Study finds physician bargaining power counterproductive to hospital survival

Physician-driven changes to hospitals may be detrimental in the long run, according to a case study published by Organization Science.

Researchers gathered data from interviews and observations over a 15-month period at "Hospital X" (name was changed to protect anonymity), in addition to information gleaned from archived sources, such as press releases, annual reports and community reports.

Hospital X is a nonprofit hospital in a highly competitive market that includes a teaching hospital, a for-profit public hospital, a for-profit physician-owned hospital, a government-owned hospital and a second for-profit public hospital in a neighboring state. Beginning in 1994, Hospital X began a slow transition to become a nonprofit/for-profit organization, in which it jointly owned for-profit facilities with physicians.

The hospital chose to enter nonprofit/for-profit structure to retain its talent, the physicians, amidst its competitive environment. Factors motivating this transformation included an increased demand for healthcare services, declining reimbursement rates, a physician shortage and intense local competition.

"As it sought to retain physician resources by allowing them to share rents under a new profit form, the hospital shifted its governance structure from a heteronomous to an autonomous one, allowing physicians to manage their activities and costs across hospital units with unrestricted mobility," the authors wrote. "This new, more autonomous structure offered immediate benefits to the physicians in the form of more and better rent-seeking options in the face of income erosion across the industry, and it enabled Hospital X to retain physicians and stay competitive in the wake of increasing competitive pressures."

However, the study notes, giving the physicians more autonomy increased their bargaining power and effectively decreased the bargaining power of the hospital. "As a result, replacement costs of the physicians escalated as they became part owners of shared facilities, and any external competitive advantage Hospital X gained from the new structural form was undermined by weaker internal bargaining power with its portfolio of physicians," the authors wrote.

 

More articles on integration and physician issues:

Why this surgeon challenges overuse of cancer screenings, but spends hours with patients
Family physicians play key role in urban ERs
Gallup study reveals need for a 'care for the healthcare worker' approach

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