Employing physicians too costly? These innovative hospitals find solutions that work

Hospital employment is costing the healthcare system, according to a recent study published in the Journal of the American Medical Association, and with rapid consolidation in the industry, this could be a bad sign going forward.
 
According to Bill DeMarco of DeMarco Health, hospitals originally thought purchasing physician practices was a good idea because:
 
•    Purchasing primary care physicians would allow hospitals to control which specialists are used, thereby controlling admissions from specialists and assuring a predictable occupancy.
•    The more specialty referrals came to the hospital, the more complex patients they'd have and the more complex the patient is, the more they can bill per patient.
•    Running a PCP practice is easy with a handful of billing codes.
 
As a result, many hospitals thought purchasing PCP practices for around $150,000 would be beneficial. However, recent trends in the healthcare system suggest differently.
 
"PCPs on salary meant you could control the majority of referrals but in a competitive market where two or more hospitals control the volume, the specialist is likely to split their referrals and admissions to keep everyone happy," says Mr. DeMarco. "This means a tremendous amount of PCPs needed to be brought in to keep even a handful of specialists busy, especially when managed care is trying to slow these specialty referrals and admits."
 
The researchers examined total expenditures for 4.5 million patients treated by integrated medical groups and independent practice associations in California from 2009 to 2012. The patients were covered by private payers — both HMO and PPO — as well as Medicare and Medicaid. There were 158 organizations and 118 were physician-owned organizations. There were 19 organizations owned by local hospitals and 21 organizations owned by multi-hospital systems.
 
Here are four key takeaways from the study:
 
1. Physician-owned organizations reported $3,066 average expenditure per patient while hospital-owned physician organizations racked up $4,312 per patient. Physician organizations owned by multi-hospital systems reported $4,776 in average expenditures per patients.
 
2. Local hospital-owned physician organizations incurred 10.3 percent higher expenditures per patient than physician-owned organizations when adjusting for patient severity and other factors.
 
3. Multi-hospital system-owned organizations incurred 19.8 percent higher expenditures than physician owned organizations after controlling for patient variables.
 
4. The largest physician organizations reported 9.2 percent higher expenditures per patient than smaller organizations; the difference was $130 per patient.
 
"While income per patient is important, so is expense," says Mr. DeMarco. "If the hospital gets referrals on specialty patients and finds the revenue charged does not cover expenses then the income per patient is a loss. Most hospitals are just now coming into product line budgets and activity cost accounting and realizing they must reevaluate their capacity for some departments and perhaps refer out overly complex patients to the University or nursing home, or get a denial from Medicare or managed care for that patient's bill."
 
Hospitals are also finding that running a well-managed primary care practice isn't as easy as it initially seemed and they don't have the right people or infrastructure to run several practices with different systems, cultures and referrals sources.
 
"In some areas of the country, a GP is also the cardiologist and OB-GYN. In some areas of the country, the PCP focuses on a narrow but complex set of procedure codes making outbound referrals and coordination very inconsistent," says Mr. DeMarco. "In addition, the culture of the employed practitioner is very different than the PCP that owns his/her own practice."
 
There have long been warnings about employed physicians who only desire to work 9 a.m. to 5 p.m. and don't want to take call responsibilities. They don't want Saturday hours and if their practice isn't filled, they're more likely to leave early than physicians running their own business.
 
"In one case we saw PCPs practicing out of a large medical office building owned by the hospitals. The PCP would punch in at the parking ramp and if they were late or left early they had their pay cut to reflect missed billable time," says Mr. DeMarco.
 
Consolidation between providers could increase care coordination, but at what cost? There are some organizations looking for ways to align incentives without direct employment to keep costs low. Hospitals and health systems are wondering how to get out of these arrangements and still get the referrals without owning practices.
 
There are a few large groups and systems that have come up with a solution to this issue. Baylor Health System in Texas developed a relationship-focused program that ranks physicians as members, associates and affiliates.
 
"An affiliate may have a contract and have been credentialed as a joint venture partner with the Baylor Health System, including Baylor University Dallas and a regional specialty group like Touchstone Medical Imaging," says Mr. DeMarco. "Associates can be local independent credentialed physicians with the health system or a hospital as a vendor, or a joint venture with a local group like United Surgical or a joint venture hospital."
 
Physician members are owned and operated as members of the medical staff. All associations with Baylor can offer CEU, consulting department roles, practice infrastructure and/or managed care contract management, which allows for knowledge sharing as well as the buying power of large organizations.
 
"It also offers a pathway for physicians to migrate from one-level of relationship to the next," says Mr. DeMarco. "Over time a physician may find a reason to move closer to owned and operated or may choose to stay independent but put a Baylor-affiliated practice sticker on their door. Mayo, Cleveland Clinic and others are reaching across geographic barriers and sharing knowledge and practice support in exchange for tertiary and quaternary referrals. This is all part of building a brand with physicians and consumers but mostly offers flexibility beyond the owned or not-owned level of relationship."
 
The traditional ways of "affiliating" are giving way to new types of partnerships with a 21st century twist. "They are finding buying bricks and mortar can be a hazard but building a solid foundation of larger and far-ranging technology partners such as the cyber knife department at Central DuPage Hospital in Chicago run by Cleveland Clinic and the affiliations between Mayo Clinic and Order of Saint Anthony Health System in Peoria."
 
In the latter partnership, Mayo is sharing super-specialty advisory services for physicians in Peoria with guidelines backed by clinical, evidence-based research.
 
"This, we believe, is the center point to the mass scramble to joining Phycor or selling one's soul to the hospitals," says Mr. DeMarco. "Physicians can form their own medical staff organizations and have a variety of relationships from handshake to joint ventures and even build their own group practice spending more time seeing patients."
 
These types of arrangements also give hospitals a chance to help form an MSO to sell back practices to a physician-owned MSO that creates a group without walls, and ownership for the physician is similar to joining a group practice.
 
"We are witnessing some discussions that are using the ACO framework to buy practices away from the hospital," says Mr. DeMarco.