Hospitals Hiring Docs May Not be Healthy for the System

Physician Employment by Hospitals

The stock of American doctors may be reaching an all-time high as hospitals across the nation scramble to acquire physician practices in what has become the latest wave of provider consolidation. Yet it remains to be seen whether this trend will produce any real improvement in our dysfunctional health system, or simply mark a painful and costly repeat of past missteps.

We’ve Been Down this Road Before:

The last great push to integrate physicians and hospitals occurred in the early 1990s, when capitation was momentarily in vogue as a method of reimbursing health care providers. Under capitation, providers received a fixed, per-member, per-month payment to provide all the care that enrollees required. Primary care physicians emerged as the gatekeepers in this model, since they largely determined the type and volume of care patients received. Hospitals executives concluded that controlling primary care physicians would allow them to control and direct the flow of patients to expensive services and specialists. Whereas providers in the past had always been rewarded for providing more services, now capitation rewarded them for providing less.

But hospitals forgot to account for patient preferences, and it didn’t take long for consumers to vigorously reject the idea of gatekeepers limiting their access to medical services. Capitation quickly died an ugly death and the value of primary care physicians plummeted. Hospital executives subsequently found themselves working feverishly to extricate their organizations from often costly physician employment agreements.

What’s Different About Today’s Healthcare Environment?

After such a painful and embarrassing miscalculation, one has to wonder why hospitals are once again competing so relentlessly to see who can employ the most doctors. What has changed in the American health care landscape to cause hospitals to add millions of dollars in expense to employ their medical staff? Perhaps more importantly, what does this powerful trend portend for the patient?

From the hospitals’ perspective, four primary factors are driving physician employment today: First, by employing a wide array of physicians, hospitals hope to create a closed system that allows for all of a patient’s needs to be managed by employed doctors, thus stemming “leakage” to competing providers. Second, hospitals can gain a tremendous market advantage by locking in the premier specialists in a market. Third, as the breadth of the hospital or health system’s network increases, so too does its clout when negotiating with payers. And fourth, once a physician is employed, the hospital no longer needs to compete with him or her for the lucrative revenue associated with delivering many office-based procedures.

Physicians, too, have concluded that there is much to be gained by abandoning private practice. Medicine has become enormously complex, both from a clinical perspective and also in terms of managing regulations and payer requirements day to day. In addition, physicians that wish to remain compliant and competitive must make substantial investments in electronic medical records and other technology.   Reimbursement continues to be ratcheted down by both the federal government and private payers. The result is that practices find it increasingly difficult to maintain historic levels of cash flow and compensation.

So Why is Physician Employment a “Bad” Thing?

So if consolidation works for hospitals and physicians alike, why should patients be concerned about the employment status of their doctors? Most significantly, it signals the further progression of our health system from one driven by the needs of the patient to one focused primarily on profit. Physicians who were once the overseers of this system and protectors of its core values increasingly are pawns leveraged to benefit the bottom line.

Experience has shown that once physicians are employed, they’re under pressure to produce. One of the major problems surrounding the first wave of physician employment in the 1990s was that once physicians were guaranteed a salary, they simply started working less. Productivity and profit fell, and some hospitals experienced catastrophic losses. Today’s employment agreements are designed to mitigate that risk for hospitals by tying compensation to productivity standards. Yet the practical effect of these agreements can be to incentivize churning of patients. According to Marty Makary, M.D., surgeon and associate professor of health policy at Johns Hopkins, “One doctor I know received an e-mail from his department head that read: `As we approach the end of the fiscal year, try to do more operations. Your productivity will be used to determine your bonus.’”

There also is clear evidence that hospital-employed physicians are being pressured to limit referrals only to other employed physicians within their system. Referral decisions should be predicated on objective information and not coerced due to employment obligations.

By employing physicians, hospitals and health system gain more clout when negotiating rates. That means rates charged to payers and ultimately to patients could continue to rise. Hence, employers should be every bit as concerned about provider consolidation as the employees they cover with health benefits.

And because physician employment enhances the viability of some facilities, it inevitably impairs the competitive stance of others. As such, it accelerates hospital consolidation within the market and further reduces the number of options available to consumers over time. As consolidation occurs and markets become oligopolistic, hospitals are free to charge even more.

We cannot easily turn back the clock on physician employment, but we can acknowledge the tremendous cost that may ultimately result from this trend. We can also mourn the loss of independence among the former stewards of the industry.

