Thursday, July 31, 2014

Partnering with Hospitals

Despite a tradition of strained relationships, trends in modern healthcare delivery reveal the need for physicians and hospitals to find new ways to work together more closely. The ultimate alignment, of course, includes hospitals purchasing physician practices and employing the doctors.

After the debacle of hospital employment in the 1990s, some physicians are reluctant to consider the idea. But successful hospitals have learned from the past and have found creative ways to structure physician-employment arrangements. Veteran physicians, tired of dealing with reimbursement issues and uncontrollable costs, have become more interested in surrendering some of their treasured autonomy. And recent graduates represent a generation characterized by a greater willingness to be an employee rather than a business owner.
Further, many self-employed physicians are seeing hospitals and larger organizations as the only deep-pocketed buyers interested in their practices.

What a difference a decade has made! In the mid- 90s, hospitals, HMOs, and PPMCs were offering big dollars for physician practices. Doctors sold their practices, accepted employment agreements from the purchasers, and found themselves trapped in dysfunctional organizations that bled red ink. Most of those deals imploded, and physicians returned to private practice.

In fact, our editor once met a primary care physician who had made a cool million selling his practice three times: to a hospital, to a PPMC, and to a larger group practice. Each time, the buyer ultimately collapsed and gave the practice back to the doctor.

We wouldn’t recommend that as an investment strategy to anyone—especially today. Hospitals have learned their lesson, and many systems now offer truly viable opportunities for their community physicians. Depending on your situation, the time may finally be right for you to consider the ultimate alignment with your hospital: employment.

What’s so different this time around? Why should physicians consider selling out and accepting hospital employment? Because forward-thinking hospitals now offer deals with more realistic terms and conditions. Look for improvements in these areas:
  • Governance structures. Smart administrators figured out that physician groups don’t operate the same as hospitals, so they’ve structured deals that allow doctors more decision-making autonomy. Some systems go so far as to form a complete subsidiary corporation for the group practice.
  • Compensation arrangements. The failed deals of 10 years ago often collapsed because hospitals guaranteed high salaries for doctors based on the doctors’ historical production rates. Then the hospitals failed to include any production incentives (or cost-control incentives) in their compensation plans, and were shocked to see many doctors’ productivity drop precipitously in the new organization. Today’s contracts keep some form of carrot-on-a-stick to help motivate physicians to work harder.
  • Practice management. Hospitals today recognize the need to have experienced practice managers running their physician operations. They’ve learned to invest in properly designed buildings, best-of-breed computer systems, and patient-centered operations.
If you’re contemplating selling your practice to the hospital, make absolutely certain that your new employer can deliver in all three of these areas. Even if it looks like a “sweetheart” deal— say a high guaranteed salary without production requirements—think twice before signing on. If the hospital naively offers a too-good-to-be-true deal, it probably is. Down the road, you can expect the hospital to wriggle out of an unsustainable contract.

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