Doctor-Hiring Rush is On

This article appears in the March 2013 issue of HealthLeaders magazine.

In the years to come, experts may look back on healthcare reform as the time that not only made improvements in the quality of patient care and sparked efforts to reduce costs, but also when doctors traded their independent practices for hospital employment. There's been a marked uptick in the pace with which physicians are being employed by hospitals; in fact, employment of physicians and surgeons is expected to grow by 24% from 2010 to 2020, nearly twice the rate of growth for all other occupations, according to the Bureau of Labor Statistics.

"[Organizations] have to grab the opportunities when they occur. I'm not referring to buying practices; I'm just referring to employing physicians," said Robert Shapiro, CPA, senior vice president and CFO for North Shore-Long Island Jewish Health System in Great Neck, N.Y. The system employs 2,600 physicians in a teaching environment, and one-third of those were hired in the past 18 months. Shapiro was one of 30 healthcare finance leaders to attend the 2012 HealthLeaders Media CFO Exchange and offer his thoughts on a variety of topics, including
physician employment.

"We are getting ready for what we feel is the future," Shapiro said. "The thing is, if you truly believe that things are changing quickly in your market, then you have to act. Your marketplace will dictate how quickly you act and how much you spend. But after that we have to go through a process of rationalizing what people are doing, making sure that redundancies are dealt with. I know it sounds like 'buy now, figure it out later,' but the market is very competitive in the downstate New York City area."

Although counterintuitive, if rushed, employing a physician can actually decrease organizational alignment and ultimately impact the bottom line. If the hospital's financial and clinical goals aren't clearly defined and the physician's rationale for employment isn't clearly understood, then the employment arrangement can be disjointed from the outset, causing poor performance or an expensive termination of the agreement. To avoid this, there are several areas healthcare leaders should examine before entering into an employment arrangement.

Reasons physicians seek employment

The fervor by physicians to become employed stems from the decline in reimbursements as well as the increase in practice expense and the complexities associated with adding electronic medical records and tackling billing changes. While understandable, some in healthcare believe it also may signify the near demise of the independent physician.

Statistically, the medical staff model of working with independent physicians is in decline, according to the September 2012 HealthLeaders Media Intelligence Report, Physician Alignment: Integration Over Independence. While the medical staff model is currently used by 67% of organizations, that will drop in three years to 50%, the report shows. The change in the healthcare environment is causing seasoned and green physicians to make a flight to safety by working
for hospitals.

There are advantages and disadvantages to hiring less-experienced physicians; the same is true for bringing on more experienced doctors. However, friction can arise if the hospital's goals compete with the physician's. While hospitals, for the most part, are looking to add physicians to broaden networks, fill service line gaps, reduce redundant testing, improve patient referrals, and reduce costs by improving care coordination, physicians' objectives often are more personal.

Newly minted physicians are displaying a generational shift in their overall work philosophy. They want to be employed following residency not only to focus more intently on patient care but also to give their lives stability. Newer physicians don't have the desire to continually work 80-hour weeks and instead strive for a work-life balance, says Britt Berrett, PhD, president of Texas Health Presbyterian Hospital Dallas, an 898-licensed-bed acute-care hospital with more than 800 employed physicians and physician extenders within the Texas Health Resources healthcare system.

Recognizing the mind-set of the generation you're hiring, Berrett says, is an ingredient that shouldn't be overlooked. Moreover, while hospitals may wish to hire a physician to fill a service line gap, a new physician won't come with an established patient base, which can slow referral revenue and productivity.

"The new generation of physician has significantly different expectations than physicians of the past," Berrett says. "These physicians have a tremendous desire for work-life balance, and it seems the lion's share of these new physicians prefer the stability of being part of a bigger system."

More experienced and established physicians also bring their own pros and cons. The changes in healthcare are making the small practice setting more administrative and disenfranchising these doctors from maintaining their own practices. It's now more expensive and even more time-consuming to operate a practice. Employing these established doctors means a hospital must create a contract that provides financial security but also allows for autonomy. And a greater challenge lies in guiding the physician toward meeting the organization's goals.

