, leaders agree. "Very few people start physician networks looking for a profit," says Ronald Barg, MD, executive  director for Clinical Care Associates of the University of Pennsylvania Health System. "It is estimated that the average healthcare delivery system that employs physicians loses about $50,000 to $70,000 a year per doc when they start out. These are not profit centers, but they make strategic sense. You can't take care of patients if you don't have docs. If you don't develop a physician network, you are unable to recruit and your options are limited." Successful networks need to have broad coverage, include a wide array of specialists, and have a "plethora of formal contractual relationships" with physician groups, employing physicians, or both, he says.

The University of Pennsylvania Health System, with a 2011 operating revenue of $4.3 billion, has been ahead of the curve regarding physician alignment. Twenty years ago, the system launched a physician network and not only stuck with it, but expanded. Other physicians and organizations around the country shuffled in and out of such arrangements, often in uncertain directions, depending on healthcare financing, Barg says. "A lot of health systems developed these networks, and they found they had a gap in terms of ability to manage those networks. Healthcare didn't move in the direction that everybody anticipated. And most of them wound up divesting themselves of networking. We were one of the few groups that really maintained a significant place in that market."

As a result, the network was expanded "to make it geographically diverse" Barg says, referring to physician groups and specialties. "No doubt, it's important with the hiring of primary care that has heated up in the past year."

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