A brave new world as more physicians become employed

Several physicians have reached out recently to discuss attractive employment offers from health systems. They are invariably conflicted. They understand the trade-offs, that they’ll give up the autonomy they’ve become accustomed to in exchange for more money and fewer practice management headaches. On the down side, they’ll be accountable for generating significant revenues, sometimes independent of care appropriateness.

Most also are aware that the same care services they provide now will be considerably more expensive once they’re part of a system. Many appreciate that because health systems are corporations with a heavy focus on optimizing short term gains, their future employer’s loyalty is suspect. And then there is the question of whether the health system’s management team is competently preparing to be sustainable in a market that could change dramatically.

As health systems maneuver to dominate regional markets, driving utilization and gaining more leverage over contractual pricing, physician employment has become their principal lever. Primary care physicians (PCPs) are now precious commodities that can manage populations and steer patients into the system’s services. Other specialties – e.g., cardiology, orthopedics, neurosurgery and even gynecologic oncology – are desirable if they’re high yield, driving lucrative, intensive use of inpatient and outpatient services.

The goals of practice acquisition are straightforward. Relatively modest physician incentives can generate significant returns. So long as fee-for-service reimbursement remains the dominant paradigm, primary care and specialty physicians are a referral base, fueling utilization and revenues for the system. And if one system can acquire a high percentage of the market’s PCPs, that ensures that referrals don’t go to competitors.

If reimbursement turns toward risk, all bets are off and it remains to be seen how this will play out. Systems (presumably) can adjust the PCPs’ incentives so they only refer patients who legitimately need services. I say presumably because that maneuver will require changes in both tools and culture, and making this shift will likely prove more difficult than many suppose. Certainly, for specialties like cardiology that have evolved an over-capacity in response to payment independent of adherence to evidence, it won’t be pretty.

Health systems have acquired physician practices astonishingly quickly, not only in primary care but across specialties. In just the past decade, the percentage of hospital-owned physician practices has tripled, from about 25 percent in 2002 to almost 75 percent in 2011.

A brave new world as more physicians become employed

In local markets, the impacts have been profound. In Massachusetts, home to the nation’s most runaway commercial health costs, 84 percent of PCPs now are affiliated with one of five physician groups. The largest one, associated with Partners Health, is larger than the next two combined. This kind of coverage and clout has allowed Partners to demand Massachusetts General Hospital rates at its far less intensive, suburban hospitals.

A brave new world as more physicians become employed

The data also show that physicians embedded in systems respond to incentives by generating more revenue for their employers. Specialists of all types used to drive more utilization and cash flow, but now primary care is more valuable. New survey results from more than a hundred health system CFOs show that 2012 referral revenues – from admissions, procedures, tests and other services – were up 13 percent to $1.57 million from $1.39 million in 2010 per internal medicine, family or pediatric physician. The average family physician generated almost $2.07 million, up 24.3% from $1.66 million in 2010. An elephant in the room question that should be (but probably won’t be) asked by the primary care medical societies is whether these data suggest their members, in responding to financial incentives, are steering away from evidence-based care.

By contrast, per physician averages of the 15 non-primary care sub-specialties ($1.42 million) tracked is now lower than for primary care ($1.57 million). The exceptions were orthopedic surgery ($2.68 million) and invasive cardiology ($2.17 million), which remained the highest revenue generators for health systems.

The drive for market dominance has not only changed health systems’ relationships with doctors, but driven excessive care and cost to health system benefit. US health care is rapidly evolving away from the cottage industry it has been for decades, and has become, for better and worse, a more purely corporate enterprise.

All this is good news for large health systems but bad news for employers and other purchasers. Health systems’ ownership of physicians works well under fee-for-service, but there is little financial incentive to bother learning how to only deliver the right care.

It is hard to imagine that the current paradigm can hold on much longer. Purchasers are under tremendous cost pressure, and the health industry has kept that increasing market tension at bay only through aggressive lobbying. The inevitability that it will give way, with reimbursement moving toward risk, is what most health system executives dread and a few are preparing for.

But the fix is in. The bursting dam that changes how we pay for care, will also set the stage for a longer term, organic (if painful) transition to more sensible management of patients and populations, overseen by employed clinical teams. They’ll be configured somewhat differently than they are now, and have different tools, and the names of their organizations may change. But most will remain in health care organizations, not private practice.

Brian Klepper is chief development officer, WeCare TLC, and blogs at Care and Cost.

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  • Anthony D

    Remember the golden rule in the work force.There is no such thing as job security.

    As long as you are a salaried employee, you’ll be overworked, underpaid, and you are replaceable. That’s why employers are don’t like to hire at times. If they don’t have the advantage over an employee, they’ll turn you down or let you go.

