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A critical appraisal of physician-hospital integration models

2010; Elsevier BV; Volume: 51; Issue: 4 Linguagem: Inglês

10.1016/j.jvs.2009.11.035

1097-6809

Bhagwan Satiani, Patrick S. Vaccaro,

Diversity and Career in Medicine

The economic environment and the current health care debate have prompted a critical reevaluation of previous and current physician-hospital integration models. Even though the independent, self-employed, private practice, medical staff remains the most common model, surgical specialists such as vascular surgeons are increasingly being employed and integrated into health care delivery systems. The degree of integration varies from minimal to full integration or full employment. This review defines the forces driving these changes and analyzes the strengths and weaknesses of each employment model from the physicians' point of view. Strategies for the successful implementation of a 21st century integrative employment model are discussed. The economic environment and the current health care debate have prompted a critical reevaluation of previous and current physician-hospital integration models. Even though the independent, self-employed, private practice, medical staff remains the most common model, surgical specialists such as vascular surgeons are increasingly being employed and integrated into health care delivery systems. The degree of integration varies from minimal to full integration or full employment. This review defines the forces driving these changes and analyzes the strengths and weaknesses of each employment model from the physicians' point of view. Strategies for the successful implementation of a 21st century integrative employment model are discussed. One of the most tenuous and capricious relationships in health care is that between physicians and hospitals. It is a symbiotic relationship based on necessity. Hospitals cannot function without physicians, but not all physicians need to work at a hospital. Those physicians that utilize hospitals have choices about the type of affiliation they want with the hospital or health care system. Physician practice models range from the self-employed practitioner to the full-time hospital employee, with an array of employment models in between. The economic environment and the national health care debate have only accelerated the reevaluation of the wide assortment of practice models for primary care physicians (PCPs) and specialists. A perceptible recent shift has occurred in the number of hospitals employing physicians. During the past 4 or 5 years, Merritt Hawkins reports an almost 300% jump in the number of hospital searches for physicians with a corresponding increase in searches by specialists for salaried jobs.1The Advisory Board CompanyPhysician hospital alignment.http://www.advisory.com/members/default.asp?contentID=74287&collectionID=763&program=2&filename=74287.xml&srch=1#3Google Scholar This article will consider the forces that are driving integration of physicians and hospitals and the current state of affairs with particular emphasis on the effect on vascular surgeons. We will discuss the basis of various models of physician employment, both past and present. Finally, from a physician perspective, we lay out objectives of any integration and factors important for success. To be sure, most physicians are still practicing independently, although many have enough interaction with hospitals and health care systems that this discussion will be relevant to them. Many have described the practice of medicine as the prototypical cottage industry, with each practice an independent unit. Before discussing hospital-physician integration, we need to look at the way physician practices have changed. The Center for Studying Health System Change (CSHSC) reported that the number of solo or two-surgeon practices declined from 47.8% in 1996 to 1997 to 37.5% in 2004 to 2005 (P < .01).2Liebhaber A. Grossman J.M. Physicians moving to mid-sized, single-specialty practices. The Center for Studying Health System Change, Washington, DC2007http://www.hschange.org/CONTENT/941/Google Scholar The theme of employment rather than ownership was also confirmed by declined from 61.6% to 54.4% in the proportion of physicians with an ownership stake in their practice. In contrast to PCPs, the survey reported more movement of surgical specialists to alternative settings such as hospital-owned centers and academic institutions, presumably because of a downward spiral in reimbursement and operational efficiencies and in an attempt at achieving economies of scale. Because private practice groups have difficulty meeting the demands of new graduates, deep-pocketed hospitals are better positioned to make offers or assist their loyal physician groups with hiring. Indeed, Merritt Hawkins Associates reports that 45% of their physician search assignments in 2008 and 2009 were for hospitals, up from 23% in 2005 and 2006.3Merritt