HOSPITAL SYSTEMS

SURVEY

At Sanford Health, a 44-hospital system, administrators recruit about 100 physicians per year to ensure medical care remains viable in its most rural communities, some of which have only one physician or advanced practice provider, said JoAnn Kunkel, chief financial officer of the Sioux Falls, S.D.based health system. Like Erlanger, Sanford said hiring more physicians last year improved the system’s financial performance. That’s because paying fill-in physicians is “incredibly expensive” and patients prefer the consistency of physicians who stay in their communities, she said.

“Hiring physicians is really important to the success of having patient access,” Kunkel said. “Employing them is the best way we can provide that access to our patients.”

Expenses also not always apparent

The physician-related expenses that health systems incur extend well beyond the direct cost of employment alone. Hospitals increasingly add administrative pay to physicians’ salaries, for example if they also serve as medical directors, said Jeff Goldsmith, national adviser for the consulting firm Navigant.

Hospitals also contract with independent physicians to cover their emergency departments and intensive-care units, as well as pay doctors for being on call.

“The losses on employed physician groups are only a piece of the total physician outlay a hospital has,” Goldsmith said. “The problem is all of those costs are rising as fast or faster than any other cost the hospital incurs. It’s not just physician employment, it’s the sum total of subsidies to physicians.”

In some markets, hospitals pay doctors to serve as medical directors and to work on-call shifts in order to secure their loyalty and encourage them to direct patients back to the facility, Goldsmith said. In certain cases, he said physicians view hospitals “as a cash register,” and take advantage of such payments.

“It’s one of the most difficult issues in managing the hospital—finding the appropriate balance between what a hospital needs and what its physician community wants,” he said.

Intermountain Healthcare, a 21-hospital system based in Salt Lake City that also is hiring docs, monitors its employed physicians’ financial performance more holistically—with respect to the health system overall, including its health plan, said Clay Ashdown, the system’s vice president of financial strategy, growth and development.

“Although it’s something we’re very mindful of, it’s not something we look at in a vacuum to say, ‘All right, this practice is performing at such-and-such a rate,’ ” he said. “It’s a data point, but ultimately we look at, ‘What do we need to provide services in our community?’ ”

In some parts of the South and Midwest, retiring physicians aren’t being replaced, and if there are no doctors, there are no hospitals, Goldsmith said. In those situations, hiring or partnering with new doctors is not optional for health systems, he said.

“Unless the hospitals subsidize the physicians to replace those older docs, the hospitals are toast,” he said.

At Sanford, attracting people to some of the rural areas the system serves has been especially challenging, Kunkel said. “We have beautiful communities, but you’re not going to be living in downtown Chicago,” she said.

Putting docs in charge

The MGMA’s Hertz said a health system asked him more than 10 years ago for advice on how to strengthen its physician group. He recommended it put a physician on its board, a practice that—while commonplace today—was relatively rare at the time.

“The hospital CEO pulled me aside and said, ‘Ken, my father was a hospital administrator and his father before him was a hospital administrator,’” he recalled. “‘None of them had a physician on the hospital board, and I am not going to put a physician on the board. It just will not happen.’”

Things have changed significantly since then. These days, Hertz has a simple but imperative recommendation for health systems to ensure successful physician employment: Replicate their private practice experience. In those settings, physicians have skin in the game; the success or failure of the practice matters to them.

“In a lot of the unsuccessful employment models, the physician or physicians are brought on, they’re left out of the decision-making process, they’re left out of the opportunity to create their future,” Hertz said.

Under a successful model, systems give physicians governance and administrative duties and let them shape the organization’s future, he said.

At Vidant Health, which is cautiously dipping its toes into some risk-based payment models, it’s especially important to involve physicians in payment reform, as they’re the ones seeing the patients, Hepp said.

“Otherwise, they feel like it’s getting done to them and they resist more,” he said, “and appropriately so, because if you were going to change my world, I’d like to be involved in

● the discussion, at least.”