A feature in June’s issue of the Los Angeles County Medical Association’s Physician Magazine put the spotlight on increasing efforts by hospitals to “align” with doctors — whether by creating customized contract arrangements designed to better match doctor and hospital incentives, or whether through compensation structures implemented after acquisition of physician practices. (Naturally, acquisitions make alignment even more important, as hospitals race to make these costly investments pay off.)
In fact, the article pointed out that — based on American Hospital Association (AHA) data — more than one-third of the surveyed hospitals use integrated physician salary models today.
This all seems familiar to me as I recall the flurry of primary care practices seeking opportunities for hospital acquisition back in the late ’80s. The motivation for physicians then was the fear of managed care combined with the lure of hospitals offering attractive purchase prices and lucrative guaranteed salaries. Physician-hospital alignment didn’t work so well back then, but will it work now? I’m not so sure.
The first time around the objectives of the physicians were in stark contrast to those of the hospitals, which wanted to secure referrals and gain a competitive advantage. Physicians bought into the security of employment and a guaranteed salary with little thought about the implications of becoming hospital employees. The physicians within these acquired practices did not do well when demands were made by their new employer.
Physicians also assumed that large hospitals with more business savvy would be better equipped to manage medical practices efficiently. However, hospitals with corporate mindsets, slow decision-making processes and no experience with running practices were not prepared to manage the acquired practices. The relationships became adversarial. Soon hospitals began to see some of these practices as simply a sea of red ink. Soon consultants across the country were recruited to deal with the situation and unwind the deals.
Fast forward to 2014 and there are some major differences in the healthcare climate surrounding alignment. A new fear has emerged for physicians. It is the Affordable Care Act and its potential implications. Mature physicians wonder if private practices will be able to survive in the future. At the same time, younger physicians look for integration opportunities that offer a work-lifestyle balance.
This time around hospitals recognize that a shared culture is essential to the success of integration and the importance of being grounded in a common vision. Hospitals also understand that it will be vitally important to either acquire or develop greater physician leadership with the integrated model. This in itself presents challenges at a time when there aren’t enough physician leaders to go around and younger doctors tend to opt for a 9 to 5 job without management responsibilities.
Our advice to physicians exploring opportunities to align with hospitals is simple. Do your homework! Don’t fall prey to the herd mentality of “other physicians are doing it so it must be right.” You can accomplish due diligence by obtaining professional assistance (legal, financial and business management). Gather the facts, resist an emotional response and proceed with caution.
An alignment partnership cannot succeed unless there is sufficient trust. In addition, the integration objectives of the physicians must be aligned with the hospital. If there’s a big gap it could be a rocky road. How much risk are you willing to assume and are you willing to negotiate on some points in the interest of the greater good? The future may be unknown, but you want to make sure the risks you take are well calculated.
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