In August, the New York-based Deloitte released a new report, “Issue Brief: Physician-Hospital Employment: This Time It’s Different.” Written by Sheryl Coughlin, Ph.D., head of research at the Deloitte Center for Health Solutions, and Wendy Gerhardt, Manager, healthcare providers, at Deloitte Services, the report provided in-depth analysis on the current trend of physician employment, comparing and contrasting the current phenomenon with the rush to employ physicians that emerged in the 1990s and then collapsed within several years. Thus, the title. To begin with, the report’s authors note several reasons for the failure of physician employment initiatives in the 1990s, among them:
- “Lack of integration: Newly combined organizations failed to align structure, governance, leadership, and care delivery models.
- Poorly structured compensation packages: Physicians were not always incentivized to meet organizational goals.
- Financial challenges: Many hospitals that acquired medical groups struggled with physician profitability.
- Regulatory complexities: Regulators increasingly targeted physician-hospital relationships for compliance with Stark and anti-kickback laws. This is still happening.”
In addition, the report’s authors note, “There was also a general lack of understanding in the 1990s that the hospital enterprise and the physician practice enterprise operate under different business models (e.g. billing, staffing, revenue) and have some different regulatory requirements. This time around,” they note, “hospitals cannot afford to fail because the need to integrate and the competition for essential physicians are heightened by the healthcare system’s overall transformation. Hospitals need to identify, employ, and align with the right physicians or risk being left behind.”
With physician employment accelerating dramatically, the operational implications are many, including many strategic IT implications.
Shortly after the report was released, HCI Editor-in-Chief Mark Hagland interviewed Bob Williams, M.D., national medical leader of the New York-based Deloitte Life Sciences Health Care Consulting. Williams, based in the Washington, D.C. (Maclean, Va.) office of Deloitte, discussed the report itself and its broader implications for the patient care organization leaders. Below are excerpts from that interview.
The report cites a number of statistics, including that medical group acquisition deals by all acquiring organizations grew 32 percent from 2008 through 2012, and that acquisitions of medical groups by hospitals and integrated health systems grew 139 percent from 2010 through 2011, before declining slightly in the first quarter of 2013. I’ve seen a variety of statistics, but certainly, this is a major, continuing phenomenon.
You do see some different numbers, depending on the sources you’re looking at, but clearly, it is big. A lot of acquisitions. We started seeing it maybe five years ago with our clients when it really started picking up. And it was largely defensive and not particularly strategic, but health systems were feeling that, for a variety of reasons, they needed the asset, and physicians needed security, so there was a mutual attraction there, some because of the market dynamics, and some because of generational differences, with the young doctors.
Bob Williams, M.D.
In the 1990s, physician practice acquisition didn’t really work.
Yes, I don’t think the economics were aligned around it as they are now in terms of the opportunity. And also, people didn’t understand that hospital operations and physician operations are very different, and how you lead and manage a hospital and how you manage a physician group are fundamentally different.
Of course, another factor in the 199os was the commercial physician practice management companies competing with hospitals to quickly buy up the individual physician practices.
Yes, so everyone was rushing to buy up physician practices, and paying a premium, and in many cases, they ended up losing $130,000-$150,000 per physician practice.
Are hospitals and health systems being smarter about this nowadays?
Well, we’re doing a lot of work in our practice to address the operational components. And now there are incentives to drive clinical integration, because the market is demanding clinical integration, so how can doctors and hospitals provide more evidence-based care, more coordinated, integrated care, and begin to assume some risk for those populations, and create an economic incentive to provide higher-quality care.
What are the smartest hospitals and health systems doing in this area?