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"Lessons Learned" for Physician-Hospital Relationships in 2009 & Beyond
Ronald L. Vance, JD
(About the author: Mr. Vance has over 23 years of healthcare experience and is one of the senior members of the EthosPartners Consulting Division, based in Atlanta, GA. He is a frequent national speaker and represents hospitals, health systems and physician organizations throughout the United States. His practice is largely focused upon physician-hospital affiliation strategies, organizational development, medical staff planning, turn-around initiatives, compensation planning, and physician services valuation assessments).
Overview
Among the most important issues that our clients are addressing is their need to sort out what is working, what is not working and what is truly advisable regarding their physician-hospital affiliation relationships. From our work with a wide range of hospitals and physicians group clients throughout the United States, we have obtained significant experience and perspectives regarding this highly complex and yet critically important topic. In this article, we have provided an overview of key market trends and several related, but certainly not exhaustive “Lessons Learned”. They include:
- More, not less investments in affiliations will be required for most hospitals and health systems.
- More, not less numbers of subspecialty physicians will initiate affiliation discussions – and not just for the money.
- There is no “one size fits all” solution. Rather, most hospitals and health systems will be well advised to adopt a “mixed model” approach.
- There are a number of criteria that should be considered and each affiliation model should be evaluated on its own merits.
- Significant “strategic glue” is achievable through the use of “soft models” – but often they will not be enough.
- Physician employment and other “hard models” will increasingly be required – with no apologies required.
- Proactive development of a Physician Services Organization (PSO) will enhance the likelihood of successful affiliation relationships.
- Supporting physician compensation relationships and performance review programs should avoid the “easy” and the “extreme” approaches.
- Physician Champions are essential and more, not less, investment and professional development is required to address the growing “Physician Leadership” gap in an increasing number of markets.
- More fully integrated service lines and Advanced Medical Staff Development Planning is needed to reduce “surprises” and to assist in the evaluation of affiliation priorities.
Additional Perspectives regarding the selected Top Ten “Lessons Learned”
- More, not less investments in affiliations will be required for most hospitals and health systems.
There are a number of real and perceived financial and related strategic pressures that have and will continue to accelerate the needs and interests of hospitals to utilize a wide range of affiliation options, with the trend towards more, not less, formal and exclusive relationships. Those shared pressures include:
- Increasing, Shared Economic Pressures from “Eroding” Payor Mix
- Increasing Operational / Infrastructure Expenses – further eroding “bottom line” margins
- The Changing Profile of “New” Physicians & Allied Health Providers
- The Changing Practice Patterns of “Senior” Physicians
- Increased Competition for the Decreasing / Mal-distributed Physicians
- Increased Legal/Regulatory Scrutiny & Constraints
- The Limitations of Compensation Plans to Drive Desired Behaviors
- Increased movement to “Consumerism” & renewed calls for Health Reform
Of particular concern, we note that the dynamic of physician-to-physician has changed such that many physician groups are unable or unwilling to recruit new physicians for growth or succession planning to meet patient needs. The costs associated with “ramping up” new physicians, the changes in reduced buy-outs, and the increasingly reduced opportunities for additional revenues through development of outpatient ancillary services have all contributed to the challenges and reluctance that many physician groups experience in their own physician recruitment and retention efforts.
In short, the medical staff physicians are not keeping up. Consequently, many hospitals and health systems have been forced to provide additional physician recruitment, financial, operational and employment options to ensure that there are sufficient numbers of committed physicians to support their healthcare programs and meet patient needs.
- More, not less numbers of subspecialty physicians will initiate affiliation discussions – and not just for the money.
After the retreat of capitation and prior reactionary efforts to employ physicians as a defensive strategy, many hospitals and health systems eliminated or reduced their physician recruitment support efforts for primary care physicians. Not surprisingly, the pressures summarized above have resulted in even more instability and requests for employment, practice support and other means of assistance for primary care physicians. Coupled with the changing profile of so many of the newest physicians coming out of residency and fellowship who are more risk adverse, but also desire more security and life style balance, an even greater number of primary care physicians have been open to hospital employment or other means of direct support.
