Hospitals Gaining Leverage over Physicians

Most hospital managers have never had the power to exert leverage over their most valuable resource, the physician, who, after all, admits the patients who make the hospital’s economic existence possible in the first place.

Richard L. Reece, MD, And Who Shall Care for the Sick? The Corporate Transformation of Medicine in Minnesota, 1988

January 9, 2012 - So I wrote in introducing a chapter in my first book in 1988. I hastened to add, however, at the close of that chapter, these admonishments,

1) The economic powers of the hospital is shifting from those who provide care – to those who pay for it – government and business.

2) This shift is forcing hospital administrators and medical staff to discuss how to use hospitals wisely without destroying quality.

3) Hospitals and physicians are losing their monopolies on inpatient services both had taken for granted – diagnostic testing, surgery, emergency care, and even routine deliveries – and now must consider investing together in alternative delivery systems outside the hospital.

4) Administrators of voluntary hospitals and private physicians are beginning to understand that the health care marketplace can be cruel – forcing them to depend on one another and compelling them to sit down together to decide future priorities.

At this point, I could chortle, quoting Lord Byron,” Of all the horrid, hideous tales of woe, is that portentous phrase, ‘I told you so’.” I could even cite my book as proof I was right from the very beginning.

But alas, I overlooked something elemental. The course of events over the last 24 years has shown that hospitals are steadily gaining leverage over physicians, not the other way around.

These events include: increasing complexity of the system, need to negotiate complicated contracts, systematic decline in physician reimbursements, growth of mega-hospital systems, persistent growth in malpractice premiums, utilization reviews requiring physicians to justify testing and procedures, demands for expensive information technology systems, and the growing awareness that teams of experts are necessary to manage technologies, to market services, and to deal with rules and regulations of health reform.

A Fragile, Malleable Thing

Leverage is a fragile, malleable thing.

It depends on public trust. And , as the late Peter F. Drucker (1909-2005) observed, this trust in increasingly invested in large organizations,

“Every single social task of major impact is increasingly entrusted to institutions which are organized for perpetuity and which are managed by professionals , whether they be called “managers,’ “administrators,” or ”executives.”

It depends on management. As Victor Fuchs, a Stanford economist and proponent of universal health care, noted,

“The most significant battleground is between practicing physicians and management. By that I mean inevitable clash between a fiercely independent profession and a management system system that seeks firmer control over what physicians do.”

It depends on who owns whom. In the last 5 years, there has been a precipitous decline in physician-owned practices, from 75% to less than 50%. Much of this decline can be attributed to physicians, who - weary of overwork, dropping incomes, practice hassles, loss of autonomy, and malpractice worries - have become hospital employees. When someone else pays your salary, you do they want you to do – or else. I have a technophobic internist friend, whose practice was bought out be a hospital chain. The chain insisted he enter all patient data into an EMR. He retired.

It depends on administrative competence. To function in today’s competitive environment with its rules, regulations, and legal and government compliances, one needs an administrative team with the means of acquiring capital, marshaling technological resources, implementing information systems, auditing performance, continuously improving quality, coordinating care, and negotiating and dealing with public and private bureaucracies. Most private practices cannot do this myriad of tasks without organizational backup.

It depends on politics. It depends on June Supreme Court decisions on Obamacare, on November elections outcomes, on local and regional elections, and on hospital-physician politics.

It depends on physician leadership and personal options. Collaborative physician-led integrated hospital and health systems tend to be successful. But so too do independent and entrepreneurial physicians who own their own facilities, who drop out of third party arrangements to create cash-only or concierge practices, and who seek other medical careers or new ventures offering more convenient, improved, and less expensive care.

Tweet: Leverage is shifting control from physicians to hospitals, but exceptions exist when physicians decide to control their own destinies.