Hawkins and AssocReport: primary care doctors in greatest demand.http://www.merritthawkins.com/pdf/2009-Review-of-Physician-Recruiting-Incentives-Press-Release.pdfGoogle Scholar “Markers of integration include strong physician-hospital links, coordinated systems of care, geographic reach, quality management, contractual capabilities, utilization controls, financial strength, organized oversight and economy of scale.”4Boone B. Integrated health care delivery systems' challenges. International Risk Management Institute, Dallas, TX2000www.irmi.com/expert/articles/2000/boone06.aspxGoogle Scholar The more markers present, the higher the degree of integration. From a physician perspective, benefits may include “cost-effective administration, improved access to other providers and support systems, access to a broader range of support services, financial strength and security, increased customer satisfaction, access to educational resources, ownership potential, increased market share, increased access to data and information systems, group purchasing discounts, strategic planning, and enhanced image in the community”4Boone B. Integrated health care delivery systems' challenges. International Risk Management Institute, Dallas, TX2000www.irmi.com/expert/articles/2000/boone06.aspxGoogle Scholar (Table I).Table IPros and cons of physician-hospital integration models (from physician viewpoint)ModelProsConsIndependent medical staff (no integration)1Physician keeps independence and autonomy2Hospitals compete for referrals and admissions1No compensation support from hospital2Little input into hospital policy and operations3Hospital may hire and employ physicians to competePartnership (minimal to medium integration)aIncludes physician-hospital organizations, managed service organizations, leasing, gainsharing, medical directors, part-time employment, etc.1May get access to new patients and increased revenue2No loyalty guaranteed3Access to hospital expertise/support services4Retain some independence1Not as profitable as other options2Usually no compensation guarantees3Legal headaches and costs4Usually management not strongTrue joint venture (medium integration)1Provides access to hospital capital and access to technical revenue2Learning vehicle for future joint vehicles3New markets may be tapped1Capital contribution/risk necessary2Legally complex3Duration dependent on reimbursement shiftsClinic model (full integration)1Clinical leaders govern patient care enterprise, role in governance2Physicians own entity and maintain practice infrastructure3Could transition to leadership role4Income from ancillaries maintained5Work-life balance may be better1Hospital owns group practice2Integration may not be easy3Shared decision making4Physicians responsible for managementFoundation model (full integration)1Could transition to leadership role2Income from ancillaries maintained3Access to management skills/capital/coordinated strategy4Work-life balance may be better1‘System’ owns subsidiary2Integration (fit) may not be idealFull employment (hospital-based group practice; total integration)1Free from most office operational stresses2Stable income, lower liability costs3Work-life balance may be better4Generally has physician leadership5Access to capital and management expertise6Edge in recruiting1Little independence, loss of efficiency2Lifespan entirely dependent on hospital3Compensation negotiations stressful4If not employed through subsidiary, income from ancillaries may be at riska Includes physician-hospital organizations, managed service organizations, leasing, gainsharing, medical directors, part-time employment, etc. Open table in a new tab From a health care system point of view, integration is difficult, time consuming, and expensive, prompting the question: Why do hospitals want integration? Physicians tend to think it is all about control, but the reasons are complex and many. First, is the prospect of a piece-by-piece loss of profitable revenue streams such as to freestanding ambulatory surgery, endoscopy, and imaging centers. Outpatient surgical volumes have grown at an annual compounded growth rate of >6%, whereas hospital outpatient growth is flat.1The Advisory Board CompanyPhysician hospital alignment.http://www.advisory.com/members/default.asp?contentID=74287&collectionID=763&program=2&filename=74287.xml&srch=1#3Google Scholar Vascular surgeons are a particular worry for hospitals. The chronic disease market is vital for long-term growth of hospital margins. The prime reasons for hospitals employing cardiovascular specialists are securing volumes, incentivizing them to meet quality and cost goals, prevent them from partnering with competitors, and to minimize the impact of anti-kickback and Stark laws.1The Advisory Board CompanyPhysician hospital alignment.http://www.advisory.com/members/default.asp?contentID=74287&collectionID=763&program=2&filename=74287.xml&srch=1#3Google Scholar The average hospital net revenue per full-time employee physician