The American Medical Association estimates a third of physicians either work directly for a hospital or in practices with partial hospital ownership. This 2014 estimate is up from the 2012 approximation of 29%.1 The significant trend towards physician and hospital integration is attributable to:
• Physicians wanting to avoid the rigors of building and managing a medical practice.
• Effective hospital strategies targeting share growth.
• Hospitals filling physician specialty gaps.
• Evolving market demand.
• Non-market dynamics.
A community’s current and projected future demand for physician services should underpin a hospital’s employment and acquisition strategy. This demand emanates from changing population demographics, shifts in disease state prevalence, and even innovative care modalities. Non-market dynamic examples include federal government legislation (PPACA) rewarding alignment of physician and hospital objectives that improve quality, cost and population health. It also encompasses such third-party reimbursement systems as bundled payments that emphasize cost containment and provider financial risk sharing.
Hospitals with a proactive physician employment, acquisition and integration plan (“plan”) are more likely to achieve their strategic objectives than those forced into reacting to rival initiatives. This is because a good plan defines the organization’s aspirations and the services it’s trying to build. This also clarifies and promotes the most highly valued attributes of physician partners. An intentional organization strategy is more likely to attain first-mover benefits. Employing the right physicians for the right reasons creates a sustainable competitive advantage. Most importantly, a well-designed and executed plan delivers better value to both patients and purchasers than does random physician employment and medical practice acquisition transactions.
A proactive plan should establish criteria for employing a particular physician or medical group. The criteria should align with the hospital’s overall strategic initiatives and related objectives that consider both market demand and non-market dynamics. To illustrate, an initiative to become the dominant accountable care organization (ACO) would emphasize acquiring primary care practices with high numbers of Medicare patients.
A successful plan anticipates changes in the supply of physicians serving the hospital, new providers entering practice and the number leaving the community for retirement. This is essential for physician recruitment activities given the predicted severe physician shortages in certain specialties.
The majority of acquisitions (68% in 2014) are initiated by physicians according to a Jackson Healthcare 2015 Report on Physician Practice Acquisitions.2 Hospital executives concur with this finding which is also confirmed by prior research studies. “In 2012, 70% percent of acquisitions were initiated by physicians. And in 2013, 60% of acquisitions were physician-initiated.”3 This supports the idea that hospitals react to a given opportunity rather than seek optimal targets for acquisition or employment.
When a medical practice becomes available for acquisition, hospitals may feel compelled to act; i.e., they acquire a practice for fear of losing non-employed medical staff to competing hospitals. This loss could both detrimentally impact existing admission patterns to the hospital and referrals to its currently employed physician group.
Factors hospitals should generally consider in assessing a physician’s organizational fit for employment or acquisition fall into clinical and non-clinical categories.
• Clinical aspects include such areas as: overall training; experience as indicated by numbers of procedures or patients treated by diagnoses; history of achieving acceptable outcomes and willingness to adopt best practices. Clinical considerations should also embrace the requirements to effectively manage patient populations. Consequently, physicians that expand capabilities to manage chronic diseases, and provide better patient access across the entire continuum of care are characteristics that enhance a hospital’s market position.
• Non-clinical aspects encompass: historical patient satisfaction levels (Hospital Consumer Assessment of Healthcare Providers and Systems [HCAHPS] survey results); interest in building a practice; interest in collaborating with hospital executives to elevate quality, and exceed operating and financial objectives, and demonstrated leadership qualities for championing hospital initiatives.
A typical base objective for a hospital’s acquisition and integration plan is building primary care capabilities. Jackson Healthcare indicates the majority of acquisition deals focus on general, internal medicine and family medicine practices4 . Growing primary care capabilities is sound given the axioms these physicians are the referral source for feeding specialists patients. Demand for primary care services will also continue growing under federal and state government healthcare reform initiatives
More so today than historically, hospitals can identify primary care physicians who fit a particular screening profile; i.e., primary care physician referral and practice patterns, and hospital affiliations is becoming increasingly transparent.
• Large consulting firms and business intelligence companies are acquiring Medicare public use and insurance company billing information. This data mining is incorporated into technology solutions for hospital analysis.
• Insights into primary care physician patient profiles and medication prescribing patterns are ascertainable through the acquisition of prescription level data. An example use of this data is estimating a practice’s proportion of patients at higher risk for cardiac disease or behavioral health issues.
For hospitals expanding services into a new geography, it is essential to garner as much primary care physician support as possible. Therefore in such situations practitioner location is an important plan screening variable. It also makes more sense to target and acquire larger than smaller medical groups to increase patient volume and expedite market share development.
Beyond the aforementioned physician specific organization fit considerations for employment or acquisition, variables associated with plan executional success are important. Accordingly, hospitals should undertake activities like examining existing referral patterns and opportunities for building new referral relationships. This is an underemphasized analysis.
Changing existing referral patterns is difficult. It is too common that a hospital recruits a subspecialist such as an interventional neuro radiologist that subsequently cannot build a practice because existing referral patterns and peer loyalties defeat the practitioner’s efforts. Conversely, examples of successfully executed plans are community children’s hospitals that recruit away from academic medical centers hard-to-find pediatric subspecialists such as neurosurgeons and open heart surgeons. Hiring the pediatric subspecialists with great reputations and fully developed referral sources quickly makes any community hospital successfully competitive locally and even regionally. This type of strategy significantly enhances a facility’s brand image and medical prestige.
