Keys to Successful Implementation of Physician Alignment Initiatives

In a session at the Becker's Hospital Review Annual Meeting in Chicago on May 17, Chuck Peck, MD, CEO of Health Inventures, discussed keys to successful implementation of physician alignment initiatives.


"A lot of this meeting is centered around, 'How do you work with doctors?'" Dr. Peck said. "Everybody here is looking for the holy grail -- how do you talk to a doctor and get them to do what you want them to do?" He noted that in the absence of proven models to promote physician-hospital partnership, hospitals are increasingly choosing hospital employment to align interests of providers and facility.

Why physician alignment is so critical
"We have a burning platform for action," said Dr. Peck. Healthcare reform has introduced new regulations and therefore new costs for hospitals and physicians. Governmental reimbursements continue to decline, and healthcare reform threatens to introduce thousands of new patients into the healthcare system by 2014. He said when people are uncertain about the future, they tend to make irrational decisions that do not work effectively in the long term.

Dr. Peck said many "high-end" specialties -- cardiology, neurology and others -- are choosing hospital employment as their reimbursement declines. He added that these specialists have been able to negotiate high salaries from hospitals, sometimes in 10-year contracts. He said these high salaries pose a problem for hospital employment in the future, as the worth of employed physicians declines and hospitals become less willing to pay out.

Employment vs. independence vs. collaboration
Dr. Peck compared hospital employment, independent practice and collaboration between physicians and the hospital. He pointed out that in an employed model, physicians must accept certain truths going in -- that the hospital will be a more controlled environment that grants less physician autonomy and installs policies that are not up for discussion. "I personally think [collaboration] is the only way we're going to get beyond where we are today," he said. "A lot of this can be trained. We assume things about doctors that aren't true."

Dr. Peck said he has a bias towards hospital-physician ASC joint ventures. In the 17 years Health Inventures has existed, he said he has seen the growth of 12-year relationships between hospitals and physicians, proving that a long-term relationship between the two parties is not infeasible.

Practical models for partnership

Joint venture/MSO
In this model, the physicians and the hospital form a relationship with capital and equity ownership of an MSO. Technology and IT is included in the MSO and can be funded through the HITECH act. In this partnership, the physicians and hospital are equally dependent on each other because of the presence of that technology and the joint ownership of the MSO. "The MSO is a way to start providing value to a lot of independent physicians in the community without employing them," Dr. Peck said. He said that a third party (such as an attorney, consultant or management company) is critical in this situation to repair mistrust between the hospital and physicians, which may go back decades.

Captive professional corporation
In this model, independent physicians come together to form a new medical group, and the hospital gives that group a loan to fund the venture. Dr. Peck said the problem in the past has been the transfer of those funds from the hospital to the physicians in a legal manner -- hence the automatic movement towards employment instead. But he said these other models, which are "equally legal," can lead to a better relationship in communities where hospital/physician partnerships have failed in the past. This model meets physician needs through autonomy and independence with a loose tie to the hospital.

Joint venture physician services organization
In this model, all parties -- physicians, hospital and business partner -- have equity ownership in the physician services organization. He said this model can help mitigate cultural issues within the hospital, such as the vast discrepancy between salaries of primary care physicians and surgical specialists. He said it can also be a great building block for ACO formation because it builds clinical integration and forces interdisciplinary skills together for clinical co-management.

Why culture matters
"I'll keep saying this until I'm dead," Dr. Peck said. "It's about the relationship, not about the deal." He outlined 10 rules for successful integration:

1. Know what you want and why.
The purpose and objective of the enterprise must be clear to all parties. Everyone must understand how the combined assets are greater than the sum of parts.
2. Over-communicate.
The best way to torpedo your physician enterprise is to fail to communicate, Dr. Peck said. "Nothing is trivial. Sometimes you need to go to the Mountain -- the hospital CEO, physician group leader or both."
3. Pee wee rules: "everyone plays." Harness the talent of every member and engage with as many physicians as possible. Give physicians the opportunity to think strategically and contribute their ideas.
4. Adhere to the "5 musts." You must: provide operationally competent services, be honest, be transparent, be factual and deliver results.
5. Maintain aligned incentives. Physicians want great patient care, career advancement and collaboration with other physicians; the hospital must understand those needs and fulfill them.
6. Get the basics right.
7. Standardization matters.
8. Understand the price of equity.
There is a difference between being collaborative and being collegial; the latter implies independent physicians working side-by-side rather than together. Collaboration is being bound by common mission, vision and business purpose, Dr. Peck said.
9. Culture trumps strategy every time. "You have to understand why doctors think and behave the way they do, and how that is different from how hospital leaders and administrators think and behave," Dr. Peck said. Physicians are more reactive, while administrators are more proactive; physicians enjoy immediate gratification, while administrators prefer delayed gratification.
10. "Those who fail to learn from history are doomed to repeat it." Any model can work, but it's about alignment and determining the best fit for the whole, he said.

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