Physician Relations 2020

I recall in the early 1990s while serving as a hospital CEO within a large regional non-profit system in Louisville, Kentucky, we developed and implemented a strategic initiative to acquire physician practices. This initiative was part of our overall plan to create an integrated delivery system, the “latest and greatest” at the time that was initially adopted and pursued in California. The idea behind the integrated delivery system model was the establishment of a healthcare delivery system capable of providing “cradle to grave” services to an employer under a capitation reimbursement scheme. This approach could bypass traditional payers who for obvious reasons were not supportive of the concept and thwarted its development. During this period, physician relations remained a top priority for hospital administrators who engaged in the acquisition of physician practices not only for the development of integrated delivery systems but to align with physicians, in particular, primary care. Hospitals needed to ensure admissions were maintained and growing and this depended on the relationships established with primary care physicians responsible for inpatient admissions. Hospitals continue to rely on physicians to admit patients, refer to specialists on the medical staff, and utilize available diagnostic services. The physician practice acquisition period of time in the early 1990s exclusively involved primary care.

 

Today, the industry is experiencing a feverish pace of physician practice acquisitions by hospitals and healthcare systems but different from the early 1990s, today they primarily involve specialists. As in the 1990s, physician practice acquisitions were considered in preparation for anticipated changes in reimbursement. Today, reimbursement could be a primary driver for the aggressive acquisition posture adapted by hospitals. What hospital CEO wishes to negotiate with orthopedic surgeons on the distribution of global payments for a total hip replacement? This would be extremely difficult at best and clearly elevate “Physician-hospital relations” to a number 1 position of concern for hospital CEOs. Financially, if a hospital enjoys a top-market position and is the industry leader in orthopedics, acquiring an orthopedic group makes financial and marketing sense. This was not an option to consider in the 1990s.

 

Is there a correlation between physician relations and the degree of physician employment? Do relations improve when physicians are employed? Future study of this question would be needed to establish any relationship. In the meantime, the dynamic of this organizational structure will continue to be tested and draw attention as physician employment can be a costly financial venture. Industry experts estimate that the cost of physician employment could be 10% of a hospital budget and has become one of the fastest growing expense line items in the budget. The employment of physicians was successful in creating a new revenue stream based on the billable services they can provide. Physician productivity must remain a priority with physicians and management collaborating in an effort to maximize physician revenue. Hospital leadership must take the lead under a different dynamic with physicians as employees. As an employee they are accountable to management and have a boss to answer to.

 

As a member of the Faculty in the FAU College of Business Executive Management Program, the history of physician relations from a CEO’s perspective represents an example of the subject matter featured and discussed in the Executive MHA Program. This highly sophisticated topic will not be found in textbooks and can only be explored by faculty with hands on experience in these specialized areas of executive management. Topics such as this lead by experienced industry experts are part of the rich and contemporary curriculum found in the FAU Executive MHA Program.