"Some of these physicians want to slow down and have some more personal time, but what we find is more often the physicians who have been in practice for a while want to concentrate on the complexities of medicine and don't want to deal with the changes to the revenue cycle and the billing. Gone are the days when the physician's spouse could do all the billing," notes Berrett. "These folks are coming to us to provide the backbone and infrastructure they need to keep their focus on practicing medicine. They want to use their MD and not have to get an MBA to do it."

Employment versus joint venture

Berrett says that employment, as opposed to a joint venture, offers the physician and the practice other benefits such as better pricing on an IT platform and more sophisticated revenue cycle and collections.

In addition, the strength of employment comes from having a contractual tie to an individual, whereas a joint venture tends to be with an entity that has multiple partners. "Sometimes an employment agreement with a singular physician can be less complicated and move forward more easily than trying to create a joint venture," adds Julie Manas, president and CEO of Sacred Heart Hospital in Eau Claire, Wis., and division president and CEO of the Western Wisconsin division of Hospital Sisters Health System. The 344-licensed bed acute care Sacred Heart is an affiliate of the Hospital Sisters Health System.

Sacred Heart employs just 20 physicians and adds to those numbers judiciously based on market factors, Manas explains. Sacred Heart is situated near the Marshfield and Mayo clinics as well as the University of Wisconsin-Eau Claire medical school and the OakLeaf Surgical Hospital and Medical Network, a 200 physician-owned organization.

"Having 20 employed physicians may seem low, but that's nearly doubled from what we had recently—mostly in primary care. Employing wasn't something we've done. We have approximately 300 physicians practicing with us, but many of the physicians are on the clinical council at other hospitals or have joint ventures with other organizations. We have to be mindful of our market and the need."

Employing physicians can seem like a great option, notes Manas, but it's not always the best one. James Jarrett, president of the New Jersey ProCure Proton Therapy Center, part of ProCure Treatment Centers based in Bloomington, Ind., agrees, noting that joint ventures can offer a different level of motivation for physicians. The New Jersey facility opened in March 2012 and Jarrett was responsible for staffing. With a private equity background, he had the bottom line firmly in mind when the organization opted to not employ physicians, instead favoring partnerships.

"We don't employ any physicians in this entity, though a lot of doctors do ask me about it, as do a number of our hospital partners. Employing physicians is very much top-of-mind. But we partner or use joint ventures with our physicians," he explains. Our doctors are part owners, and we feel it will drive better longer-term patient care behavior."

Though the joint venture agreements vary based on geography and state laws, physicians with ProCure don't have to participate in the business side of the operation and are concentrating on treating patients. Jarrett notes, however, that for previously independent physicians these arrangements can allow the doctor more independence while encouraging them to help the organization grow.

"Employed physicians may find they have to participate in broader health system initiatives, and not every person will agree with every initiative. Doctors may be expected to keep referrals in-network, or the physician may have certain objective targets to meet. It can give the physician an overall feeling that they are being driven by profit, whether that's true or not," says Jarrett.

Reform and the ROI equation

Mark Browne, MD, MMM, CPE, FACPE, is senior vice president and chief medical officer at Covenant Health, a Knoxville, Tenn.–based system that includes seven acute care hospitals in East Tennessee and employs 125–150 physicians, 70% primary care and 30% specialty. He notes that defining the clinical and financial rationale for employing physicians is still driven by the market demand and clinical need to fill service line gaps.

"We have to assess the clinical need for the community. Employment is rarely our first choice, but given a particular physician or the circumstances, such as an underserved population in a particular specialty, then we certainly put employment on the table, but we want an agreement that leads to strong long-term alignment," says Browne.

Still, healthcare organizations need to make margin, and attaining an ROI for these physicians is important. "These days, the best way for us to measure ROI is by tracking the quality of care of the physicians, though that doesn't always visibly connect with the financials. Part of the secret sauce is to partner with a physician who wants to achieve the same outcomes you want. That leads to better ROI and lower costs," says Browne. "Tracking the ROI from physician employment isn't as linear as buying an MRI and tracking use."