 

Read more John Leifer and the Leifer Group

Thinking About Merging? Be Sure to Ask the Right Questions.

hospital mergers

Hospitals are responding to the pressures of shrinking reimbursements, an increasingly complex regulatory environment, and the pressing need to acquire expensive information technology by consolidating at a pace not seen in years.  Even institutions that are not currently imperiled may be convinced that there is safety in numbers – exacerbated by concerns regarding the financial impact of the Accountable Care Act (ACA), as its long-term implications for hospitals begin to emerge.

How can you, as a hospital executive or board member, determine if your hospital should surrender its independence and/or embrace a new partner? There are many questions that senior hospital leadership and the board must answer to illuminate the best path forward. It is essential that these questions be approached in an objective and dispassionate manner, despite the anxiety and emotion that such discussions and analyses inevitably provoke. The questions themselves must be focused retrospectively — on trends and past performance — as well as on the current and anticipated future state of the organization.

Here’s a quick list of a few basic questions that can help leadership determine if a merger makes sense:

  • What has been the financial performance of the organization over the past five to ten years?
  • What are the short, intermediate, and long-term financial forecasts for the organization?
  • What are the critical assumptions underlying the forecasts? Do these forecasts take into account anticipated changes triggered by the ACA? Specifically, the forecasts should reflect the following:
    • Actual and anticipated changes in reimbursement.
    • The changing competitive environment and anticipated shifts in marketshare.
    • Changing demographics within the hospital’s service area and the likely impact on utilization and payer mix.
    • Growing operating expenses, including the financial burden of an increasingly employed medical staff.
    • Greater capital demands, primarily associated with information technology, medical technology, and the need for new or refurbished facilities.
  • If the hospital remains independent, can it continue to meet the needs of the marketplace?
    • Would its competitive position change dramatically if it had access to the resources of a larger system?
    • How would these new services or resources be presented or utilized in order to be meaningful to the community?
    • Would access to needed specialists improve?
  • How would the medical staff react to a change in the ownership or management of the local facility?
  • How would the community and its leaders react to such a change?
  • How would being part of a larger system affect contracting and thus potentially alter forecasts?
  • Would a merger improve the quality and efficiency of care? If so, how?
  • How would a merger impact the cost of care to the community?
  • Are there legal impediments that would prevent or restrict certain types of transactions or transfers of assets to other hospitals or health systems?
  • What do we, the leaders of this hospital, believe in our “gut” to be the right course of action for the institution and the community it serves?

If leadership determines that a merger or affiliation represents the wisest course of action, a new level of discovery must begin regarding potential suitors. Prior to engaging in dialogue or negotiations, additional questions must be answered, including:

  • Are there limitations on the types of suitors with whom the hospital is willing to engage, e.g., must the potential partner be a not-for-profit, secular or faith-based facility? Or is the door open to all interested parties?
  • What cultural elements are essential in a suitor (e.g., community engagement, clinical excellence, altruism, humility, collaboration)?  This is a critical question, since the long-term importance of cultural compatibility between the affiliating organizations cannot be overstated.
  • What are the expectations of both entities regarding:
    • Governance
    • Operational leadership and management
    • Access to shared information technology
    • Knowledge transfer — particularly in areas such as clinical quality improvement
    • Capital infusions
    • Collaborative strategic planning
    • The creation of a continuum of care for patients with chronic or advanced needs
    • Assistance with physician recruitment and retention
    • The protection of the combined facility as a community asset
    • Critical contractual covenants to safeguard the interests of the community and the hospital

In today’s environment, the need to pre-plan for a potential merger or acquisition may be among the most important agenda items facing independent hospitals and their boards. The extent to which leadership is able to approach this task in a comprehensive, dispassionate and forward-thinking manner will obviously determine the trajectory of any new relationships that may result.

Adequate time and resources must be allocated to this process. It cannot be rushed, and all participants must feel that the questions and resulting answers were given the appropriate level of consideration. It also makes sense to seek the counsel of respected colleagues whose previously independent institutions were merged or acquired. Asking them what they might have done differently could produce valuable – maybe even pivotal  input and insight that would otherwise be missing from the merger equation.

 

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Obamacare: The Good, the Bad, and the Ugly

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When my friends ask me to translate the 2,000+ pages of legislation constituting the Affordable Care Act (ACA), aka Obamacare, into a sound-byte, I stammer and stutter looking for where to begin. In the end, I tell them about the Good, the Bad, and the Ugly.

The good news is that ACA eliminates some reprehensible insurance practices of the past. No longer are people uninsurable due to pre-existing conditions. Gone, too, are lifetime limits covering insured, health care expenditures. Plus, subsidies/stipends and new qualifications for Medicaid should make it far easier for tens of millions of Americans to access the system (assuming we have an adequate supply of physicians).  Achieving this level of expanded access is a major accomplishment. The only problem is that it is widening the funnel to let more people into a highly dysfunctional health care system.