is $1.5 million for all specialists and >$2 million for vascular surgeons.1The Advisory Board CompanyPhysician hospital alignment.http://www.advisory.com/members/default.asp?contentID=74287&collectionID=763&program=2&filename=74287.xml&srch=1#3Google Scholar, 5Merritt, Hawkins & Associates2007 Physician in-patient and out-patient revenue survey.http://www.merritthawkins.com/pdf/2007_Physician_Inpatient_Outpatient_Revenue_Survey.pdfGoogle Scholar Second, in an era of increasing competition, the hospital is responding to pressures from payers, consumer organizations, and the government to have a seamless, continuous, quality-conscious system and is therefore looking for increasing efficiencies: operational, clinical, and strategic as well as advantages in innovation and expansion of its mission.6The Bard Group LLCThe new face of health system integration.July 25, 2007Google Scholar Then, hospitals look to the future and see a shortage of surgeons. Population and workload analysis suggests a shortage of between 330 and 399 vascular surgeons by 2030 if no changes are made in the current training paradigm.7Satiani B. Williams T.E. Go M.R. Predicted shortage of vascular surgeons in the United States: population and workload analysis.J Vasc Surg. 2009; 50: 946-952Abstract Full Text Full Text PDF PubMed Scopus (56) Google Scholar Hospitals have many reasons not to get back into the employer role like they did in the 1980s and early 1990s. Although they no longer pay for goodwill, practice acquisition costs, including salaries and benefits, are considerable. Some practices have not kept up with technologic advances, and capital has to be invested into making their offices and electronic medical records compatible with the health care system. However, as mentioned, the hospitals also understand the significant revenues generated by surgical specialties. The benefit of hospital employment is primarily driven by economics. Reimbursements are trending downward, overhead expenses keep rising, practices are unable to compete with deep-pocket hospitals for new recruits, and the regulatory environment seems to become more complex. Coupled with insufficient capital for major technologic upgrades and an increasing lack of interest in running the business, physicians are looking for security of income. Younger physicians want to work fewer hours for predictable compensation. There is also unhappiness over the inefficiencies and unresponsiveness of hospitals, however. Press Ganey surveyed 27,000 physicians at >300 hospitals in 2007 and reported some valuable perspectives.8Press GaneyHospital check-up report, 2007.http://www.pressganey.com/galleries/default-file/Press6_Checkup-Physician_072308.pdfGoogle Scholar The number one issue for physicians was how the administration responded to their ideas, needs, and concerns. Surgeons were the least satisfied of all specialties: on a scale of 0 to 100, with vascular surgeons scoring 67.5, compared with 70.5 for all other surgeons, 73 for other medical specialists, and 75.2 for employed physicians. Older surgeons who are used to their clinical and operational autonomy will be resistant to being answerable to a hospital administrator. Also, other than the physician enterprise model to be discussed later, because employment contracts are most often year to year, if hospitals decide to let physicians go, they have to start all over again, with their patients now belonging to the hospital and being restricted by legal covenants. The models to be discussed all share some degree of integration ranging from low or minimal to full or total integration (Fig). The mainstay of the physician-hospital relationship for decades has been the voluntary or independent medical staff model, which involves no integration of the physicians and hospitals. In this model, the hospitals provide technology and support that affords the physician an opportunity to perform procedures and other services that they could not otherwise provide through their own offices or clinics. In return, as part of the medical staff compact, the physicians develop loyalty to “their” hospital by voluntarily serving on hospital committees, providing on-call coverage to the emergency department, referring their patients to the facility for care, and teaching at hospitals with training programs. Physicians maintain their autonomy and independence, and the hospitals must essentially compete for referrals and admissions. Such independence, however, comes at a cost. This model does not allow any direct financial support from the hospital at a time when physician income has not kept pace with inflation. The physicians have very little input into the operation of the hospital and policy decisions. The hospital may decide to hire its own physicians and set them in direct competition with the voluntary staff, especially if there are conflicts between administration and the physicians. The hospitals hope that the reputation of their physicians is of such magnitude in the community to drive other referrals to their facility.9The Advisory BoardBest of optimizing integration: models for physician affiliation.in: Marketing and Planning Leadership Council, Washington, DCSept 1, 2005: 1-19Google Scholar, 10Casalino L. November E. Berenson R. Pham H. Hospital–physician relations: two tracks and the decline of the voluntary medical staff model.Health Affairs. 