    From a lawyer working in a law firm, a doctor working for a hospital or HMO, even your President of the United States is a salaried employee, and he is already going to be replace in January of 2017

    That’s why its important to have a business and be a small entrepreneur. With my place, I set my own prices, have my own overhead, have a minimum amount of employees (so ObamaCare won’t hurt me) and if business is slow, I just concentrate on it a little more to get it up to par again.

    I learn all this from a doctor in grade school in the mid-90′s and how important it is to be a physician in private practice.

    • buzzkillerjsmith

      You hit the nail on the head. If you become an employee, you lose control. Do start young people want to go through a minimum of 11 years of education and training, gain a well-deserved doctorate degree, and then have essentially no control over their economics lives?

      CorpMed feels great for a year or two after giving up a horrible private practice or small doctor-led medical group, the one with too much work and too little money. But CorpMed turns into a hell of its own in a year or two or three.

      We’re in a box and I see no way out. I wouldn’t take this deal if I could do it all over again. Maybe finance, as I am mathematically inclined. Is this what we want, talented people incentivized to destroy instead of help?

      Private practice with its accompanying control is dead in primary care, and they tell me it’s coughin’ up blood in other medical fields.

      We have come to this sorry pass because of US government policies that hand the money to CorpMed and too little to individual doctors. They do this because they like CorpMed’s money, they believe that clustering docs up and deprofessionalizing us will lead to better outcomes for less money, and also just because they can.

  • buzzkillerjsmith

    Good post, Dr. K.. I’m surprised it has not generated more comments. Clustering us docs up will likely not save money, quite the contrary; it might or might not lead to improved outcomes; but it will almost certainly increase income and power of the parasites (read CorpMed and its ilk) that feed on us and on our patients. A sad state of affairs, for us and the American people.

  • Dr. Drake Ramoray

    This is a very good post. Docs don’t necessarily make more money working for hospitals. At first sure, most institutions use the MGMA book and a doc is likely to make more money the first few years at a hospital even over a large private group (solo start up is obviously no contest). That dollar figure looks good coming out of training especially with the reality of student loans. Gone are the days of doctors ok with driving their beaters and renting for the first few years while they build a practice. Like much of America they want it now, although on some level after training I can see why.

    At one place I was certifiably underworked and overpaid (no way that was gonna last) but I only stayed a year because of the beancounters and turf wars with Radiology. They couldn’t perform a thyroid cancer surveillance ultrasound to save their lives. They wanted me to do nuc med testing instead (read about 10x as expensive and was standard of care about 10 years ago). I paid a rather large penatly to leave but it was THAT bad.

    For now at least I can make more money, and have more control, and provide better care for my patients. How long this will last I don’t know (probably not long given the facility fee disparity). Given my field I will probably move to an academic center at some point and do some teaching. There I will get to be the scut monkey for the tenured professors but at least I won’t work at Corpmed (it’s hard to believe but it’s worse). Besides, I like to teach. I do however feel truly sorry for my primary care colleagues.

    • buzzkillerjsmith

      ‘trying to exit the system about now.”

      Do you have good suggestions for this? Can’t make concierge work here because the town’s too small.

      • Dr. Drake Ramoray

        It’s a long term plan, not a short term game. I think the general public underestimates the drive and ambition of most docs and that if it gets bad enough we will find something else to do. Basically anything that you enjoy doing and could make a little money. The key is to be in a position where you can live on a little money. Moving to a teaching role as primary care would be a lot harder.

        In the primary care arena: I know several who have bowed out for pharma. Two that have gone hospitalist (not really exiting the system but they sure aren’t stressed out running a business anymore. Don’t have to deal with outpatient meaningful use anymore either) One of them is a nocturnist (kids are out of the house and his wife is an ICU nurse) Says he never gets hassled about discharges/tests he orders etc, but he does live like a vampire a large portion of the month.

        I know a restaraunteur and one who quit to run his Dad’s construction firm. I also know two concierge, one who failed and is one of the above hospitalists. All of these are young docs with a good 25+ years (except the nocturnist) who have adjusted some way to the impending storm. There are some early retirements in the old guard. Their speeches at the hospital meetings are depressing, especially the ophthalmologist (Good luck suckers was the gist of it in a trying to be upbeat sort of way.)

        Several of my specialist colleagues have gone back to academia. I may have some danger in waiting too long on that one but I have decent connections, and am pretty good at teaching (I’m dabbling with a regional PA school)


        My plan is live small, pay down my debt as fast as I can (I’m less than 10 years from fellowship) and live below my means. Finding a like minded spouse wasn’t easy and I’m blessed with a fantastic wife. Bought well below our price point at the bottom of the market in our area. Our cars are paid for and our next ones will be too. Kill my mortgage, kill my student loans (both in the next 5-10 years.) I think I might be safe that long (probably the short end of that). Kids would be old enough by then, wife makes some mean baked goods. We have tossed around the idea of running a catering company (I’d run the books and such), cupcakes and the like. She already has a large following of requests for birthday parties and other events that she does for free for friends. Yes the wife of the Endocrinologist makes cakes and cookies to die for. Dad used to do real estate on the side, now more a hobby now than anything else. I know the ropes.

