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The Keckley Report

A Fresh Look at Physician Employment by Hospitals

By July 27, 2015March 1st, 2023No Comments

The following is an excerpt from Navigant Healthcare’s Pulse Weekly. Click here for a complete copy of this week’s article. 

Last week, Anthem announced it reached terms to acquire rival Cigna in a $54 billion acquisition. And in tandem, Aetna is pursuing Humana in a $37 billion transaction. Combined with United, the Big Three will have 2015 premium revenue of $386 billion and cover 122.5 million American enrollees. That’s 40% of total premiums and 45% of the insured population including those with private, Medicare, Medicaid, and military health coverage. Wow.

No wonder physicians are seeking security in hospital employed medical groups, and hospitals are consolidating to achieve scale. It’s healthcare’s version of Darwinism—the survival of the fittest requires adaptation.

Per Medscape’s 2014 analysis, physicians are adapting by becoming hospital employees in growing numbers due to the increasingly uncertain environment and burdensome administrative requirements in private practice. They’re not naïve: they acknowledge they’re trading autonomy for security, and in most cases, they’re cognizant that their income may be less in time. Nonetheless, more than 200,000 physicians in the U.S. are now employees, and three in four medical residents will start their career as employees of a medical group, hospital or faculty plan.

This trend toward physician employment in hospitals is accelerating at a time when the stakes for hospitals are at an all-time high. The headwinds facing hospitals are gargantuan—declining margins in the inpatient business, increased complexity in patient populations, escalating medical inflation costs for technologies, labor, drugs and supplies, increased competition from niche players carving away profitable service lines, heightened regulatory scrutiny around fraud and more. Add physician employment to the mix.

Here’s the challenge for hospitals: employing physicians is not a slam dunk, even if the market is benign about shared risk arrangements with payers. Physicians want clinical autonomy whether employed or not. Physicians want the technologies and tools that are required to ply their trade and they expect them to help, not hinder their work. Physicians want to be heard on matters of consequence to the entire organization, not just clinical issues de jour. Physicians want to be “in the room,” not outside looking in. Physicians want to be compensated for their experience and aptitude, not just their production. And they want to be aligned with a winning organization that’s recognized for quality and well-positioned long term.

In tandem with the Healthcare Financial Management Association, we gathered impressions from the administrators of 44 hospital sponsored group practices to see how their marriage with the hospital is working. Among items in the survey, we asked “what keeps you awake at night?” They’re losing sleep over 3 concerns:

Operations: “We worry about how to operate the group efficiently as payments shift from volume to value, margins shrink, and costs for information technology and labor increase. It’s a tough job, and it’s a different job than running the hospital.”

Compensation: “We worry about how to compensate doctors as the change from production to performance accelerates. Doctors like to “eat what they kill” and they expect to get paid well. Something’s gotta give.”

Recruitment: “We worry about how we will recruit new physicians to join the group and sustain its growth.”    

These concerns are understandable. And they also said the hospital is not addressing them as well as they desire.

According to B.E. Smith, the turnover rate for hospital CEOs is averaging nearly 20% annually. A contributing factor is physician relationships: they’re tense even in the best of situations. But the risks for CEOs goes well beyond physician employment, medical staff development, credentialing, shared risk arrangements, accountable care organizations, clinically integrated networks and operating losses resulting from practice operating deficits. The biggest risk is failure to build a viable physician enterprise that’s capable of competing on the basis of its demonstrated value—the best consumer experiences, the best prices, the best set of services and programs with the best outcomes.

The physician enterprise is substantially more than a collection of physicians who share a structure for participating in risk sharing arrangements with payers. It’s a big tent inclusive of behavioral and physical medicine, pharmacists, dentists, optometrists, nutritionists and nurse practitioners who play active roles. It’s the formal platform through which care coordination is managed and enterprise growth is leveraged.  Its scope extends beyond third-party reimbursable services wherein retail and alternative health are key. And it’s organized and governed as a winning team rather than as a collection of experts and departmental silos.

In the physician enterprise, physician employment plays a key role, but the enterprise is much more. It’s incumbent, therefore, for hospital boards and management to contemplate answers to these questions if the intent is to win, not just survive:

  • Why would a physician want to work for our hospital and join our physician enterprise? How are we positioned vis-a-vis value-based purchasing, avoidable readmissions, safety, outcomes and cost efficiency performance? Is our “reputation” and proximity the only thing we have going for us? And how many and what types of clinicians do we need?
  • Do we have tools in place—the information systems, analytics, care coordination processes, post-acute and retail health partnerships, and appropriate positioning with employers and insurers to be a secure place of employment? And how will the physician enterprise deny entry by peers prone to unnecessary care associated with overuse?
  • How well will our clinical enterprise integrate alternative health into our traditional allopathic models of care? How responsive is our enterprise to consumer demand for Curve 2 health that’s person centered and evidence-based?
  • Are our capital and operational decisions reflective of where the puck is going, or where it was? If the physician enterprise is central to sustainable growth, and capital is not unlimited, do our capital priorities reflect commitment to the physician enterprise over bricks and sticks in the hospital?
  • How will our physicians be compensated as a key employee of the enterprise team? And how does our “package” compare to the options each physician has to work elsewhere, or for CVS, an employer, insurer, large independent medical group or the competing health system?
  • How is governance and accountability structured in our physician enterprise? Are leaders trusted? And are physician leaders prepared to lead effectively?

The issue is not physician employment nor associated operating losses from practice operations. The performance, brand and positioning of the physician enterprise will likely rival or eclipse the reputation of the sponsoring hospital. That’s why Darwin’s ‘survival of the fittest’ premise circa 1869 is an apt metaphor for where we are in healthcare. The conjoining of physicians and hospitals is an adaptation to the reality that the future of medicine is not a repeat of its past and hospital employment only a part of the evolution to significant physician enterprises.

It’s time we had adult conversations in healthcare about how physicians and hospitals can and should work together not for the purpose of creating barriers to change but to define it. Others perhaps less sensitive to community and mission but more adept at bringing tools and approaches to health are employing physicians and building physician enterprises equipped for Curve 2.

Employing physicians is not an end in itself. It’s a means toward building a physician enterprise that’s scalable, impactful and the centerpiece of a hospital’s transformation. Hospital leaders need to take a fresh look.


Sources: Navigant Pulse Weekly Fact File.

The opinions expressed in this article are those of the author and do not necessarily represent the views of Navigant Consulting, Inc. The information contained in this article is a summary and reflects current impressions based on industry data and news available at the time of publication. Any predictions and expectations noted herein are inherently uncertain and actual results may differ materially from those contained in this article. Navigant undertakes no obligation to update any of the information contained in the article.

©2015 Navigant Consulting, Inc.