What is somewhat more surprising is the pace at which traditionally “high dollar” surgical (e.g., Neurosurgery, General Surgery, Orthopedic Surgery, Cardiothoracic Surgery, etc.) and internal medicine subspecialty physicians with higher procedural volumes (e.g., Cardiology, Gastroenterology, etc.) have requested evaluation of the more fully integrated affiliation models, including employment.
Part of the motivation has certainly been concerns about income preservation due to the pressures outlined above. However, a number of very sophisticated physicians and groups have also concluded that their futures are better served in a more fully aligned and/or employed model, to enhance their access to capital for more comprehensive “Centers of Excellence” and to better achieve clinical integration in anticipation of Centers of Medicare and Medicaid Services (CMS) and commercial payors’ use of payment for performance (P4P) reimbursement plans.
- There is no “one size fits all” solution. Rather, most hospitals and health systems will be well advised to adopt a “mixed model” approach.
The range of needs and readiness of hospitals and physicians to utilize relatively general medical staff models through practice employment or joint venture is highly varied. However, in very few markets have we observed hospitals being able to avoid the use of several affiliation models with their physicians. Rather, to ensure that there are sufficient “platforms” to recruit and retain physicians, as well as to secure dedicated physician partners with compliant financial arrangements, a “mixed model” approach is advisable. Some of the affiliation models being utilized are set forth below.
- There are a number of criteria that should be considered and each affiliation model should be evaluated on its own merits.
We have frequently heard from hospital and physician groups that what matters most is “money” and “control” in the ultimate relationship. However, we believe that many healthcare providers have learned the hard way that without sufficient operational support and development of a partnering culture with genuine respect and opportunity for mutual influence, the affiliation models are rarely sustainable. Consequently, we recommend careful consideration of a number of criteria to evaluate the affiliation model(s) of potential interest to the parties. Among other key drivers and criteria for evaluation of the potential affiliation relationships are the following:
We further recommend that each potential option be evaluated on its own merits. To aid some of our clients, we have developed the following evaluation tool, as well.
Naturally, the potential scores and weighting will vary dependent upon each client’s circumstances and particular affiliation relationship being reviewed.
- Significant “strategic glue” is achievable through the use of “soft models” – but often they will not be enough.
The addition of physician recruitment support, Information Technology (including Electronic Medical Record systems), payment for Medical Directorships, Center of Excellence development, and even potential practice management support options, has helped to address a number of the physician practice pressures and medical staff development concerns summarized above. There is a level of “strategic glue” derived from such relationships. For physicians that are in viable to thriving single specialty and multispecialty practices, this level of affiliation may be sufficient. However, for a number of smaller practices, more is needed to ensure security. Similarly, some of the most far-reaching models are only achievable through full integration and/or joint venture relationships. For those physicians seeking more than short-term financial and operational support, the “soft models” frequently do not provide enough opportunity to obtain security, influence and overall resources to achieve their desired affiliation objectives.
- Physician employment and other “hard models” will increasingly be required – with no apologies required.
As set forth above, the desires to evaluate more fully integrated models include motivations driven by needs for security and enhanced abilities to collectively build a more efficient delivery model. Consequently hospitals and physician groups have evaluated more exclusive service relationships, foundation models (where the hospital or system owns the practice and contracts with the physician group to provide patient care to the foundation patients), direct employment, and/or joint ventures. Frequently for business and legal compliance reasons, the parties focus upon employment and foundation models.
Although we note that hospitals are more willing to evaluate permissible joint ventures, in light of the impending non-availability of under arrangement billing relationships, the range
of potential joint venture type relationships is also becoming limited. Coupled with the current and anticipated decreasing level of reimbursements for many of the physician-owned
outpatient ancillary services, more physicians are evaluating employment or similar fully integrated models.
Understandably, there is tension and potential competition between more fully integrated (e.g., employed, JV partner, etc.) physicians and other physicians on the medical staff. There
certainly are hospitals and health systems that utilize employment and other “hard models” in an attempt to dominate their markets with little regard for the impact upon the
independent medical staff physicians. However, from our experience, they are in the minority. Most hospitals and health systems attempt to utilize a more balanced approach.