        I have thought of becoming a certified coder, maybe start a consulting company or just terrorize my former colleagues. I’m amazed at how many docs are bad at coding, especially for diabetes. There are options, but probably not in a small town. Most of them are not in medicine and take some long term planning.

        There is no magic answer, except that if you are living on a doctors income now and you want out its time to think about downsizing and starting a plan (was a few years ago actually). I certainly will not get put in the position of working at something I hate to pay the bills. I shake my head at the new medical staff with their fancy cars and their big mortgages. New general surgeon, loaded Porsche Cayman. Hope he’s old money.

        • buzzkillerjsmith

          I can’t do pharma. I hate businessmen. A suit and tie to me is like red to a bull. A personal failing but there it is. I’ve toyed with the hospitalist idea, but then I’d have to work for a hospital and they are run by businessmen, whom I hate.

          I’ve consider a scam like sleep medicine or derm. Rehab is a moneymaker they say but OMG

          Your idea of keeping the expenses low and paying off the loans is key. There’s a cold winter coming so fill the larder.

          • Dr. Drake Ramoray

            When I’ve been real cynical, I have thought of starting my own Endocrine dietary supplement line. Diabetes, thyroid, 3 AM infomercials. There is a killing to be made out there. This product is not meant to diagnose or treat……..

            On a really bad diabetes day I calculated that if I did nothing but read DEXA scans 48 weeks out of the year, 40 hrs a week, that my gross revenue would be about 850K. This is of course minus the tech, scheduler, machine and other overhead, as well as assuming there would be the demand for that volume of services. It would be about as stimulating as sleep medicine.

            I don’t like to wear suits either and I have a face for radio. Hey there ya go. We could start our own radio show. It could be like Cartalk with Tom and Ray. Docs and patients alike could call our show with problems and we could dispense snarky advice. Good times. If we just worked out the med/mal issue and got some studio time. Buzz and Drake. I like it.

          • buzzkillerjsmith

            You could make 850k per year and you’re farting around at this blog? Here’s a plan: Take the job, make the cash, and have your butler comment for you.
            Also contact me if you need a second investor for the start up. Oh, wait a minute, you’re a wealthy physician already (aren’t we all?) so seed money is not required.

          • Dr. Drake Ramoray

            It is a hypothetical job only I ran the in ere after the most recent medicare paycut.
            Too many radiology centers and hospitals doing them already.

          • SBornfeld

            You guys have it even worse than we dentists. But I figure we’ll get there. Study clubs (no hospital affiliations) include a lot of crying-on-shoulders–while most people think we have it easy.
            But I married well (wife in real estate). I know she didn’t expect to be the main breadwinner when we met. No, I don’t think she’s so happy about it.
            Good luck, guys!

          • buzzkillerjsmith

            Dentist. Dentist!! Hey dude, I don’t comment from the peanut gallery at dental blogs. You’re learning all our secrets. If your persist, I will show up there and it won’t be pretty.

          • SBornfeld

            It could only help.

          • buzzkillerjsmith

            Good one.

          • buzzkillerjsmith

            And another thing: Husbands don’t like it when their wives make more money and the wives don’t like it either. Just sayin…

            But you’re probably bigger and stronger than she is (although definitely not better looking) so that’s probably some consolation.

  • Chiked

    Doctors, (primary care doctors especially) need to aggressively use technology to disrupt things a bit. The traditional medical delivery model has been hijacked by Wallstreet and it is impossible to compete. So get creative….set up your own website with video conferencing (telemedicine). Why pay a nurse or aide to take vital signs when they are so many easy tools for patients to do it themselves. Patient has a rash and needs to see you, teach them how to take and upload a picture to you. Get licensed in several states so you can expand your patient base. Get all your patients to sign a malpractice waiver or better still keep all your assets in your wife’s name and go bare. If there is nothing to come after, lawyers will not be interested.

    I agree with Anthony D, there is no such thing as job security as an employee. As long as you are salaried, growth in the company will only come by squeezing more out of you.

    • buzzkillerjsmith

      That all sounds kind of complicated. Can’t I just retire instead?

  • Mary_Pat_Whaley

    I have been a healthcare manager and now consultant for 25+ years, and I believe we MUST support physicians in private practice. There is a need and a place for the independent physician model. There is some great technology that allows physicians to scale back the overhead, whether you are going the insurance route or not. About 12 months ago, I started getting calls from solo docs wanting to set up new private practices – now I realize we are seeing the cycle spinning down with the rejection of the employed model. Hang in there, docs!

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