Hospital leaders need to take a second look at hiring doctors.
American medicine is undergoing a profound revolution. As much as those who are running hospitals may feel buffeted by turbulent seas, the storm pales in comparison with what is confronting practicing physicians. The bad news is that the wind is rising. The force of the wind is being ratcheted up by several factors, most notably demographics.
An aging population is increasing demand for physicians in all specialties. By 2020, the shortage of physicians is projected to be 100,000 to 200,000. Shortages are expected to be most significant in cardiology, oncology, obstetrics, pulmonology and anesthesiology. Overall demand for surgery is projected to increase nearly 50 percent by 2020.
A Shift in Attitude
The physicians who complete training programs over the next decade will bring a fundamentally different attitude to medicine than did their predecessors. Eighty percent of them are looking for employment. They are not interested in starting their own practices or joining a small existing practice.
Even among older physicians with established practices, attitudes are shifting. The costs of private practice, financial and psychic, increasingly outweigh the benefits. For them, too, employment begins to sound like an attractive option.
Today, a growing number of hospital CEOs are finding themselves confronted with a tough choice when one or more of their cardiothoracic surgeons knocks on the door and asks for a job. Most CEOs have little interest in assuming a complex leadership challenge that includes a new cadre of highly paid employees. Yet given the contribution margin of cardiac procedures, it’s a difficult offer to refuse.
The pressures facing physicians are not purely demographic, of course. Regulatory and managed care compliance has real costs in both physician time and staffing expenses. And in every specialty, technology has an impact. The effect of drug-eluting stents on cardiothoracic surgery provides one of the most dramatic examples, but every physician practice faces rising expenses, such as instituting an EHR.
A Second Look at Employment
All of this points to the end of what has been described by many as America’s last cottage industry. To use the nomenclature of economics, the practice of medicine in America is beginning to consolidate—and rapidly. There’s plenty of room for consolidation. Today, 65 percent of physicians are still self-employed; of these, 37 percent are in solo practice, while 65 percent are in small groups. What makes this consolidation unique is that it is occurring in an environment of short supply. In most industries, consolidation is typically triggered by oversupply.
Consolidation of medical practice begs a question, “Who is going to do the consolidation?” For the most part, hospitals. The reason for this is twofold. First, hospitals have the financial resources. I’m not suggesting they have money to burn; quite the opposite. But when you survey the providers, hospitals remain on the best financial footing. Second, hospitals have the motivation. They can’t afford to leave the evolution of medical practice to chance or to their competitors. Hospitals are employing more physicians. And they’ll be employing more in the future. A lot more.
Some veterans in the executive ranks of hospitals and health systems may feel a sense of déjà vu. They’ll quickly point out that there was a rush to employ physicians in the late ’80s and early ’90s. And many of those veterans will also quickly declare that the strategy “didn’t work.” But this wave of physician employment, already at full flow in some markets, is different. The first wave focused almost exclusively on primary care physicians. Today, while employment of primary care physicians has picked up again, there has been a fundamental shift toward employing specialists and subspecialists.
Furthermore, the perfunctory declaration that the first wave “didn’t work” is dubious. It is true that some hospitals invested millions to purchase practices and then proceeded to lose millions on running them. To stem their losses, they then divested the practices. Unfortunately, the result was too often millions of dollars invested in alienating their primary care referral base.
But other hospitals and health systems were more resolute. They weathered the losses and kept their physician practices, usually augmenting the primary care physicians with specialists and subspecialists as time went on. They refused to snatch defeat from the jaws of victory. Today, some of these organizations employ upward of 500 physicians in a variety of specialties. For respected systems like Aurora in Wisconsin, Advocate in Illinois and Sentara in Virginia, physician employment and group practice infrastructure supporting that employment was a cornerstone strategy.
For other hospitals and health systems, physician employment and group practice formation has not been an intentional strategy, yet they find themselves employing growing numbers of physicians. This has often occurred in an ad hoc and undisciplined way. There may have been a few primary care physicians already employed. Specialists may have sought and received employment. Physicians may have been recruited to cover key specialties in the ED. A team of hospitalists may have been hired. Many hospital-based physicians, including radiologists and pathologists, are already in exclusive or semi-exclusive contract relationships with the hospital. And then there’s often a variety of quasi-employment agreements for things like medical directorship.
Despite significant hand wringing over the question of whether to start a group practice, the reality is that a growing number of hospitals already employ a number of physicians in a variety of specialties. The problem is that the approach they’ve taken to employment has too often been ad hoc, unintentional and undisciplined.
The challenge in the future will be to move from employing physicians out of necessity toward creating a physician enterprise that constitutes a fundamental strategic asset. While any such enterprise will have a group practice at its core, it will be more than that. It will be the locus for physician involvement in a comprehensive system of health care delivery that includes not only inpatient care but also ambulatory care delivered through physician practices as well as in a variety of market responsive outpatient delivery sites, such as surgery and imaging centers.
While it is not reasonable or desirable that all physicians will be employed by such a physician enterprise, it will be advantageous for hospitals and health systems to house and orchestrate all relationships with physicians there, including practice support for independent physicians, information technology and joint ventures. The infrastructure of the group practice at the core of the physician enterprise can underpin high-value capabilities that serve independent as well as employed physicians.
The Slacker Myth
There is a largely unchallenged assumption relating to employed physicians today suggesting that when they become employees, their work ethic goes up in smoke. It may be true that physicians who work for salaries in group practices or other employment situations don’t work as long hours as do their colleagues in independent practice. But then it shouldn’t be surprising that physicians recruited with the promise of shorter hours and occasional vacations take advantage of both.
There is also an interesting double standard that seems to come into play here. Salaried physicians are viewed as potential slackers, but the rest of the hospital’s salaried staff, including the executive team, are somehow able to generate acceptable levels of productivity.
It is a tenuous argument to assert that becoming an employee automatically converts you to a slacker. Where does such an argument leave not only hospitals but also thousands of companies filled with motivated and productive employees? And where does it leave organizations like Mayo Clinic, Cleveland Clinic and Johns Hopkins, all built on employment models? It is true that many Mayo Clinic employees shut down at the end of the day, but is this evidence of low motivation and productivity or is it a sign of efficiency and good management?
In structuring a physician enterprise, it will be important to avoid building an overwhelming and monolithic bureaucracy that robs physicians of the ability to be responsive at the point of care. The most productive model is likely to be built of multiple subgroups of four to 12 physicians organized around specialties or geographies. These will then be held together by shared infrastructure, shared standards and in most cases, a well-cultivated, shared brand identity.
One of the biggest mistakes I see health systems making when it comes to the formation of a physician enterprise is assuming they can just flip a switch and start one up. You can’t. There is a significant learning curve associated with a productive multispecialty group practice.
The health systems that now operate such organizations have a couple decades of experience under their belts. Not only have these organizations built solid infrastructures, they’ve cultivated sustainable cultures that value physician leadership and systematize physician engagement. Admittedly, some of this they’ve done by making mistakes. But those mistakes are behind them, and now they have a significant strategic advantage as growing numbers of physicians come looking for a home.
The key for hospitals just now building their physician enterprises will be to learn from others while recognizing that success will take enormous amounts of time, patience and leadership. The time to start is now. Catching up may not be an option.
Dan Beckham is president of The Beckham Company, a strategic consulting firm based in Bluffton, S.C. He is also a regular contributor to H&HN OnLine.
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