Grant Thornton says hospitals are acquiring physician practices at a more rapid rate because they need a secure physician base amid impending doctor shortages, the need to create new delivery models to meet payer-driven cost and quality initiatives, and general market uncertainty.
After initially knocking the trend, analysts began applauding hospital employment of physicians. According to Fitch Ratings and Moody’s Investors Service, physician employment has allowed hospitals to overcome flat inpatient revenue with greater outpatient care. Health reform is driving a shift from inpatient to more cost-effective outpatient sites.
Fitch said the No. 1 health-care sector challenge in 2014 would be to maintain profitability despite weak patient volumes and declining Medicare reimbursement to hospitals.
Moody’s partially attributed the gains to physicians. Closer relationships with physicians have helped hospitals stabilize their market shares and cut costs, Moody’s said. The relationships have translated into more physician input through joint ventures and hospital board memberships, aided by accelerating physician-practice acquisition. The rating service credited such steps, which ensure a steady flow of patient referrals, as an antidote to hospital reimbursement cuts stemming from the ACA.
According to Moody’s, inpatient admissions have been flat or declined since 2009, compared with physician office-visit growth of nearly 5 percent. Hospital profit margins stabilized in 2011 at about 2.5 percent.
A Wall Street Journal report noted the effect of physician employment on the cost of care. It pointed out that a 15-minute physician visit might cost about $70 at an independent practice, compared with $124 at a hospital outpatient clinic. Hospitals are able to use their market power to negotiate higher reimbursement rates with commercial payers, and Medicare pays “substantially” more when procedures are performed at a hospital-owned facility.
For Merritt Hawkins, 63 percent of physician searches between April 2011 and March 2012 were for hospitals, compared with 56 percent the year before.
One reason for greater physician demand is that physicians are working fewer hours. Compared with 2008, doctors now are working about 6 percent fewer hours and are seeing nearly 17 percent fewer patients per day, according to the Physicians Foundation.
Looming retirement for aging and frustrated physicians also is a factor. Nearly 1 out of 4 physicians are past the age of 60, and many delayed retirement because of the recent recession. Many others want nothing to do with the ACA. The Physicians Foundation survey estimated that 80,000 to 100,000 doctors might retire between 2012 and 2018.
Hospitals are recruiting physicians even when they do not have openings. More than half were recruiting for expected openings and nearly an equal number said they stockpiled candidates.
The percentage of cardiologists who were employed by hospitals tripled from 8 percent in 2007 to 24 percent in 2012, according to an American College of Cardiology survey.
Physicians who become employees increasingly consider themselves free agents, often open to the best opportunity. More than half working for hospital-owned or large independent groups were seeking to change practices for financial security, and a nearly equal number generally were dissatisfied with their current work circumstances.
More than half of practicing physicians get at least three employment solicitations a week. Almost 29 percent receive three to five weekly. Twenty-three percent get 6 to 10 notices, according to the Medicus Firm, a physician recruiter. Medicus also found that signing bonuses, once considered optional, are now an expectation.
According to a survey by QuantiaMD, an online physician community, about half of employed primary-care physicians had not had a raise in 1 to 2 years. Nearly 1 out of 5 had experienced a cut in salary.
According to a survey of hospital administrators, 52 percent of hospitals planned to acquire physician practices in 2013, compared with 44 percent that made such purchases in 2012.
The survey found that opportunity, rather than strategy, was the overwhelming reason hospitals are acquiring physician practices. Seventy percent of acquisitions in 2012 began with physicians approaching hospitals to sell their practices.
Even though Moody’s Investors Service issued a “negative outlook” on nonprofit hospital finances in early 2013 for the sixth year in a row, it noted that the sector had improved its bottom line in recent years and credited physician-practice acquisition.
Hospitals especially covet increasingly scarce primary-care physicians. Dr. Guy Culpepper, president and chief executive officer of Jefferson Physician Group in Dallas has quietly guided his group of about 200 primary-care physicians from the managed-care era of the 1990s to the current wave of consolidation. With primary care in such demand, he and his group constantly fend off suitors.
“They (hospitals) want to buy us, steal us, have us go away and break us up. When hospitals tell our doctors, ‘You can make 180 percent of Medicare rates instead of 125 percent,’ that is hard to turn down,” he said, acknowledging the market power of health systems in negotiating with insurers.
In 2012, for the first time since physician recruiter Merritt Hawkins began its survey in 2002, primary-care physicians generated more annual revenue for their hospitals than did specialists. Primary-care physicians generated an average of more than $1.56 million for their affiliated hospitals, compared with an average of less than $1.43 million for specialists.
“A seismic shift is taking place in medicine, away from specialists and toward primary-care physicians,” said Mark Smith, president of Merritt Hawkins. “Primary-care physicians are increasingly employed by hospitals and in new delivery models, such as accountable care organizations. They are taking a greater role in driving both the delivery of care and the flow of health-care dollars.”
According to Smith, the volume of services performed by physicians is still the key economic determinant for hospitals, rather than quality of care.
“Hospitals still get higher rewards the more that physicians do for patients within
their walls,” Smith said. “Volume may not be paramount in the value-based system of the future, but it remains the name of the game today.”
The question is whether increased hospital employment of physicians is a structural workforce change or a passing fad. Hospitals acquired physician practices in droves in the 1990s, only to let them go when it became clear there was a cultural mismatch and the anticipated financial windfall failed to materialize.
Health policy analysts say the current hospital-physician integration will be different. They point out that the ACA is driving delivery transformation, younger physicians are more amenable to employment for work-life balance, and many physicians are feeling the effects of reimbursement cuts. Hospitals need physicians to deliver care and patient referrals. Physicians yearn for income and employment security.
More than half of physicians are now employed by a hospital or integrated delivery system. Over the past decade, there has been a nearly 75 percent increase in the number of physicians employed by hospitals. And hospitals say they plan to continue to step up the pace.
Physicians believe hospital employment should translate into a greater voice in management. More than 9 out of 10 believe they should be more involved in executive leadership, serve on boards of directors and have input on performance-improvement initiatives.
There is a history of mistrust between hospital executives and physicians. The former often see the latter as obstacles—rather than partners—in cost-cutting and quality initiatives. The latter frequently see the former as more concerned with the bottom line and their bonuses than patient welfare and physician concerns.
Hospital executives say physician relationships are critical to successful accountable care. Most understand that they will not see a return on investment in physician employment for years, but the improved coordination of care, greater patient satisfaction and larger market share ultimately will pay off.
Acquiring and integrating physician practices are expensive. According to an American College of Physician Executives poll, 32 percent said costs went up after their hospital or health system bought a medical group or practice, compared with 5 percent who said costs decreased.
A Healthcare Financial Management Association (HFMA) survey found physician compensation by hospitals increasingly based on value rather than production. Cost-of-care and efficiency-related incentives are expected to grow from 16 to 67 percent of physician contracts, and quality-related incentives will rise from 65 percent to 86 percent. Care-volume incentives are expected to drop from 77 percent to 59 percent.
Hospitals are just as eager to pursue relationships with independent physicians. Nearly 1 out of 3 are pursuing clinical relationships, directorships and co-management opportunities with independent physicians.
The above is an excerpt from his new book So Long, Marcus Welby, M.D.: How Today’s Health Care Is Suffocating Independent Physicians—and How Some Changed to Thrive. D Healthcare Daily founding editor Steve Jacob draws on dozens of interviews and more than 500 published sources to cover these issues and describe how the landscape is changing for doctors.