What’s “bad” about Obamacare is its fundamental failure to address the core dysfunction rife within American medicine. The American health care system is astonishingly expensive, remarkably variable in quality, and incapable of stemming the rising tide of chronic illness in our population. Greed is endemic in medicine, and the prices charged for health care services are incomprehensible to consumers.

Journalists are now latching onto the issue of cost, as illustrated in a New York Times article entitled: “How to Charge $546 for Six Liters of Saltwater,” as well as in Steven Brill’s comprehensive exposé, “Bitter Pill,” that appeared earlier this year in Time Magazine.  These articles are likely to resonate increasingly with consumers who have to pony-up hard-earned dollars to cover higher deductibles and co-pays.

The “ugly” of Obamacare is the way we, as a society, have responded to the new law. Yes, it is fundamentally flawed, but it does contain meaningful social reform. We need to see it for what it is – not through the distorted lens of political polarization. We can then have an intelligent discussion about what problems Obamacare will solve; what new problems it may create; and what additional reformation needs to occur to stem the rising cost of health care while improving its quality, safety, and accessibility.

If ever there was a time for an objective debate about the next steps in reforming our $2.7 trillion health care system, it is now!

 

Please let me know your thoughts via e-mail: johnleifer@aol.com

The Loss of Catholic Healthcare

 Catholic healthcare

Something precious has been lost in Kansas City; yet its passing has brought little mourning despite the thousands of people it has faithfully served over decades.

Catholic healthcare has been a vital part of our city’s healthcare infrastructure for generations, but that’s all changing. Four area hospitals (St. Joseph Hospital, St. Mary’s Hospital, Providence Medical Center, and St. John’s Hospital of Leavenworth) are beginning the transition to for-profit institutions as a result of sales by their sponsoring organizations.  The hospitals simply became too expensive to operate for the Sisters of Charity and Ascension Healthcare.

These faith-based facilities were not differentiated by their glimmering technology or by boasting the best clinical outcomes in the region, though they were committed to excellence in these arenas. Rather, they were differentiated by a once palpable spirit of caring – that invaluable, but intangible element that makes healing an art and brings comfort at the most difficult of times.

I’ve spent my life working with hospitals of all types – as a consultant and as an administrative leader. Thirty years ago, when I began my career, I rued the day when the spirit of caring was sacrificed to purely secular care.  I expressed these concerns in an essay about the future of American healthcare published by the American Hospital Association on their 100th Anniversary:

Once upon a time, health care was all about healing. It was driven by compassion, faith, and science that combined to meet patients’ emotional, spiritual, and physical needs. The field possessed a gentility grace; it was a time when healing was still viewed as a scared art.

Today, the industry is moving like a runaway train on a collision course with the profane. – Leifer, 1998

Faith-based hospitals should not go quietly into the night. Their passing should be recognized as a significant loss to us all. Medicine and healing are not merely a business. They embody a sacred element.

Even individuals, who are unconcerned about the loss of the sacred, may be troubled by other potentially deleterious consequences of the transition of not-for-profit organizations, such as our four, Catholic hospitals, to for-profit status.

Experts Speak-Out:

In his book, “A Second Opinion, Arnold Relman, M.D., Professor Emeritus at Harvard Medical School and Editor Emeritus of the New England Journal of Medicine, shared these findings:

One careful study in 2002 reviewed all the available published data for U.S. private for-profit and not-for-profit hospitals, pooled the results, and found that the risk of patient death was 2 percent higher in the for-profit hospitals. – Relman, 2007

An interesting report in 1999 compared Medicare spending in geographic areas in which all acute-care hospitals were for-profit with spending in areas in which all the hospitals were not-for-profit. Adjusted mean per capita Medicare spending on inpatient care, as well as total spending, was much higher in the for-profit area, and spending rose when all not-for-profit hospitals in an area were converted to for-profit ownership. – Relman 2007

George Lundberg, M.D., the editor of the Journal of American Medicine for 17 years stated it bluntly: “The profession of medicine has been bought out by business, and unless physicians take it back, it will devolve into a business technology in which faceless patients will be treated by faceless technicians.”

The point of this piece is not to denigrate for-profit institutions – many of which provide exemplary care. The intent is to sound a claxon that jars us out our complacency and causes us to look at issues, such as the loss of four, Catholic hospitals, with a new level of scrutiny, and perhaps an intense sense of loss.

–John Leifer