Physician Employment & Beyond: The Current State of Physician Integration

Just a few years ago, 431-bed Northwest Community Hospital in Arlington Heights, Ill., was focused on nurturing independent physicians who could function at arm's length from the institution.

"We wanted high-energy physicians interested in entrepreneurship," says Bruce Crowther, who has been CEO of the hospital for 21 years. The goal was to have hardy practitioners who could handle reduced reimbursements by setting up their own ancillary businesses, such as office-based testing, to supplement their income.

But times have changed. When Medicare began reducing reimbursements for office-based procedures, Mr. Crowther sharply changed course and came up with a new physician relationship. Called "systemness," it involves working tightly together to prepare for accountable care organizations and other payment arrangements.

Many hospital executives like Mr. Crowther are seriously pursuing physician integration, hoping that working closely together to manage the entire continuum of a patient's care can produce savings. They are embracing a variety of strategies, such as employing physicians and acquiring group practices, creating co-management roles for physicians and giving them greater say in governance of the organization.

In today's fragmented delivery system, "there is tremendous value to hospitals working more collaboratively with physicians," Mr. Crowther says. "It’s through a system that a hospital and physicians can leverage their experience, knowledge and strengths to achieve a greater good."

Physician integration requires a profound cultural change for hospitals, says Allen Daugird, MD, a UNC Healthcare executive who is president of a new multispecialty practice for UNC's employed physicians, called Triangle Physician Network. "There will be a change from a fee-for-service culture that stresses volume of services to a new culture that stresses outcomes and quality," Dr. Daugird says.

Employing physicians

Hospitals are in full physician-hiring mode, and many physicians seem eager to accept. They are being driven to hospitals by lower reimbursements, calls for integration and new administrative requirements, such as installing electronic medical records. A recent PricewaterhouseCoopers survey found that 44 percent of physicians are already employed by some entity, from hospitals to group practices, and 46 percent are interested in pursuing this model in the next two years.

Dr. Daugird is planning for two-thirds of Triangle Physician Network's employed physicians to be in primary care. "We need primary care physicians to make the system operate," he says. Acquisitions also follow UNC's expanding geographical base. "Originally we acquired practices in a 30-40 mile radius," Dr. Daugird says. "Now our practices are in a 100-150 mile radius."

Mr. Crowther says Northwest Community Hospital recently acquired Affinity Healthcare, the largest practice on staff at the hospital, with 42 physicians and clinicians in primary care. The PricewaterhouseCoopers survey found that physicians practicing in large groups are two to three times more likely to express interest in hospital alignment than solo practitioners. The survey also found that 63 percent of cardiologists and 48 percent of primary care physicians were interested in hospital employment.

Beyond employment

There are many downsides, however, to pursuing an employment strategy, says Mark Grube, managing director at Kaufman Hall in Skokie, Ill. Buying practices is very expensive and typically involves being locked into three-year contracts. He says hospitals have to make sure they are buying for value, instituting work-based payments that ensure employed physicians won't lose money.  

But that's only the beginning. These practices have to be truly integrated with the hospital. "Just bringing physicians into the employment model won't accomplish anything," Mr. Grube says. Physicians need to develop a common set of goals with the hospital. He advises providing bonus arrangements for compliance with defined protocols and working on quality, cost reduction and "good citizen" points. This may be a challenge. While the PricewaterhouseCoopers survey indicated many physicians seek unemployment, it also found that 20 percent of physicians did not trust hospitals and 57 percent "sometimes" did not trust hospitals.

Many hospitals are looking for relationships beyond employment to align with physicians. "For most organizations, multiple vehicles will be needed to increase the alignment of different segments of physicians," executives from the consultancy firm of Kurt Salmon Associates wrote in an article for Becker's Hospital Review. "Few hospitals will have the luxury of successfully deploying only one or two alignment tools or structures to partner with all key specialty physicians."


Co-management and similar payment arrangements are catching on as alternatives to employment. The PricewaterhouseCoopers survey found that 24 percent of physicians are currently aligned in this model and 51 percent of physicians are interested in pursuing it over the next two years.

In a co-management arrangement, a physician or group of physicians is paid to carry out management work for the hospital. "Co-management agreements are a great way to align physicians who do not want to be employed by the hospital," says Mary C. Reed, vice president of the Gateway Group in Cleveland, Ohio. She says the physicians have to be paid for actual work, but the work can include such duties as writing up protocols for establishing a physician-integration model.

"Co-management arrangements are a stepping stone to more expansive relationships, without resorting to physician employment, practice acquisition or other such intrusive endeavors," wrote the Camden Group in an article for Becker's Hospital Review on Sept. 1, 2010. "They permit a hospital and physicians to work through issues on a small-scale."

Management service organizations

Ms. Reed also recommends a management service organization as "an inexpensive way to work closely with physicians and win their loyalty," In such arrangements, the hospital and practices share expenses for functions such as purchasing supplies, practice management services, some aspects of managed care contracting and electronic health records.

Helping physicians set up IT is a good way for a hospital to bring physicians into its system, Ms. Reed says. "EHRs can be very expensive for physicians, so they will appreciate a little help," she says. Also, the physician becomes part of the hospital's own EHR network, which is key to integration efforts. She says hospitals are allowed to subsidize physicians' EMR purchases up to a certain percentage of the cost.  

Mr. Crowther is starting to link physicians' practices to Northwest Community's EHR system, which was launched in 2004. The newly acquired Affinity Health practice has its own EHR system, which will be fully connected with the Northwest Community system by January. He says this experience will help the hospital connect with other EHR systems of private practices on staff after the Affinity connection is completed.

Governance model

Physicians can also be aligned with hospitals through new governance structures, as is taking place at 430-bed St. Joseph's Hospital Health Center in Syracuse, N.Y. Kathryn Howe Ruscitto, currently executive vice president and soon to be president of St. Joseph's, says the hospital has set up an ad hoc coordinating council, made up of physicians, that participates in hospital decision-making separate from the hospital medical staff. The hospital recently put the new governance structure to the test by giving physicians a prominent role in compiling its new five-year strategic plan. "Now that we've got the engagement piece correct, the other steps should flow naturally," Ms. Ruscitto says.

At Northwest Community, Mr. Crowther oversees a similar arrangement, a joint operating committee, with six management people and six physicians. Meetings take place three times a month. Delving into quality and patient satisfaction, physicians become committed to influencing those numbers. "It’s a refreshing form of alignment," Mr. Crowther says.

Ultimately, Ms. Ruscitto wants committees of physicians to create home-grown best practices of care, called templates, that would be used to coordinate care through the continuum. Applying these templates will require sophisticated IT systems, which St. Joseph's is in the process of setting up. St. Joseph recently hired a cardiologist to be its director of informatics, and the hospital added 23 people to its IT staff.

The future
Much work still needs to be done. Hospitals and physicians are just beginning to set up bundled payment arrangements with private payors to test whether integration works, and Medicare ACOs are due to begin in 2012.

The ultimate test for each arrangement is whether it is truly integrated and can produce savings. "You can't have a bunch of siloed provider systems," Dr. Daugird says. "Physicians will have to sit down and map out an ideal process of care. They would need to create guidelines for care and follow best practices. They would need to be committed to communicating with each other."

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