Hospital Employment of Physicians Continues to Grow

Mark Crane

July 6, 2012 — Within 2 years, more than 75% of newly hired physicians will be hospital employees, according to projections in a new report of physician recruiting incentives.

The multiyear trend toward hospital employment of physicians continues, according to Merritt Hawkins' 19th annual survey of salaries, bonuses, and other incentives customarily used to recruit physicians. The Irving, Texas-based company is a national recruiting and consulting firm.

Why You Shouldn't Sell Out to a Hospital

Leslie Kane, MA; Judith N. Aburmishan, MBA

Posted: 06/25/2012

Leslie Kane, MA: Hi. I am Leslie Kane, Executive Editor of Medscape Business of Medicine. Lately there seems to have been a mad rush by hospitals to buy up physician practices and by physicians to sell their practices to hospitals. Many physicians think that this will make their professional lives easier and they will profit from this change, but are they jumping from the frying pan into the fire? To answer that question, we are speaking with Judy Aburmishan, a certified healthcare business consultant from Chicago. Judy, thanks so much for being with us today.

Ms. Judith Aburmishan: Thank you.

Ms. Kane: You say that you have known many physicians who are sorry that they have sold their practices to a hospital, but once they have made the move it is too late to back out. Is selling to a hospital often detrimental to a physician?

Ms. Aburmishan: It definitely can be. I have found that, more and more, physicians are surprised with the contracts they have signed and that the contracts do not actually end up being what they thought they were signing.

Ms. Kane: Why is that? I know one factor you mentioned is that hospital proposals often look better than they actually are; they are not quite as beneficial as they initially appeared.

Ms. Aburmishan: That is true. In part, this is because the hospital comes up with production requirements that are higher than the physician can perform. Often, during the first year, the physician is engaged in a lot of transition work and may not be seeing as many patients, or possibly, because the physician is now employed by the hospital, he does not see as many patients as he had seen before in private practice. So, whereas he was seeing 25 patients a day in the private practice, he now sees 20 patients a day, without noticing the difference. Many things like this can happen once the practice has been purchased, things that cannot be anticipated unless the physician has gone through it before.

Ms. Kane: Interesting. You mentioned that hospital projections and volume expectations may be higher than a physician realizes or is counting on. Is that something the physician can know in advance?

Ms. Aburmishan: Yes. If the physician reads the contract carefully or works with a consultant to read the contract, what is expected should be there. Typically the contract does not say, "We would like you to perform this much." Rather, it says, basically, "To get your salary you must perform this much." If you read through the contract, it will say what kind of RVUs (relative value units) are expected. The physician should then go back and look at his practice, look at what he normally produces, and ask whether those numbers are significantly different from the hospital's expectation.

Ms. Kane: Similarly, regarding physicians' financial performance, you say that some hospitals do not let the physicians know how they are doing until it is too late; they either get their bonus or they get the boot. How does that come about?

Ms. Aburmishan: Much is related to the fact that physicians in general do not like to look at financials; they are not financially focused people. You could not do that if you worked with an accountant because an accountant would want to know the numbers. So, first, physicians do not ask. Second, they are now working for an enterprise that they don't own, so they may ask to see production; but as for the full profitability, they cannot ask for that on a monthly basis because they are not the owners of the hospital, they are not shareholders of the company that hired them. They are not going to be given the financials automatically, and because physicians do not ask for them and financials are not provided, the employed physician does not see them until the bonus is being calculated.

Ms. Kane: That must be quite a shock for some physicians.

Ms. Aburmishan: It can be.

Ms. Kane: You have mentioned that hospital billing and collection systems are not always as efficient as a practice supervised by an owner physician. I am surprised to hear that because I thought a lot of private practices are inefficient in their billing and collections. You are saying that some hospitals are worse.

Ms. Aburmishan: Yes. First, hospitals bill under a different method than physicians do, so if the people in the billing department have not been trained in the system used in the physician's private practice, inefficiencies will be seen during the transition.

Second, when the person who does the billing works for a private practice, that person probably has a relationship with the physician and will want to do the best to make sure that the billing is as accurate as possible. Hospital employees may never have met the physician they are doing billing for; they are not as personally invested in making sure things get done.

Ms. Kane: There must be times when it is the right decision to sell to a hospital. What are some of those times?

Ms. Aburmishan: If the physician has gotten into a financial situation with a lot of debt and has a short window to pay off that debt before retirement, selling to a hospital may provide the cash that will resolve the debt and allow the physician to practice until retirement, without having to worry about not being able to retire when the time comes.

Ms. Kane: If a physician is in the process of negotiating with a hospital to sell a practice, how can he or she make sure that some of these negative things do not happen?

