How hospitals are gaining leverage over physicians

Most hospital managers have never had the power to exert leverage over their most valuable resource, the physician, who, after all, admits the patients who make the hospital’s economic existence possible in the first place.

So I wrote in introducing a chapter in my first book in 1988. I hastened to add, however, at the close of that chapter, these admonishments:

1. The economic powers of the hospital is shifting from those who provide care – to those who pay for it – government and business.

2. This shift is forcing hospital administrators and medical staff to discuss how to use hospitals wisely without destroying quality.

3. Hospitals and physicians are losing their monopolies on inpatient services both had taken for granted – diagnostic testing, surgery, emergency care, and even routine deliveries – and now must consider investing together in alternative delivery systems outside the hospital.

4. Administrators of voluntary hospitals and private physicians are beginning to understand that the health care marketplace can be cruel – forcing them to depend on one another and compelling them to sit down together to decide future priorities.

At this point, I could chortle, quoting Lord Byron,” Of all the horrid, hideous tales of woe, is that portentous phrase, ‘I told you so’.” I could even cite my book as proof I was right from the very beginning.

But alas, I overlooked something elemental. The course of events over the last 24 years has shown that hospitals are steadily gaining leverage over physicians, not the other way around.

These events include: increasing complexity of the system, need to negotiate complicated contracts, systematic decline in physician reimbursements, growth of mega-hospital systems, persistent growth in malpractice premiums, utilization reviews requiring physicians to justify testing and procedures, demands for expensive information technology systems, and the growing awareness that teams of experts are necessary to manage technologies, to market services, and to deal with rules and regulations of health reform.

Leverage is a fragile, malleable thing.

It depends on public trust.
And, as the late Peter F. Drucker (1909-2005) observed, this trust in increasingly invested in large organizations,

“Every single social task of major impact is increasingly entrusted to institutions which are organized for perpetuity and which are managed by professionals, whether they be called managers, administrators, or executives.”

It depends on management. As Victor Fuchs, a Stanford economist and proponent of universal health care, noted,

“The most significant battleground is between practicing physicians and management. By that I mean inevitable clash between a fiercely independent profession and a management system system that seeks firmer control over what physicians do.”

It depends on who owns whom. In the last 5 years, there has been a precipitous decline in physician-owned practices, from 75% to less than 50%. Much of this decline can be attributed to physicians, who – weary of overwork, dropping incomes, practice hassles, loss of autonomy, and malpractice worries – have become hospital employees. When someone else pays your salary, you do they want you to do – or else. I have a technophobic internist friend, whose practice was bought out be a hospital chain. The chain insisted he enter all patient data into an EMR. He retired.

It depends on administrative competence. To function in today’s competitive environment with its rules, regulations, and legal and government compliances, one needs an administrative team with the means of acquiring capital, marshaling technological resources, implementing information systems, auditing performance, continuously improving quality, coordinating care, and negotiating and dealing with public and private bureaucracies. Most private practices cannot do this myriad of tasks without organizational backup.

It depends on politics. It depends on June Supreme Court decisions on Obamacare, on November elections outcomes, on local and regional elections, and on hospital-physician politics.

It depends on physician leadership and personal options. Collaborative physician-led integrated hospital and health systems tend to be successful. But so too do independent and entrepreneurial physicians who own their own facilities, who drop out of third party arrangements to create cash-only or concierge practices, and who seek other medical careers or new ventures offering more convenient, improved, and less expensive care.

Richard Reece is the author of Obama, Doctors, and Health Reform and blogs at medinnovationblog.

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  • Aaron Seacat

    “When someone else pays your salary, you do what they want you to do – or else”
    A scare predicament.  If a physician is doing the will of his hospital employer how can he/she always serve the best interest of the patient?  I believe John Mayo once said – “The only interest to be considered is the best interest of the patient”  With the current rate of hospital owned physician practices an ethical delimma has been created.  No man can serve two masters –

  • Anonymous

    Doesn’t feel very good does it? NPs have been dealing with this from physicians for years. The medicine doesn’t taste very good does it? What is ironic about the whole situation is the fact that an NP can run a private clinic with more efficiency and evidence based care than a physician – and still make an excellent living. We don’t have things like power and turf protection to deal with. We believe in all specialties practicing as independently as possible. It’s ironic isn’t it? Now physicians are working those hospital shifts and NPs are owning their own clinics. I have already had one hospital refuse to treat me with any respect and form an informal relationship – assuming it’s because the physicians know I’m an NP. The hospital about 5 miles down the road was more than happy to partner with me and my solo practice. Times, they are changing.

