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Physicians: To employ or not to employ – that is the question!
While my personal thoughts frequently center around issues such as "being,” on a professional level I have probably given more thought to the issue of physician employment than any other.
I am old enough to recall when an employed physician was actually an oddity. During my many years working on the provider side of the business, I experienced the rush to employ physicians (by hospitals in the 80s) that was akin to the gold rush. Many advisers and consultants, including think tanks like the Healthcare Advisory Board, suggested the real key to success was going to be physician employment.
You may recall this also ushered in the era of "physician practice management” companies that were going to hit it rich in the physician employment/management business; some, like Phycor, made it all the way to Wall Street.
And of course, we all remember hospitals that experienced devastating losses by acquiring physician practices. Subsequently, many hospitals and health systems reversed course – like ships heading for icebergs – and dumped all or many of their employed practices.
Throughout this time, reams of literature have been written on the pros and cons of the private practice of medicine. Many articles have extolled the virtues of "The Staff Model.” In addition, numerous “physician relationship” models have been published and promoted, claiming to be the Holy Grail of physician compensation and management.
When considering the topic of physician employment, the obvious question arises: By whom? Earlier I mentioned hospitals and physician management companies, but they are only two of an array of options. Foundations, for-profit companies, physician organizations, and multi-specialty groups are just a few other possibilities.
The topic of physician employment is once again front and center, and it continues to pique my interest as an insurance executive due to the implications for provider reimbursement models and physician/provider relationship issues. It certainly has bearing on current hot topics, such as patient centered medical home (PCMH), accountable care organizations (ACOs), etc. This issue has also become personal to me now that I have children who are physicians.
At the present time, it is pretty clear that many – if not most – hospitals have once again embarked upon aggressive plans to employ physicians. Interestingly, a few never stopped, particularly those who have based their systems on the Staff Model and Foundation Model. I have also talked with some hospitals who are not ramping up their employment of physicians and who still believe strongly in a pure private practice model.
Many articles in the literature indicate that recent healthcare reform legislation is likely to fuel consolidation in the provider community. Increased physician employment by hospitals and health systems would seem to be a likely outcome.
One of the big questions I have is: What has changed since the last time hospitals employed physicians that is fueling the current drive to employ physicians? Recent articles suggest the employment model will be "different" this time, yet, as I speak to hospital executives, they inform me that the losses incurred by employed physicians are similar to what I saw/experienced in the 1980s (approximately $20-$120K per year per employed physician).
I have also seen reports in the literature that each physician has the potential to bring $1-$3 million dollars in referral revenue to a hospital. Perhaps this is a motivation for employment. Yet, this logic only holds up if one is able to move business from competitors and produce adequate margin on that business to offset total cost. This logic didn't seem to work out in the 1980s. It certainly doesn't make sense if you are already the recipient of this business, except from a defensive posture.
Then there is the issue of independence and productivity. I have heard arguments on both sides of this issue from numerous physicians. It is a tough call and probably a very individual matter whether an independent or employed physician is more productive. I have personally seen proprietary data, during my days on the provider side, which demonstrated that employed physicians definitely demonstrated a higher level of loyalty to their employer than independent physicians.
It does seem clear that current medical school graduates have less of an appetite for setting up a private practice. This could be a generational or cultural/lifestyle issue. It could also be a function of debt load upon graduation, or a variety of other factors.
My colleague Tom Simmer, M.D. and I have had a number of provocative discussions on this topic. Based upon those discussions, and my utmost respect for Dr. Simmer's opinion, I have come to believe that, in spite of the current trend to employ physicians, private practice physicians will continue to survive and thrive alongside their employed colleagues, at least during our lifetime.
I would love to hear your opinion on this evolving topic!
Bob Milewski is senior vice president of Contracting and Hospital Relations for Blue Cross Blue Shield of Michigan and a member of CHRT's board of directors.
The Paradox of Accountable Care Organizations
In the run up to health care reform, there was considerable discussion and advocacy for the idea of encouraging the implementation of something called accountable care organization (ACOs). Count me as a hope-to-be proved-wrong skeptic of this idea.
The definition of an ACO is somewhat vague. Essentially the idea is to have groups of providers (group practices, individual providers, hospitals) take responsibility (and thus, “accountability”) for the care of a defined set of patients, i.e. to be fully responsible for all care, including the cost and quality of that care, and share in any savings that might accrue if that care is delivered more cost effectively than it would be in the standard environment.
Sound familiar? Yes, it shares the same overarching philosophy of health maintenance organizations (HMOs) but without the concomitant structure. As defined in the health reform Act, ACOs would continue within the fee-for-service system, but with a sharing of savings. There is no risk arrangement per se; and it is a direct contract with groups of providers rather than a health plan. Sound too good to be true? I am afraid it may be, and perhaps worse, may have an unanticipated negative effect on health care spending.
Here’s the too-good-to-be true part: after health care reform failed under President Clinton, the country shifted wholesale into managed care-heavy ( i.e. risk based), capitated HMOs. These HMOs did slow the cost of health care; national health care spending trends were flat for several years after this shift. But many consumers hated conforming to the requirements and limitations of those HMOs. Most HMOs achieve cost savings by aggressive oversight of hospital stays and expensive referrals, using both financial incentives/disincentives for providers and administrative mechanisms for approvals of certain types of care. Consumers not used to these kinds of processes rebelled against them and the “managed care backlash” was born in the late 1990s. Because health plans do in fact respond to the market (and also to legislators, who began enacting laws to prohibit limits on hospital stays in certain cases), they began to loosen the constraints in their plans and shifted instead to a preferred provider organization (PPO) model – a less tightly controlled version of managed care (managed care “lite,” to many).
So, what happened to health care spending? Well, it did indeed go up – in some cases, a lot.
And now, along comes the latest “rage” in health care (as noted by the Healthcare Economist): the ACO – an even “lighter” version of managed care. Can such an organization really slow national health care spending? Color me doubtful.
And, here’s the unintended potential negative effect: In all the furor around the 39 percent rate increase requested by Anthem Blue Cross earlier this year, one important aspect of the issue didn’t get enough attention: what drove the need for that rate increase? Anthem argued it was the result of demands by certain providers for higher fees, and the negotiating leverage of “marquee” providers that were essential to include in the network in order to serve Anthem customers.
This is an issue that has been well documented elsewhere (see the Massachusetts Attorney General’s report). Having negotiated contracts with providers on behalf of a health plan for many years myself, I can tell you it is a lot easier to negotiate in an environment of plenty than when a provider controls a significant portion of the market.
ACOs have the positive effect of encouraging providers to get organized and structure themselves to deliver and coordinate quality of care. But they also will have the unintended effect of creating bigger geographic blocks of providers – with more negotiating leverage – within regions. Hospitals have been trying to do this for years through physician-hospital organizations (PHOs) and other strategies. ACOs may finally give this idea such a boost that markets become dominated by a small set of “must-have” providers that will shift negotiating leverage with health plans. Color me worried.
Don’t get me wrong: I do hope ACOs work, and I do believe that the underlying philosophy is a good one: care should be managed by providers and not insurers; quality should be the responsibility of providers; care must be better coordinated between and among providers, and shared savings is a great idea. But, as with any big idea, we must go into this with our eyes open – watching for and protecting against those unintended consequences and making sure not to over promise what can really be achieved.
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