STS Practice Management Pearls: Hospital Employment - The Final Chapter?

STS News, Summer 2010 Edition -- The allure of hospital employment may seem seductive and comforting given the tumultuous changes to health care our specialty is facing, and some already have taken the leap to employment from private practice.

This installment of Practice Management Pearls does not take a stand on hospital employment, but rather promotes preparation, starting with a full understanding of your market, and offers some thoughtful lessons learned to consider before choosing the best long-term practice mode for your situation. Many hospitals see the employment of surgeons as a strategic partnership to promote quality care and a winwin environment. Other hospitals, focusing on cost-containment and market share, regard surgeon employment as a short-term means to an end. Individual surgeons and small group practices may be feeling the magnetic pull of hospital employment more than larger groups with sophisticated business infrastructures. Should you consider the sometimes covered path towards hospital employment, we hope this Pearls article helps you to steer clear of the quicksand and find your way on firm footing.

- Vinay Badhwar, MD, Chair, STS Workforce on Practice Management

Hospital Employment: The Final Chapter?

by Todd A. Carl, MBA, President, MGMA Cardiac Surgery-Cardiology Assembly, and Lynne Tromble, MBA, Past President, MGMA Cardiac Surgery-Cardiology Assembly

With falling salaries, changing volumes, and a revamped health care system, there has been much discussion lately about hospital employment. While cardiothoracic surgeons do not need to run as fast as their cardiology colleagues, it may not be unreasonable for some to slowly walk toward this option while very cautiously considering the implications.

There already has been a variety of health care policy changes that will certainly reshape the future of the specialty. Recently passed health care reform legislation will add complexity to an already complicated system. Changes in access and the delivery of care are key components fueling the surge of interest in hospital employment.

Hospitals and physicians will be forced to reduce the costs for overall care, especially those associated with diagnostics, supplies, and devices. One strategy for a hospital to effectively accomplish standardization and best practices while improving buying power is to transition physicians from customers to employees. Such a transition provides newfound control that will help the hospital attain its goal of offering cost-effective medical care, but it may also adversely affect the hospital’s willingness to implement new and perhaps costly technologies and techniques.

Given this scenario, cost-conscious hospitals may find diminishing returns by being the first to offer treatment with expensive new devices or procedures. Until the diagnosis-related group payment catches up to new technology, patients theoretically may have reduced access to new and less invasive procedures deemed cost prohibitive in certain hospital environments. For the hospital, one financial angle of this new health care environment may be to address cost containment by attempting to curb physician use of costly therapies or services.

Due to these pressures, a trend toward hospital-employed physicians has been developing over the past several years. With a hospital’s desire to control patient volume, this strategy previously was utilized with primary care physicians and is now targeting specialists. According to the Medical Group Management Association, in 2005 more than two-thirds of all physicians were in the private practice realm. By the end of 2010, that ratio is expected to nearly reverse, with the majority turning to some form of employment rather than continuing to operate their own businesses. Cardiothoracic surgery still produces some of the highest profit margins for hospitals, so it is only logical that they are trying to develop strong physician
ties in this area.

The uncertainty of future reimbursement may make selling practices seem like a wonderful decision. In isolated cases, particularly for solo practitioners, that leap could make sense. Ideally, hospital employment takes the risk out of physician compensation while alleviating many of the logistics that accompany running a practice. It can also mitigate the uncertainty of surgical case volume due to the advent of new interventional therapies and less-invasive techniques. With the rising costs of malpractice and overhead, the burden of managing an entire office can be daunting. One easy answer can be to take advantage of the life preserver tossed by the hospital and simply practice medicine.

However, not all aspects of hospital employment are positive. The physicians who will realize the immediate benefits of being employed by the hospital are those planning to work for three to five years and then retire. These individuals may have less to worry about regarding compensation and can focus more on medicine rather than what is happening at the office. They will enjoy the benefit of working typically on a Relative Value Update based calculation and need not be concerned with uninsured rates or insurance type. They also may have a period of guaranteed income, which could be appealing.

For surgeons planning on working longer, short-term hospital employment contracts are problematic. The economy and the current financial crisis are affecting everyone’s retirement. Some individuals who made the initial hospital employment plunge several years ago are now facing the renegotiation period. Through no fault of the surgeon, incorrect volume estimates in the initial contract, minimal cost controls, no hospital infrastructure to manage physicians, a lack of accurate charge capture and billing, and poor profitability can combine such that renewals may offer significantly lower compensations. The alternatives available are not easy and can result in contentious negotiation: work with the hospita and accept the renewal with the potetial of drastically reduced compensation; move and enter a new employment agreement with another hospital system; or rejoin the ranks of private practice.

Most physicians negotiating renewals are being forced to accept lower compensation or are relocating. Delving back into private practice comes with a new set of challenges. The infrastructure benefits offered by thehospital can be difficult and expensive to recreate. Local referral patterns are controlled or strongly influenced by the facility, and establishing a competing practice is often difficult.

On the one hand, there is the desire for employment and the belief that, with this model, a surgeon could “ride out” the current political and economic environment. But when evaluating issues, surgeons should look beyond today’s troubles to where they see themselves in five to 10 years. Evaluate and negotiate carefully. What seems like a safe and easy solution today may lead to a significant challenge and disadvantage tomorrow. As has become obvious, health care reform is a moving target that is far from being totally played out, and its ultimate impact on providers is only speculation at this point.

If you do decide to pursue hospital employment, don’t assume the hospital is able to run your practice as well as your private practice was managed. (For those in private practice, also consider that the hospital may direct how you will care for your patients.) You may consider requiring that your current administrator be part of the deal. Hospitals are frequently not prepared to capture professional charges correctly or bill effectively. The resulting poor records can negatively impact physician compensation and financial results. Another area to negotiate is input into hiring new colleagues who affect your service line. Remember that you are the expert in caring for the cardiothoracic surgical patient, and the hospital is expert at providing facilities and staff to support you. Hospital employment for surgeons should not mean giving up influence on how care is delivered.

Cardiothoracic surgeons also should not lose sight of the value they bring to the equation. Negotiate relationships that acknowledge what each party brings to the table. Another bit of research that should be done relates to your particular market; not all are created equal. Political dynamics within the hospital and competition among hospitals are driving current employment to a significant degree. Try to evaluate objectively each opportunity in your local market; your options may be very different from those of the fellow surgeon who  recently shared an employment horror story with you. Whether you choose employment or another arrangement, don’t sell yourself short or sign a bad deal because of the frenzy that seems to be occurring in the profession.