    • Anonymous

      Outstanding post!

    • Paul Colopy

      You are excellent at following algorithms and not having to care for those scary sick people in the hospital, huh. Carry your own malpractice and see how soon you find your rates increasing if medical training and what it takes to get into it actually make any difference in diagnosis. If it doesn’t, this applies equally to you; i.e. non-NPs setting up their own clinics and following algorithms “more efficiently” than you!

      • Anonymous

        I am not sure I am qualified to respond to a post filled with such new and insightful musings about a nurse practitioner……..but I will try. To which algorithms are you referring? Established guidelines concerning asthma? coagulation disorders? diabetes? heart failure? DVT? on and on? Do you not utilize algorithms or is it all “art” for you? Your observation concerning algorithms is quite “canned” and propagated by the uninformed.

        Carry your own malpractice? This statement shows how insulated you are from what actually goes on in daily practice and customer care. I own an INDEPENDENT practice – so I already carry my own liability insurance – and it is in the multiple thousands of dollars.

        NON-NPs setting up their own clinics? This is where you and I really disagree. I believe in the free market. The specious argument that independent NPs will create a two-tiered healthcare system is, well, just that! If I am unable to diagnose a cutomer with the correct disease, or treat appropriately, or don’t use “more art and less algorithm” then I will bear the responsibility of my “ignorance”. If a people decide they want NPs, RNs, or or panda bears caring for them, so be it. NPs are not worried about “turf protection” or spending $500,000 on an education. Do you think my education was “cheap”? There are no guarantees my friend in any profession and there shouldn’t be. If I’m so dangerous, then leave me alone to practice healthcare according to the guidelines established by my board of nursing and let the chips fall. What are you afraid of? That I might succeed?

        Finally, I would never attempt to care for “sick patients in a hospital”. I am not educated to do so. Surprisingly enough, I “know what I don’t know”. Critical care and specialty care are for specialists and not generalists. The healthcare world would fall flat without those valued specialists – surgeons, emergency medicine, orthopedists, etc. We are not talking about primary care.

        To close, let me provide you with a few other “canned reposnses” concerning my profession in case you want to use them in the future: “you don’t know what you don’t know”, “you are only qualified to treat snotty noses”, “you work best in a healthcare team not as an independent provider”, “you are scary and dangerous and the thought of going to see an NP terrifies me”.

        If you need more, let me know. Thank you for getting my day started off right – an opportunity to dispel myths and promote the profession.

        Grazie tanto!!

      • Anonymous

        Most NPs I know are hard-working and intelligent.  Most MDs I know are hard-working and intelligent.

        Algorithm-based medicine is here to stay.  Why?  Because it’s better than the old-haphazard way of practicing medicine from before.  The difference between MDs and NPs is that we (MDs) have the luxury of being able to easily step outside those algorithms when they don’t fit the situation.  NPs and PAs… not so much.

        And Dr (presumably) Colopy – unless you are in primary care, shut up about NPs and PAs since they will be forming a LARGE LARGE portion of your referral base.

        I am a FP trained doc who works long hours in the ER.  I couldn’t survive without my midlevel workers – most of whom I would stack up against any MD coming out of residence with less than 10 years experience.

  • Anonymous

    Interesting article (as well as the “really small or super big” story”. I am a IT network guy working for one of these large chain hospitals. A lot of my time this year will be spent integrating private practices into the corporate hospital networks. This is my first venture into the healthcare industry and I was wondering why there were so many small office acquisitions being made.

    • ninguem

      Do you have noncompetes in your IT business? In other words, if you leave the employ of an IT firm, or perhaps leave the employ of a hospital that hired you as a tech, are you required to leave the area? Not work for a competing IT firm nearby, or the hospital across town?

      Physicians get that in medical employment. It’s unethical, frankly reprehensible, but it’s allowed.