2008; 27: 1305-1314Crossref Scopus (39) Google Scholar From a hospital perspective, this model may have the unfortunate result of creating an oversupply or undersupply of some specialties, which affects referral patterns and hospital revenue but has no effect on the physicians. Furthermore, this model does not incentivize physicians in assisting the hospital in achieving key operational targets related to costs, quality, efficiencies, and patient satisfaction.9The Advisory BoardBest of optimizing integration: models for physician affiliation.in: Marketing and Planning Leadership Council, Washington, DCSept 1, 2005: 1-19Google Scholar Hospitals must continually develop programs and policies to engender physician loyalty to their hospitals, and inadvertent adversarial behavioral practices can slowly erode physician support, impel the independent physician to autonomous outpatient centers or ambulatory surgery centers (ASCs), or result in migration to other facilities. In addition, independent physicians are increasingly resentful that reimbursement for the technical portion of a service to the facility for the patients that they refer far exceeds the professional reimbursement to the physician. Although this paradigm is waning, it remains the primary model being practiced.9The Advisory BoardBest of optimizing integration: models for physician affiliation.in: Marketing and Planning Leadership Council, Washington, DCSept 1, 2005: 1-19Google Scholar This is one of the most common arrangements, in which a usually independent physician agrees to provide part-time administrative services to a section such as the vascular laboratory for a set fee. The fee may be negotiated based on national surveys published by the Medical Group Management Association. A step further is when a physician or group of physicians agrees to manage a department or section of the hospital for a fee. A rural hospital, for example, may arrange to compensate an independent vascular surgeon a fixed amount to interpret noninvasive images and then collect global fees. The reverse, when a physician group engages the hospital to do the same, such a professional billing, is less common. In the 1990s the medical landscape was significantly affected by the advent of capitation and managed care.10Casalino L. November E. Berenson R. Pham H. Hospital–physician relations: two tracks and the decline of the voluntary medical staff model.Health Affairs. 2008; 27: 1305-1314Crossref Scopus (39) Google Scholar In his book The Social Transformation of American Medicine, Paul Starr suggests that it was Richard Nixon who gave impetus to managed care with the passage of the Health Maintenance Organization Act of 1973, making health maintenance organizations (HMO) the first form of managed care.11Starr P. The social transformation of American medicine.in: Basic Books Inc, New York1982: 394Google Scholar, 12Pham H.H. Ginsburg P.B. Unhealthy trends: the future of physician services.Health Affairs. 2007; 26: 1586-1598Crossref Scopus (32) Google Scholar Capitation is a method of fixed payment to a physician or hospital per plan enrollee for specified care. Managed care was intended to reduce the costs of medical care while improving the quality of care delivered.13Managed Health CareCanadian Union of Public Employees.http://cupe.ca/s497e086ff06d8/BE4667Date: Aug 31, 2000Google Scholar Although physicians and hospitals in this country were widely exposed to these new concepts, lasting penetration was variable, with California, Oregon, and Minnesota being regions where managed care thrived.14Findlay S. Can capitation save the world?—capitated payment systems—includes related information Business and Health.http://findarticles.com/p/articles/mi_m0903/is_n6_v14/ai_18398813/Date: June 1996Google Scholar Groups of PCPs contracted to manage the risk of these new managed care contracts were designated gatekeepers. Anticipating that the managed care model of capitation with PCPs as the gatekeepers would become the dominant model for health care, the hospitals began to purchase primary care practices and hire the physicians, at great expense, as a primary strategy to procure an adequate number of covered lives.10Casalino L. November E. Berenson R. Pham H. Hospital–physician relations: two tracks and the decline of the voluntary medical staff model.Health Affairs. 