Where possible, most hospitals and health systems do desire to work with their existing medical staff physicians to address unmet physician services. More often than not, most hospitals provide their independent affiliated medical staff physicians and their groups a “first right of refusal” opportunity to address unmet physician recruitment, call coverage and succession planning needs. When those needs continue to go unmet or there are unacceptable competitive threats for area physicians, then hospitals will utilize “hard model” affiliation relationships to secure sufficient physicians to support their healthcare programs. From our perspective, this latter approach is entirely reasonable and responsive to their healthcare missions and roles as fiduciaries of healthcare delivery in their communities.
- Proactive development of a Physician Services Organization (PSO) will enhance the likelihood of successful affiliation relationships.
The key drivers for enhanced physician-hospital affiliation are not likely to subside for the foreseeable future, and will likely only increase over the next 3-5 years. Consequently, more sophisticated and physician practice relevant organizational structures, governance, and operational support models are needed to better evaluate and manage the affiliation models.
To address these needs for more sophisticated management and infrastructure support, we have recommended proactive development of a well-defined Physician Services Organization (PSO) for this purpose. More than just managing physician employment models, PSO’s are increasingly being utilized to manage the full range of selected affiliation models.
An example where the health system elected to develop a PSO to address physician employment and other affiliation needs of multiple affiliate hospitals in a particular region is set forth below.
Dependent upon the specific needs and availability of external services, the PSO may utilize a combination of internally developed and outsourced services to provide sufficient depth and competency to support and manage selected affiliation models and relationships.
To enhance focused leadership understanding and support for the selected physician strategies and tactics, we have also found it beneficial to have overlap between the PSO Board and the hospital and/or System Board membership. An example is set forth below.
Absent this type of approach, there are generally greater challenges to secure adequate political support, resources, and patience for the development and execution of needed physician-hospital affiliation strategies and tactics. The more directly that senior governance members are “in the loop” regarding the hard choices that frequently must be made, the less likely that the hospital and/or physician participants in such relationships will be “second-guessed” or successfully “end-runned” by detractors. PSO’s can help better coordinate and ensure sufficient governance, management and operational support for enterprise-wide physician-hospital affiliation strategies.
- Supporting physician compensation relationships and performance review programs should avoid the “easy” and the “extreme” approaches.
Along with enhanced accountability for actual performance of delivered services (e.g., documented hours and review of performance for Medical Directors, etc.), the supporting compensation relationships for selected affiliation models must be evaluated to ensure fair market value (FMV) compliance.
For employed physician compensation models, there is also a need to avoid developing too secure or too individually focused of a compensation plan. These extremes do not promote a team approach.
Most employed physician compensation plan designs include some form of Base Salary and incentive opportunity, largely based upon production. We recommend thoughtful development of clear performance expectations, including minimum work standards (MWS) to earn Base Salary amounts, enforceable consequences for failure to meet the MWS, productivity incentives (for most but not all specialties with significant patient care), and further recognition of other desired behaviors. Some of the considerations include the following:
Finally, there are multiple reasons why “qualitative incentives” are largely not included in most initial employed physician compensation designs, such as complaints regarding the availability to objectively report and measure patient satisfaction, clinical outcomes, and other “qualitative” behaviors. Additionally, there are modest to no P4P funding levels from most payors for qualitative performance. However, failure to include such incentives (even if over time) is a lost opportunity to reinforce the importance and accountability for “how” professional services are provided. Furthermore, we anticipate that CMS will continue to utilize a range of bundling, P4P and conditions of performance requirements to demand higher levels of cost-efficiency, service and acceptable clinical outcomes. Therefore, employed physician compensation models will need to include aligned incentives to promote such behaviors. As higher levels of reimbursements (with limited upside funds and significant potential reduced payments) are tied to such “score card” performance, it will become imperative that the physician compensation plan measure, report, and incentivize higher levels of qualitative performance.
- Physician Champions are essential and more, not less, investment and professional development is required to address the growing “Physician Leadership” gap in an increasing number of markets.