      • Anonymous

        Required to leave the area? Only if you agree to such terms. Who would agree to sign a noncompete agreement like that. It’s not unethical or reprehensible unless some law forces it. A law that forces someone into a noncompete agreement is unconstitutional. Where does this happen? Please show me where I can find a law like that anywhere in America. Solo private practices can continue to function as they have in the past. Nothing makes them sell out to the competition and sign a noncompete agreement. Help me understand your point.

  • Anonymous

    I believe John Mayo once said – “The only interest to be considered is the best interest of the patient” 
    Not today! Not in our current broken fee-for-service fiasco health system. The two masters you speak of are either your “employer” or your own “wallet”. The patient? The consumer? The people who pay? They have always ranked last. The consumer has always been last to be considered. Money talks and BS walks! Hypocrites!

    • Anonymous

      True human altruism is uncommon, and even the desirability of altruism is philosophically debated. In any event, altruism cannot be relied upon to motivate an entire field. If only the altruistic practice medicine, service supply would be negligible.

      Medical care is meted out by mere humans, for whom self-interest is a primary motivator. Agree or not, it’s reality. Failure to accept this will diminish the field’s supply of providers.

      For better and for worse, autonomy + personal profit motives historically have fueled incredible enterprise and work effort in medicine. Sacrifice was worth a financial reward. And, the reward of a healing encounter was undiluted by the requirements of external parties.

      • Marc Garfield

        It is soooo much more complicated than what is being expressed

        • William Dawson

          How do they do healthcare so well in the rest of the First World? (we rank 18th or so)

          • Anonymous

            It’s not so much where we rank compared to other industrialized nations regarding efficiency and performance because the metrics are so diverse. The only real solid measure is average infant mortality rates and average longevity rates. When compared to the UK, Europe or Canada and many other industrialized countries, infant mortality rates in the US are abysmal. The same is true for longevity. On average, the US has more children dying at birth and more people with less life spans than in any other industrialized nation. 

          • horseshrink

            Infant mortality rate comparisons are controversial due to variability in the definition of “live birth” … a problem of apples and oranges across nations.

            Life expectancy is a mathematical calculation … an actuarial guess into the future.  It is not the same as mortality rate.  Mortality rate for the U.S. is better than most of Europe (check Wikipedia.)

          • Anonymous

            Infant mortality rates vary across countries in significant part due to the variation of “live birth” definitions across countries.  The U.S. counts many live births that other countries don’t.  Our denominator is more inclusive.

            Life expectancy is an actuarial calculation … a mathematical guess into the future.  It is different from mortality rate.  U.S. mortality rate is lower than the rates through most of Europe.

            Information re: above easily findable in Wikipedia.

          • Anonymous

            I typed denominator instead of numerator.

        • Anonymous

          Ever think of partnering with more doctors and sharing office space, staff, telephones, heat, electric, air conditioning, computers, fax machines, etc., etc., etc.? Isn’t that what the ACO concept is all about? The magic of economies of scale? 

        • Anonymous

          I used to have a spreadsheet in private practice … CPT codes, time, allowables and $$/minute.  Short appointments have much higher $$/min than longer ones.

          This is why private practice psychiatrists commonly see 20-25 patients a day now.

          We pretend we can listen faster because we’re paid better that way.

          And the boiling frog waves from the warming pot, cheering “Water’s fine!  Come on in!”

      • Anonymous

        Any ideas how you could extend those warm and fuzzy healing encounter feelings you get to the 50 million folks who never get to see a doctor on a routine basis?

        • Anonymous

          1.  Increase supply of clinical providers.
          2.  Shift healthcare funding model to:
               *   catastrophic coverage policies with high deductibles
               *   negotiated fees between providers/patients for most encounters
               *   means tested public health system safety net.

          • Anonymous

            I like #2.  How would you propose to do #1, when most MDs end up in non-primary/non-ER care?

          • Anonymous

            A fair question that arises from this one that docs in training repeatedly ask themselves … “Why would I want to be a primary care physician and work harder for less pay?”

