Physi­cians seek em­ployed sta­tus to weather payment risks

Modern Healthcare - - NEWS - By Dave Barkholz

Dr. Theodore Strange and his 60 physi­cian col­leagues at the Univer­sity Physi­cians Group in New York City will soon be hos­pi­tal-em­ployed again. The prac­tice, launched in 1991 as part of Staten Is­land Univer­sity Hos­pi­tal in New York City, be­came in­de­pen­dent in 2002. But faced with the need to up­grade re­port­ing sys­tems, a short­age of cap­i­tal and an ag­ing lead­er­ship, the group will re­join the hos­pi­tal, now a part of North­well Health (for­merly North Shore-Long Is­land Jewish Health Sys­tem) on Aug. 1.

“We’ll have the fi­nan­cial cap­i­tal to stay state of the art,” said Strange, 57.

The group that Univer­sity Physi­cians is join­ing, North­well Health Physi­cian Part­ners, has more than 2,500 em­ployed physi­cians and is the sev­enth-largest physi­cian group prac­tice in the na­tion. It is a key part of the state’s largest health­care sys­tem with 21 hos­pi­tals and 450 out­pa­tient prac­tices.

Across the coun­try, physi­cian groups are go­ing through the same de­lib­er­ate ex­er­cises that led Strange and part­ners to cast their lot with a big­ger sys­tem.

They’re ask­ing them­selves: Do we have the money, in­for­ma­tion tech­nol­ogy and ac­cess to data to tran­si­tion from tra­di­tional fee-for-ser­vice to value-based re­im­burse­ment that asks physi­cians to take fi­nan­cial risks for patient care and puts a pre­mium on qual­ity?

Over the past sev­eral years, there’s been a steady increase of physi­cians choos­ing em­ploy­ment over in­de­pen­dence. They’re join­ing ei­ther hos­pi­tal sys­tems or gi­ant physi­cian-staffing com­pa­nies, such as Team Health of Knoxville, Tenn., and Am-Surg’s Sheri­dan sub­sidiary.

Ac­cord­ing to mem­ber sur­veys by the Med­i­cal Group Man­age­ment As­so­ci­a­tion, the share of physi­cians who worked di­rectly for a hos­pi­tal or in prac­tices at least par­tially owned by a hos­pi­tal rose from 29% in 2012 to 33% in 2014.

Of 84 re­spon­dents this year to Mod­ern Health­care’s hos­pi­tal sys­tems sur­vey, al­most all re­spon­dents added em­ployed physi­cians in 2015 with the to­tal physi­cian em­ploy­ment among re­spon­dents show­ing a 9.8% increase year over year.

Physi­cian prac­tices pur­chased by third-party staffing com­pa­nies in the first quar­ter nearly dou­bled to 21 groups com­pared with 13 in the year-ago quar­ter, said Michael Abrams, man­ag­ing part­ner of health­care man­age­ment con­sul­tancy Numerof & As­so­ci­ates.

The last time the in­dus­try saw such ac­tive physi­cian con­sol­i­da­tion was in the early 1990s, said Alan Badey, man­ag­ing part­ner and co-leader of the health­care prac­tice at Citrin Coop­er­man.

At that time, hos­pi­tals— in­vestor-owned and not-for-profit alike—bought physi­cian prac­tices an­tic­i­pat­ing a con­tin­u­a­tion of high re­im­burse­ment rates, Badey said.

For-profit con­sol­ida­tors, such as Nashville-based PhyCor, gob­bled up physi­cian prac­tices at a head-spin­ning rate.

But a se­ries of changes en­acted by Congress—the sus­tain­able growth-rate for­mula con­tained in the Bal­anced Bud­get Act of 1997; the shift from av­er­age whole­sale prices to av­er­age sales prices plus 6% for in-of­fice ad­min­is­tered drugs con­tained in the Medi­care Mod­ern­iza­tion Act of 2003— be­gan ratch­et­ing down physi­cian re­im­burse­ment.

More­over, hos­pi­tals dis­cov­ered that physi­cians who they had brought aboard at straight salaries weren’t nearly as pro­duc­tive as when they were en­tre­pre­neur­ial pro­fes­sion­als, Abrams said. What had once been a lu­cra­tive play be­came a money loser for hos­pi­tals and com­pa­nies such as PhyCor.

The lat­ter ended up in a spec­tac­u­lar de­scent into bank­ruptcy in 2002. Hos­pi­tals, in turn, re­turned many of their em­ployed physi­cians back to pri­vate prac­tice of­ten at a loss to the hos­pi­tals, Abrams said.

The year 2002 is when Strange’s prac­tice was spun out of Staten Is­land Univer­sity Hos­pi­tal.

