An Industry Expert Looks at the New Landscape of Physician Employment

Sept. 24, 2013
Shortly after Deloitte released its new 'Issue Brief: Physician-Hospital Employment: This Time It’s Different,' Bob Williams, M.D., national medical leader of Deloitte Life Sciences Health Care Consulting, shared his perspectives with HCI on the strategic IT and operational implications of the current wave of physician employment and physician practice acquisition.

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?

I have a framework for thinking about hospital-physician alignment around maturation. It goes like this: competition leads to cooperation, which leads to collaboration, which leads to co-management, which leads to “co-ownership,” which doesn’t have to be equity, but the idea that the hospitals and physicians own the clinical business together. So what are the smart hospitals doing to achieve that? On the employment side, as we always say here, employment does not equal alignment. Alignment first has to do with engaging physicians around payment and evaluation. It has to be transparent: do they clearly know how they’re being evaluated in terms of the care they’re delivering to patients? So the smart hospitals have figured out how to align that, both for the direct patient care piece, and increasingly, on quality outcomes, patient satisfaction, and other contributions to the organization.

 And my concern is that some organizations start there. So the smarter organizations rework their culture to rethink the operating model and how decisions are made in a transparent way. We call that “decision rights.” And what it involves is actually identifying the key strategic, investment, and operational decisions that have to be made to effectively lead and operate a physician enterprise as part of a health system, and then to actually define who is accountable and who is responsible for each of those decisions. And in some cases, it’s the lead administrator; in some cases, it’s someone from the health system board; and in some cases, it’s the physicians themselves. And you build your operating model and org structure around that. And so you figure out how to engage the physicians on this. The physicians want to be engaged and contribute to the advancement of the whole organization.

The baseline for that is compensation and incentives. But beyond that, they need to get to a sense of shared decision-making, and that they own the incentives and own the quality. But if the physicians are treated as employees rather than co-owners of the enterprise with incentives for its success, that could lead to failure.

To pursue the new healthcare—which includes accountable care organizations, patient-centered medical homes, population health, and the like—you need IT, and the physicians have to be engaged from the beginning on that, right?

I agree. And, per IT, how to invest, how to deploy, how to think about how it has to be deployed to achieve common goals… The organizations that have deployed integrated platforms for ambulatory and inpatient care, have a leg up, because, at least in terms of the owned practices, they have a common database. But it doesn’t necessarily give you all the information you need to manage and coordinate care, because you’ll usually have some physician practices on that core system. But you have to identify a population and identify patients at risk, and then you have to be able to hand that off to a navigator or coordinator who has access to the information and can run algorithms, etc.

So you need clinical information from the electronic health record [EHR], and ideally some claims information and also some PBM information on things like how many prescriptions were actually filled; so you’ve got a data aggregation issue, you’ve got an interoperability issue, and then an analytics issue. So you aggregate the data, and you have to figure out how to provide real-time information to the caregivers.

But to me, the “secret sauce” of this is really a customer relationship management-type system for the care coordinators, when they’re working with patients. And ideally, that’s something that the physicians, nurses, and other caregivers can access as well. And there are some companies out there that already have some of the core capabilities for that. You need to consider how to integrate all the data into some kind of enterprise data warehouse; and if you have that, then you can run algorithms and perform all those functions. Now, larger systems can afford to build custom warehouses; others may have to buy off-the-shelf data warehouse products; and others may need to sign up to pay for services from a larger health system.

And it’s not really futuristic, because it’s happening one-off, but you could also imagine that the remote-monitoring devices are already feeding data into the EHR, to help alert the caregivers and the care managers that patients are at near risk. That will also help the patients themselves and their families, too.

Do you think most physicians recognize where things are going overall yet, with the emergence of the new healthcare, and broad changes in the healthcare system?

I would have to say no, but I do think there is some general awareness of some of the trends. Most of the physicians are heads down seeing patients every day, and don’t have the time, really, to stop and step back and put it all together. Increasingly, in pockets, physicians are seeing that there’s a significant opportunity for them, because so much is driven by political decision-making. But most of the physicians are delivering patient care and doing a good job of it with the tools they have; but there’s been a significant increase in the number of physicians who truly understand what’s going on. But when they drive home at night, they’re asking themselves, did I do the best job today providing care with the tools I had? And that’s how they evaluate themselves at the core, and then ask themselves whether they have been able to be financially successful and stable.

What would your advice be for CIOs and CMIOs in all this, per strategizing forward with their colleagues on all of this?

Strategizing is the key. I recently had a conversation with the CMIO of a health system with whom we were consulting. And my advice to him was, do you have an information management strategy for the organization, and specifically, do you have a clinical information management strategy? And for me, it’s not about finishing an implementation, or even delivering one-off optimization, but rather about linking the organization’s overall business and clinical objectives, to an overall information management strategy, and thinking about how we actually achieve the benefits for the end-users, and stopping to do that, is my advice.

Is there anything you’d like to add?

I would just restate that I think that one of the key messages is that we need to go beyond effective performance-based compensation, which is table stakes now, to the trusting, co-ownership relationship, in the ways that we talked about, for this to stick. This is complex, big-change stuff, and in order for it to stick, we need to help doctors feel a sense of ownership and engagement in the broader process.

Do you feel optimistic about how things are going, overall?

Absolutely, I do. I’m really energized by all this.

It does seem that, compared with even five years ago, the leaders of healthcare are collectively seeing things more similarly than in the past.

Absolutely, I would agree with that. The challenge now is developing the strategies that will work in the emerging system, and executing on those strategies.

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