Wednesday, September 22, 2010

Health Reform Anticipation Sets Off Chain Reaction of Physician Employment by Hospitals

Call it what you will – consolidation, alignment, collaboration, accountability, or sheer panic. Whatever you call it, doctors are rushing to be employed by hospitals, and hospitals are hiring them in record numbers.

For physicians, the triggers are declining profitability of private practice, increasing costs of doing business, and a search for economic security without malpractice and IT documentation hassles.

For hospitals, the motivations are market dominance, power to negotiate contracts with third parties, channeling of physician behaviors, and enhanced ability to meet reform standards for quality and safety. A current survey at indicates 80% of hospitals say they will be employing more physicians this year.

However one looks at it, under reform, hospitals and physicians will need each other to survive.

Anticipation of lower Medicare reimbursements, proposed in the health reform law, are contributing to a wave of physician practice sales to hospitals. By 2019 Medicare physician reimbursement may decline by 50% and are projected to be less than Medicaid fees.

Acquisition of cardiology practices preceded the current wave when Medicare cut cardiology fees by up to 40% last year. My sources, from the practice management field, tell me cardiology groups are lining up at hospital doors to be acquired and folded into hospital employment.

If you are interested in this subject, I recommend you visit the website, which caters to hospitals and download a document entitled “Physician Alignment in Era of Change.”

It is the result of a survey of more than 200 hospital executives released in September 2010 and features the observations of a number of MD-CEOs of large integrated hospital systems. Craig D. Samitt, MD, president and CEO of Dean Health System in Madison, Wisconsin, says the accelerating pace of hospital employment of doctors reflects the “highly competitive changing market and general uncertainty because the rules are just getting written, and we are very early in our journey toward reform.”

Among the survey findings are these.

• 54% of hospital CEOs say the increased insured patients will strain physician relations.

• 74% say they plan to employ a greater percentage of physicians over the next 12 to 36 months.

• More than 70% say they have received increases in request for for physician groups for employment.

• Hospitals plan to employ physicians in these specialties – primary care 72%, hospitalists 52%, cardiologists 47%, general surgery 42%, orthopedics 39%.

• The specialists most in demand in various communities are primary care 63%, orthopedics 48%, cardiology 48%, general surgery 37%, hospitalists 30%.

I will not go into details of the survey. But it is apparent the journey to alignment is uncertain strewn with obstacles – how much to pay, for what, how to deal with conflicts of interest, the potential role of accountable care organizations, how to split the “savings” that may incur, and dealing with physicians who are “disengaged” with the process.

I spoke to John McDaniel, founder and CEO of Peak Performance Physicians, a practice management firm in New Orleans, and he pointed out to me that what’s driving hospital physician employment is not only anticipation of lower reimbursements under reform but the mounting costs and complexities of doing business. Physician prefer to practice medicine as employees of hospitals rather than deal with the downsides of owning their own practices.


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