Under pay for performance, finance leaders could measure the financial success of a physician-hospital partnership in a relatively simple equation: how much was spent to onboard a physician, plus salary and benefits, plus overhead minus the amount of revenue per patient that the physician generated. Though it could take three to five years for newly employed physicians to generate revenue that exceeded the cost of hiring them, it was nonetheless measurable. Under health reform, with the focus on population health and the shift away from volume to quality outcomes, discerning the financial value of a new hire can be elusive. While many payers are not yet reimbursing for better-quality care, physicians are beginning to be tracked by quality and patient satisfaction metrics that are not yet tied to all payer contracts and can add to the challenge when calculating ROI.

"When it comes to ROI for physicians you have to decide what the successful partnership is going to mean for the organization. Is it the financial aspect of a practice? Is it clinically how well they are doing based on metrics? We look at patient satisfaction and physician satisfaction, and we also compare physicians against one another," says Manas. She adds, however, that a strong business case is an essential that is sometimes overlooked by hospitals where the marketplace is aflame with zeal to employ.

"There has to be a business case. You need to look at the financial metrics of employing versus partnering, and then you also need to clearly define what you will use to gauge the measure of success for this pairing," she says. "You also need to consider not only the dollar impact but the political one, too. If you're hiring a direct competitor for a practice that's been supporting your system in the past, you could alienate that practice. You need to be able to fully articulate the reasons why you are employing versus partnering or joint venturing, and how employment will better serve your community."

Establishing alignment plans

Collaboration, communication, and metrics: These three words need to be included in all discussions with potential employees and in employment agreements. Creating a strong hospital-physician alignment entails building upon shared objectives and goals, and knowing how these are being measured is a cornerstone to a mutually successful relationship, says Browne.

"Our organization has a spectrum of employment arrangements," says Browne. "Growth for us is happening in the specialist arena in terms of physicians seeking employment and where we're seeking physician to employ."

Browne took on the role of systemwide CMO in October 2012 with the assigned task of building relationships with doctors and providing leadership in the areas of quality, clinical effectiveness, system integration, informatics, and the development of service lines. He was chosen, in part for his background as a principal with healthcare consulting firm Pershing Yoakley & Associates, which would give him a broader perspective of employment agreements from both an administrative and clinical perspective.

"At the end of the day I'm a physician, and I come back to that. There are a lot of employment models out there … and there are different tactics you need to consider to further the alignment strategy," he says. "First, you have to look at the differences in physicians from different generations … and we know we have to create agreements that are based on performance standards, not just productivity."

Browne says the difficulty in creating alignment between physicians and hospitals often rests with the lack of timely and accurate clinical data, especially if you are going to create risk-based employment agreements.

"Physicians want to know, like anyone else, how they are measured and how they are doing if they are going to take on any risk. They need to be clear on how they will be measured and tracked, so you have to choose metrics that are reasonably easy to reproduce—and you don't want 15 metrics, you want two to four," he says. "To encourage that alignment, there's got to be a lot of conversations on the front end about how we can agree to hold each other accountable on quality, and you need to put it in the contract."

Also, Browne says the contract needs to be relatively simple and easily understandable, and should include both achievable and stretch goals. "We're openly sharing the metrics we're tracking with our physicians so we can learn from each other, but it's a work in process with population health," says Browne.
Ultimately, when it comes to deciding whether to employ a physician, Browne and Manas agree it shouldn't be rushed, nor should it be done to keep pace with other hospitals in the marketplace.

"When organizations move too quickly and believe the physicians are in agreement with their goals and that there will be an alignment, but then realize after the fact that there wasn't agreement, it will cause problems," says Manas. "There's a lot of pressure within the marketplace to employ, and organizations sometimes make decisions based on the frenzy in the marketplace and not based on their due
diligence."

To be successful, Browne says, employment has to fit not only the physician, but also the healthcare organization. "Some systems employ the majority of their doctors, and for other systems that model doesn't fit into their strategy; for us it's not the only option," says Browne. "Still, physician employment needs to remain in the toolbox as an option, and if and when the timing is right for an organization, then it can be the right move."

Reprint HLR0313-8

This article appears in the March 2013 issue of HealthLeaders magazine.