2008; 27: 1305-1314Crossref Scopus (39) Google Scholar Unfortunately, even though multiple managed care models were developed, few survived due to several reasons:First, there was a common perception that the for-profit companies that developed many of the managed care plans were more interested in profits than providing quality health care.Second, many consumer advocacy groups contended that patients were being denied medical care for the sake of limiting costs, and new standards for managed care were enacted that drove the costs even higher.13Managed Health CareCanadian Union of Public Employees.http://cupe.ca/s497e086ff06d8/BE4667Date: Aug 31, 2000Google Scholar Although managed care products remain plentiful, capitation as the preferred model of reimbursement has waned. Specialists, in particular, began to again embrace fee-for-service payment,12Pham H.H. Ginsburg P.B. Unhealthy trends: the future of physician services.Health Affairs. 2007; 26: 1586-1598Crossref Scopus (32) Google Scholar and hospitals began to divest themselves of their employed primary care practices in an attempt to minimize further financial losses.10Casalino L. November E. Berenson R. Pham H. Hospital–physician relations: two tracks and the decline of the voluntary medical staff model.Health Affairs. 2008; 27: 1305-1314Crossref Scopus (39) Google Scholar There are many physician practice models with this level of integration. The physician gains access to new patients, generates more revenue, and has access to hospital expertise and support services while retaining some degree of independence. These models may not be as profitable as other models that will be discussed later, and there usually are no compensation guarantees. The physician-hospital organization (PHO) arose for the purpose of jointly contracting with managed care organizations. Although no revenue is generated or assets are owned, the PHO is a conduit for the distribution of funds from managed care products to the physicians and hospitals.9The Advisory BoardBest of optimizing integration: models for physician affiliation.in: Marketing and Planning Leadership Council, Washington, DCSept 1, 2005: 1-19Google Scholar Costs are shared in this partnership, and administrative, management, and marketing resources are provided.9The Advisory BoardBest of optimizing integration: models for physician affiliation.in: Marketing and Planning Leadership Council, Washington, DCSept 1, 2005: 1-19Google Scholar There has been a slow but steady decrease in this practice model since 1999 due to high startup costs, legal complexities, and failure to achieve increased physician reimbursement.9The Advisory BoardBest of optimizing integration: models for physician affiliation.in: Marketing and Planning Leadership Council, Washington, DCSept 1, 2005: 1-19Google Scholar A newer form of PHO has arisen based on pay-for-performance incentives for the delivery of quality care.15The Advisory BoardPhysician incentives to improve clinical and operational efficiency.http://www.advisory.com/members/default.asp?contentID=71381&collectionID=682&program=11&filename=71381_50_11_12-21-2007_0.pdf&srch=1Google Scholar Physician reimbursement is tied to key quality indicators of care, and these improvements in quality may lead to increased contracts with other payers. The managed service organization (MSO) is another form of integration that is owned by the hospital but provides practice management services to the physicians. The MSO provides access to accounting, billing, coding, legal advice, collections, and payroll resources.1The Advisory Board CompanyPhysician hospital alignment.http://www.advisory.com/members/default.asp?contentID=74287&collectionID=763&program=2&filename=74287.xml&srch=1#3Google Scholar The physicians are still afforded their independence and control of their medical practices. The anticipated cost reduction through economy of scale was not realized because practice costs continued to rise due to higher billing and coding compliance standards and added hospital administrative bureaucracy. For this reason, the MSO has also fallen into disfavor. However, a revenue-oriented MSO has more recently been developed to improve revenue through pricing, volume, and service mixture at the same time containing other costs. This model has led to an increase in physician alignment with some health systems, resulting in a substantial increase in patient market share. When integrated delivery systems were first formed, practice acquisition, PHOs, and MSOs were common vehicles, but they did little to enhance a lasting relationship. In summary, these vehicles failed to fulfill their potential because the main driver was to create a structure rather than to develop objectives or the desired outcome of integration.16Green T. New strategies required to improve hospital-physician alignment.Health Care Strategic Manage. 