Badey said this time is dif­fer­ent. Hos­pi­tals and the third-party physi­cian-staffing com­pa­nies are rolling up physi­cian prac­tices to deal with struc­tural changes in the in­dus­try re­quir­ing them to in­creas­ingly care for patient pop­u­la­tions at cap­i­tated rates or by episodes of care rather than fee-for-ser­vice.

Hav­ing those doc­tors avail­able in the com­mu­nity as ac­cess points for pa­tients is so crit­i­cal in the new val­ue­based re­im­burse­ment par­a­digm that hos­pi­tals are will­ing to lose money per em­ployed physi­cian—about $190,000 an­nu­ally on av­er­age when salary, bonuses, over­head and in­sur­ance ex­penses are sub­tracted from the rev­enue they pro­duce, said Dr. Halee Fis­cher-Wright, CEO of the MGMA.

In re­turn, the hos­pi­tals ex­pect those doc­tors to be in a po­si­tion to treat pa­tients in the right cost set­ting for their acu­ity and, hope­fully, those pa­tients will re­main in the sys­tem for spe­cialty care and di­ag­nos­tics that can cover the losses from the physi­cian prac­tice, she said.

Whether the tac­tic will work re­mains to be seen. The Stark law for­bids hos­pi­tals from com­pelling those physi­cians to refer within the sys­tem, Fis­cher-Wright said. North­well Health has nearly dou­bled its num­ber of em­ployed physi­cians since 2010, said Deb­o­rah Schiff, se­nior vice pres­i­dent of strat­egy and busi­ness de­vel­op­ment. It is 3,000 to­day vs. 1,600 in 2010. The sys­tem prefers to ab­sorb es­tab­lished prac­tices in the com­mu­nity rather than open them be­cause of the trust those physi­cians have earned with a broad base of pa­tients, Schiff said.

Long Is­land-based North­well is seek­ing to ex­pand into New York City and its suburbs with prac­tice ac­qui­si­tions that fill in ge­o­graphic gaps and pro­vide pri­mary-care and spe­cialty cov­er­age to make it con­ve­nient for pa­tients to be seen in their own com­mu­ni­ties, she said.

North­well isn’t stop­ping with the Univer­sity Physi­cians Group. The sys­tem also is fi­nal­iz­ing the ac­qui­si­tion of Westch­ester Health As­so­ci­ates, a prac­tice based in Katanoh, N.Y., that will pro­vide ad­di­tional cov­er­age north of the city and into Con­necti­cut, Schiff said.

Univer­sity Hos­pi­tals Health Sys­tem in Cleve­land has been on a sim­i­lar cam­paign. It has added five hos­pi­tals to the sys­tem in the past 30 months, cre­at­ing the need for more physi­cians to close gaps in ge­o­graphic cov­er­age, said Paul Tait, chief strate­gic plan­ning of­fi­cer.

The newly ac­quired hos­pi­tals in­clude Univer­sity Hos­pi­tals Elyria (Ohio) Med­i­cal Cen­ter and Univer­sity Hos­pi­tals Sa­mar­i­tan Med­i­cal Cen­ter, Ash­land, Ohio.

Tait said Univer­sity Hos­pi­tals added 278 em­ployed physi­cians in 2015. It ended the year with 1,356 em­ployed physi­cians, not in­clud­ing res­i­dents, ac­cord­ing to the sys­tem’s 2016 Mod­ern Health­care sur­vey.

Strange said that by stak­ing the long-term fu­ture of the Univer­sity Physi­cians Group to North­well Health, the group’s physi­cians can count on hav­ing the cap­i­tal and IT nec­es­sary to sur­vive and maybe flour­ish un­der new gov­ern­ment re­im­burse­ment mod­els in­sti­tuted by the Medi­care Ac­cess and CHIP Reau­tho­riza­tion Act that re­wards doc­tors for tak­ing care of pop­u­la­tions and im­prov­ing their qual­ity.

He said he ex­pects North­well will be able to use its size and lever­age with pri­vate in­sur­ers to ne­go­ti­ate rates that will ul­ti­mately pro­vide the physi­cians in the group with higher com­pen­sa­tion as em­ploy­ees than they made as part­ners in the in­de­pen­dent group.

His group even ne­go­ti­ated an out clause for physi­cians to leave the sys­tem with­out penal­ties if they don’t like the new setup as long as they re­turn to pri­vate prac­tice and not to a hos­pi­tal ri­val, he said.

“At the end of the day, this is a very fair deal for us,” Strange said.

GETTY IMAGES

The physi­cian em­ploy­ment surge The five sys­tems (among 84 re­spon­dents to Mod­ern Health­care's Hos­pi­tal Sys­tems Sur­vey) with the largest in­creases in em­ployed physi­cians last year.

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