Ms. Aburmishan: One thing is to get a good attorney who has worked with practice sales before. Second is to work with a healthcare consultant who understands numbers. A good consultant or accountant who has seen practice sales and worked with the physicians afterwards knows the kinds of things that can happen just from experience. I can tell you 20 different stories about practice sales that did not work, so when I read contracts, I look for these things in the contract so that the physician can sign it but also can be aware of the situation and not have unmet expectations.

Ms. Kane: Right. As long as the physician knows what to look for and what he or she is getting into, that puts the physician into a better situation.

Ms. Aburmishan: Exactly. And sometimes, if the seller asks, the hospital will actually make a change in the contract.

Ms. Kane: Do you have any closing words of advice?

Ms. Aburmishan: As with any contract, if both sides understand what is in the contract and negotiate to a group settlement, then the final relationship will always be better than if the physician feels that he or she has gotten into something unexpected.

Ms. Kane: Thank you very much for your advice and insight, Judy.

Ms. Aburmishan: Thank you.

Ms. Kane: Our thanks to Judy Aburmishan for being with us today. I am Leslie Kane for Medscape. Thank you for joining us.

Of all the enemies to public liberty war is, perhaps, the most to be dreaded, because it comprises and develops the germ of every other. War is the parent of armies; from these proceed debts and taxes; and armies, and debts, and taxes are the known instruments for bringing the many under the domination of the few. In war, too, the discretionary power of the Executive is extended; its influence in dealing out offices, honors, and emoluments is multiplied; and all the means of seducing the minds, are added to those of subduing the force, of the people. [There is also an] inequality of fortunes, and the opportunities of fraud, growing out of a state of war, and ... degeneracy of manners and of morals.... No nation could preserve its freedom in the midst of continual warfare. James Madison

13. What will doctors find the most difficult about ACOs?

Mr. Gilberg: Probably the most difficult concept for doctors will be the idea that the ACO is on the hook for the cost of care of its assigned patients, regardless of whether that care is delivered within or outside of the ACO; by another physician; or at a hospital a thousand miles away in Florida, in the case of a patient who lives there over the winter.

Once patients go outside of the ACO, so much of what they do or don't do and who they do or don't see lies outside of the individual doctor's control, and yet Medicare will attribute the cost of that care to his or her ACO. That's a difficult pill for many doctors to swallow, whether the payer is a private health plan or Medicare.

14. Do the 33 mandatory quality measures that doctors need to achieve within the ACO program make sense?

Mr. Gilberg: One of the frustrations that almost all physicians and administrators experience now are the multiple, overlapping reporting mechanisms and redundant measures that they must comply with. This frustration probably won't be reduced by Medicare's new mandatory quality measures for ACOs.

That said, the final rule reduces the number of mandatory measures to 33 from 65, a reduction that eliminates certain in-patient measures that would have tied doctor-run ACOs to hospitals. In a program that aims to control costs and reduce variations in care, the mandatory measures are intended to ensure that the quality of patient care won't be sacrificed in the process.

15. Are doctors wiser to jump on the Medicare ACO bandwagon early on or to wait and see how the first ACOs succeed?

Mr. Gilberg: MGMA isn't advising its members one way or another; we're simply presenting the facts and letting individual groups and physicians decide for themselves. Obviously, all doctors need to go into the Medicare Shared Savings Program cautiously and with their eyes wide open.

As already noted, there are risks involved, especially for groups that haven't achieved the kinds of efficiencies that an ACO will clearly require. On the other hand, if you have a practice or belong to a group that has been able to achieve the kind of efficiencies and care coordination that the ACO program demands, you might want to jump on board sooner rather than later.

And those who do will presumably have a head start on a trend that's likely to affect all doctors who provide Medicare services in the years ahead. Included in the Patient Protection and Affordable Care Act, for instance, is something called a "value-based payment modifier," which we might think of as a kind of stealth ACO on the horizon.

At this point, we're not quite sure what the rules are or whether the modifier will be applied at the individual doctor or group or regional level, but it will be another attempt by CMS to deal with such elements as cost, quality, value, and variation. At a minimum, physicians need to be thinking seriously about these elements, whether they're in a formal ACO or not.

Addendum: More Information About ACOs

The first voluntary ACO agreements will start on April 1 and July 1, 2012, and run for 3 years as part of the Medicare Shared Savings Program. To become an ACO participant, you may be a physician or other health professional in a group practice, a network of practices, or a partnership or joint venture with hospital. You might also participate in an ACO as an employee of a hospital. (Certain critical access hospitals, federally qualified health centers, and rural health centers are also eligible for ACO sponsorship.)

An ACO must serve at least 5000 Medicare beneficiaries, whose assignment to the program will be determined by a 2-step formula. Those qualifying under step 1 will be patients who have received a plurality of their primary care services from PCPs now within the ACO. (Under program guidelines, PCPs are physicians in internal medicine, general practice, family practice, or geriatric medicine.) Beneficiaries who qualify under step 2 are people who have not received primary care services from any PCP but who have received a plurality of their care from any other ACO professional.