2003; 21: 15-17PubMed Google Scholar Independent contractor relationships involve an agreement between hospitals and physicians or groups where the latter provide services on behalf of the hospital. A number of leasing arrangements between physicians and hospitals have been developed to improve the relationship and at the same time provide an enhancement of the physician's income. Space, equipment, and personnel are usually involved in the leasing arrangement. When physicians lease these assets from the hospital, the hospital benefits by having a fixed lease income. The physician must maintain the space or equipment and also does the billing. In return, the physician now receives the technical share of the reimbursement, which can lead to a considerable increase in income.1The Advisory Board CompanyPhysician hospital alignment.http://www.advisory.com/members/default.asp?contentID=74287&collectionID=763&program=2&filename=74287.xml&srch=1#3Google Scholar Hospitals may also lease from the physicians as in an ancillary lease in which the hospital leases ancillary equipment from a physician-owned leasing company. This avoids the need for the hospital to actually buy the expensive equipment. The physicians can still get the technical fee, but such relationships are drawing increasing scrutiny from government regulators. To try to negate this risk, hospitals are encouraging physicians to agree to the lease payment for use of the equipment only, allowing the hospital to keep the technical fee. Equity joint ventures allow for increased integration between physicians and hospitals whereby the parties enter into a financial partnership, usually by forming a limited liability corporation. The joint venture is not limited in scope and may range from an outpatient imaging or dialysis access center to an entire hospital. The physicians share equally in costs, revenue, and governance. “Of all the models, equity joint ventures offer physicians the greatest autonomy, but they can create conflict between hospital and physician groups or potentially lead to a domino effect where all procedural specialists want their own similar ventures.”17Pizzo J.J. Redd L. Hospital-physician joint ventures: maximizing the potential.Healthc Financ Manage. 2006; 60 (Accessed Oct 12, 2009): 80-84http://www.allbusiness.com/health-care-social-assistance/3964708-1.htmlPubMed Google Scholar Physicians have a substantial capital contribution at the onset, and if the venture fails, all investment could be lost. Because a joint venture is a legal entity, there are high startup and legal costs. Stark and anti-kickback laws must not be violated. Other types of joint ventures include leasing arrangements, purchased services agreements, contracting outpatient services for clinical comanagement services, and gainsharing. Physician interest in joint ventures has faded recently due to reduced Medicare reimbursement in ASCs primarily due to hospital lobbying efforts, volume losses from economic hardship, and significant pressure on reimbursement for imaging technologies. In the gainsharing model, physicians and hospitals target cost reductions by providing physicians with financial incentives to reduce costs. “Under gainsharing agreements, physicians and hospital administrators craft product usage protocols with the aim of reducing costs while maintaining high clinical quality. The cost savings are shared between physicians and hospitals based on a predetermined formula.”1The Advisory Board CompanyPhysician hospital alignment.http://www.advisory.com/members/default.asp?contentID=74287&collectionID=763&program=2&filename=74287.xml&srch=1#3Google Scholar Because they feared that physicians would forego quality care by using cheaper, substandard products, the Office of the Inspector General (OIG) determined that such arrangements were illegal. Newer gainsharing models have since been developed following several more OIG Advisory Opinions in 2005 and 2007, as long as they maintain quality care and patient satisfaction.18Vesely R. Return of the incentives.Mod Healthc. 2007; 37: 30-31Google Scholar, 19Jain S. Roble D. Gainsharing in health care: meeting the quality of care challenge.Healthc Financ Manage. 2008; 62 (Accessed Oct 12, 2009): 72-78http://findarticles.com/p/articles/mi_m3257/is_3_62/ai_n24925932/PubMed Google Scholar Significant investment in information systems is required along with added legal and consulting expenses. In lieu of the usual tax exempt bonds, these higher-interest bonds are issued to finance joint ventures, but they are not sold to the general public and have no public market and therefore carry more risk. In addition, specialists like vascular surgeons may seek higher returns in outpatient centers or ASCs where they do not share revenues with hospitals. The clinic or foundation model provides an opportunity for physicians and hospitals to be fully integrated. The Cleveland and Mayo Clinics best represent this model. The physicians are employed by a foundation, which is a not-for-profit, wholly owned subsidiary of the health system. The physicians remain in a separate corporate entity that provides them all of their compensation through a professional service agreement. The start-up costs to the health system are quite substantial as they procure practices, including both tangible and intangible assets, and hire new gradu