As many of the official and non-official leaders on hospitals’ medical staff age, there has also been an increasing level of challenge to secure physician leadership. Many of the most productive physicians are unwilling and/or unable to devote the time required to participate on hospital committees, strategic planning activities, clinical program development, and other similar activities, without compensation. Many of the newest or less experienced physicians are not willing to provide the extra time. Consequently, there has been a growing “Leadership Gap” that will not be addressed without proactive investment by hospitals and health systems. Even with compensation for committed time at specialty-specific rates, additional development of leadership training programs and “grooming” of future leaders is needed to better ensure that needed Physician Champions are available and prepared to assist in the development and management of selected physician affiliation relationships and to support key healthcare programs and services.
In addition, there is a high need to distinguish between the role of elected and appointed medical staff officers and representatives, medical directors and other physician leaders. The additional time (and expense) to secure Physician Champions with clarified and accountable roles is often key to successful physician affiliation relationships.
Consequently, a number of our clients have found it helpful to develop an “Authority Matrix” that clarifies the roles, responsibilities, and authority of various physician
and non-physician leaders in their physician services strategy and management relationships.
- More fully integrated service line and Advanced Medical Staff Development Planning is needed to reduce “surprises” and to assist in the evaluation of affiliation priorities.
Too often, we have also observed hospitals and health systems that complete fragmented and distinct program / service line planning and Medical Staff Development Planning to assess potentially needed physician recruitment and affiliation relationships. Consequently, a higher level of integrated service line and Advanced Medical Staff Development Planning is needed. Given the volatility of the market and physician dynamics, there is no fail-safe approach to avoid “surprises”, but a more integrated planning approach (coupled with PSO development), often allows for more responsiveness and “real time” information to address priorities.
Given the current economic downturn, reduced income from investments, and access to capital challenges, the need to prioritize resource allocations is of critical importance. Coupled
with the essential necessity of support from affiliated physicians, the related needs for integrated planning have never been higher.
Conclusion
Although some markets will lag in the need to utilize a broader continuum of relationships, we anticipate that in most markets hospitals and physicians will find it mutually advantageous to pursue higher levels of formal affiliation and partnership. Failure to heed the “Lessons Learned” outlined above will almost assuredly result in higher costs and conflicts among the physicians and hospitals in virtually any competitive market.
Even the most proactive and sophisticated (“best practice”) physician-hospital relationships require significant investments and “enterprise-wide thinking” for all the participants. Often the trade-offs for physicians seeking enhanced security and/or compensation opportunities are losses of autonomy and heightened levels of formal performance review and accountability. Even for the relatively “soft” affiliation options, physician willingness to embrace higher levels of standardization, oversight, and accountability for performance are reasonably expected.
On the other hand, for physician employment and other “hard” affiliation options, the changing attitudes of the newest physicians (with growing acceptance for higher levels of affiliation and integration) need to be matched by more hospital and health system leadership teams that are willing to embrace more formal “partnering” relationships. Rather than expecting that “successful” models should mimic either “hospital-centric” or “private practice-centric” models, we recommend joint development of hybrid PSO models and financial relationships that seek to harness the parties’ respective strengths to advance their shared clinical, education/training, research, and related healthcare administrative missions.
Despite warnings from prior eras that solo and small physician practices would be unable to compete and survive, they remain the dominant form of independent physician practice in the United States. However, these practices are requesting wide-ranges of financial and operational support, if not outright acquisition and transition to employment. Whether imposed out of pure necessity and/or voluntarily embraced, the pace of affiliation for these and other subspecialty physicians will not likely slow down for at least the next 3-5 years. During this timeframe, we anticipate significant growth in the size and market support for both: (1) independently-owned single-specialty surgical and highly procedural physician practices; and (2) fully integrated health system-owned multispecialty group practices. Unless dramatic health reform initiatives and national regulatory trends change, increasing consolidation is almost assured. Over time, particularly as the requirements for sophisticated clinical integration and P4P management and support systems are required, we anticipate renewed attractiveness and market strength of independently-owned multispecialty groups, and enhanced attractiveness of fully integrated multispecialty groups, as well.
Ideally, better “partnering” relationships will also continue to emerge, resulting in higher quality, more accessible and affordable care for the parties’ collective patients. Not surprisingly, the more “patient-centric” the culture of the parties, the more evidence of shared decision-making and willingness to compromise on control and financial self-interest to advance a better healthcare delivery system. This may be the most important “Lesson Learned” of all.