          • Anonymous

            Extremely good question! In my opinion, the only way PCPs will survive in the future is to become salaried employees and work for hospitals. After 2014, we will be seeing many more neighborhood clinics popping up all across America. Routine primary care will be done by nurses and technicians. The more serious cases will get referred to specialists. Why? the answer is simple. The cost of health care in our privatized boutique system is totally out of control. I point to the refusal to treat Medicare patients because they don’t pay enough. Okay, if Medicare doesn’t pay enough to see a doctor, maybe a nurse will accept what Medicare pays. The industry will soon find out that the PCP will not be needed as the gateway professional because he/she has priced themselves out of the market. Nurses will make more “triage” decisions in the future. Get used to it. You did it to yourselves. 

          • Anonymous

            Re: “The cost of health care in our privatized boutique system is totally out of control.”
            I have less faith in a centrally planned, nationalized health care system than I do a free market system with safety nets (e.g., catastrophic indemnification and indigent care systems.)
            I suspect the most effective way to reduce cost is to reduce the influence of third party payers.
            Let service providers and patients negotiate fees directly.
            Clinicians could afford to charge less (taking no third party payment = less office overhead and regulatory burden), and the law of demand (within limits of demand inelasticity), and market competition can further tame pricing.
            Other professionals do well with a similar model … (e.g., attorneys and veterinarians.)

          • Anonymous

            We have as much chance of removing third party payers (insurance companies) as we do seeing pigs fly. Our health care industry can be compared to a den of thieves. Every player in health care today profits in a usury fashion at the expense of the health care consumer. The health care consumer has been the real victim for decades. As righteous as they would like to be viewed, doctors have participated in the collusion equally with insurance companies and drug companies. To say, all of a sudden, doctors are innocent of any abuse and corruption is the height of hypocrisy. Your call for a free market system is merely a call for the same decades old status quo that has ruined any opportunity for 50 million uninsured Americans and 25 million more underinsured Americans to fully participate. With respect, your argument is utterly ridiculous.  

          • Anonymous

            “Thieves” = “self-interest”

            The solution for “self-interest” seems usually to
            be government control.

            Except … the government is also made of people who operate
            according to self-interest … in a different world of rules and goals.

            Is it better for self-interest to be diffused into countless
            market competitions, or centralized into a highly political, self-preserving,
            inexorably growing government force?

            Much current political polarity develops according to how
            people answer that question.

            How does all this help the healthcare world?

            I really don’t know. 
            This issue is very much “learn as we go;”  it is new in the history of our species. Many
            assert answers with great confidence. 
            However, it’s been my experience that the number of “experts”
            about an issue is inversely proportional to the amount we truly know with certainty.

            Though healthcare complexities are new to us, experience
            with forms of government (i.e., management) is not.  From such millennial experience do I worry
            about our evolving accretion of central economic management. 

            No need to prove Santayana right.

          • Anonymous

            “How does all this help the healthcare world?

            I really don’t know. ”

            And you are the doctor? Need I say more? All that education and what does our health care system have to show for it? The evidence is as plain as the nose on your face…

            50 Million uninsured and 25 million underinsured and for that we pay nearly 18 percent of GDP. Is there a doctor in the room?

          • Anonymous

            We’ve reached the ad hominem end of the discussion.

          • Anonymous

            Likewise, I’m sure!

  • Peter Dunbar

    The reason physicians are losing influence is very very simple.    Medicare Part A payments have gone up every year for the last 1/4 century while Physician payment rates have stayed flat.    Every other factor is being driven by this simple economic fact
    Thus in the old days MDs built hospitals whereas today hospitals buy physicians.

  • Anonymous

    I think the title of this thread is fundamentally incorrect. It should be, “How health care consumers are gaining leverage over physicians”. Hospitals will be forming ACOs in the near future. ACOs will be the new delivery method for health care going forward. However, hospitals do not control how the ACO is measured for performance. The health care consumer will be doing that. The health care consumer will be the final judge. 

    • Anonymous

      Health care reimbursement being based on how the consumer likes their experience is dodgy, to say the least.  When I make diagnoses of life-threatening and life-ending diseases, people are necessarily upset.  This judgement I will accept.  What I do not accept will be the judgement of the malingerers and drug-seekers, the abusers of SSI and Work Comp, but their opinions will be weighted the same.

      When people make the ratings AND spend their own money, THEN I will have respect for the process.

  • Anonymous

    Does anyone proof read an article before posting any more?  This is difficult reading when it really should not be.

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