A new practice routine

For cardiologist Matt Phillips and his practice partners, what they could accomplish on their own wasn't enough.

Six years ago, Phillips became president of Austin (Texas) Heart, which has 47 cardiologists and 25 physician extenders. They practice in 14 hospitals that are part of eight systems across a 16,000-square-mile chunk of central Texas.

“We met and wanted to be standard-setters in quality,” Phillips says. “It's not so easy to achieve that vision.” The physicians started building the administrative and clinical infrastructure to make their vision a reality. They started a research department, hired a full-time quality-assurance nurse and learned some business practices from Dallas-based Southwest Airlines.

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Austin Heart's physicians engage in an intensive peer review of each others' work, Phillips says. Austin Heart has an electronic health record, but now the physicians want an even better system, he says. Its physicians spend 6% of their time maintaining and improving this infrastructure—time not spent seeing patients, Phillips says.

Two years ago, Phillips says, the physicians decided that, “If we were really going to set the standard, we were going to need more resources than we had.” So Austin Heart started a two-year process that ended with the sale of the practice to St. David's HealthCare in Austin, effective Dec. 31, 2009. St. David's is a six-hospital joint venture that brings together for-profit HCA with two not-for-profit partners—St. David's Foundation and Georgetown (Texas) Healthcare System.

Austin Heart is but one example of the trend of physicians throwing in their lot with hospitals. A survey last fall by the American College of Cardiology, as well as surveys by the Medical Group Management Association, indicates the strength of this trend.

Among cardiologists in private practice, 38.1% said they will respond to a recent CMS fee-schedule ruling by pursuing integration with a hospital system. Only 33% expect to remain in private practice without a merger into some other organization, whether a hospital or other physician practice, according to the survey of 801 cardiologists conducted between Oct. 31 and Nov. 17, 2009.

Meanwhile, among respondents to the MGMA's annual Physician Compensation and Production Survey, hospital-owned group practices have grown from 25.6% in 2005 to 49.5% in 2008. In that latter year, hospital-owned practices exceeded physician-owned group practices for the first time, according to the MGMA.

The prospect of bundled payments and penalties for readmission of patients provides a carrot-and-stick set to bring hospitals and physicians together, says Dave Johnson, a senior managing director for Ziegler, a consultancy. “If suddenly outcomes matter and consistency matters, then care coordination becomes a bigger part of the picture, and neither hospitals nor physicians can do that alone,” Johnson says.

While healthcare reform has stalled in Washington, physicians see the regulatory pressure that could come to bear on physician-owned facilities, Johnson says. They already have faced lower reimbursements for their outpatient surgery centers compared with hospital-based surgery centers.

John Deane, CEO of Southwind, a Nashville-based physician practice management consultancy that is now a division of the Advisory Board Co., says the well-reported changes in the expectations that today's medical school graduates have for work-life balance are a factor in practice acquisitions, too. Their desire for more reasonable workloads makes the physician shortage more acute, Deane says. Reimbursement changes are also factor, he adds.

Deane believes that systems have learned from their mid-1990s binge on physician practice acquisitions. “The ‘secret sauce' is practice management and EMR systems, building an infrastructure, such as billing and accounts receivable, around those physician practices, structuring the governance so it's physician-led and professionally managed, and then, most importantly, aligning the performance for both sides,” Deane says. “A lot of this is as simple as having a dedicated finance manager for the practice, rather than having the hospital or system” chief financial officer looking at their numbers and metrics, he adds.

Dick Wright, a senior partner with Southwind, says investor-owned and tax-exempt hospitals are facing the same situation and reacting to it with a full range of physician-integration strategies.

“They're both attempting to respond and react to meet the needs of the physicians who come to them and want to become part of an owned entity within the hospital, or they are responding to their own real or perceived desire to have medical staff numbers and competency in the right specialties,” Wright says.

While for-profit hospitals aren't alone in pursuing these strategies, their actions implementing them have been particularly conspicuous.

Nashville-based HCA has been active in its physician-integration strategies. Richard Bracken, HCA's chairman and CEO, told stock analysts last month that, “The nature of our business is changing. Hospitals all over America, including HCA, are employing physicians in their network. It is a cost that wasn't there before, and it is growing.” Last fall, HCA acquired a 13-physician cardiology practice in the Kansas City market and lured a well-known, physician-run burn center to its lone hospital in Southern California.

The Grossman Burn Center was eager to move to HCA's 123-bed West Hills Hospital and Medical Center in Canoga Park, Calif., from 112-bed Sherman Oaks (Calif.) Hospital, says Peter Grossman, a co-director of the center and the son of its founder. Both the local and corporate managers showed great enthusiasm for making the burn center a flagship program at West Hills, Grossman says. The company also is willing to put more than $10 million into converting space in the hospital for the burn center's programs, he says.

Other investor-owned companies also are aggressively pursuing physician-integration strategies ranging from buying practices and physician-owned ambulatory centers to boosting employment of physicians and cutting whole-hospital syndication deals.

Community Health Systems, Franklin, Tenn., has long had a strategic focus on physician recruitment, to the tune of recruiting more than 7,000 physicians between 2000 and 2009, according to the company. Last year, Community completed two large practice acquisitions in Alabama and Washington state. In the latter deal, the company paid about $50 million to acquire Rockwood Clinic in Spokane, Wash., and meld its 32 locations with the two Spokane hospitals that it acquired in 2008.

“When we do group acquisition, we're thinking more about an integrated health network and how we build that around our facilities over time,” says Wayne Smith, chairman, president and CEO of Community. The acquisition of Rockwood's sites and its 130 physicians will enable Community to build a comprehensive offering of services in both primary and secondary markets throughout eastern Washington and parts of Idaho and Montana to win market share, Smith says. “We've just started the strategic process there,” he adds.

Like Austin Heart, Rockwood Clinic pursued a hospital partner to meet broad goals of scope and quality, says Craig Whiting, president of the clinic's board. “We knew that the cost of capital is going to continue to go up and up, and it's good to be aligned with an organization that has good access to capital,” Whiting says. “We actually were in very good shape financially, but we have a vision of being a regional entity.”

Community's employment of physicians has grown significantly, as it now employs about 10% of the 13,000 physicians on its medical staffs, Smith says. Many are primary-care physicians who have become hospitalists, he adds. Smith foresees a shortage caused by this shift, even though hospitalist programs somewhat offset this by enabling primary-care physicians to see more patients by eliminating hospital rounds. Community's study of projected needs and the current and future physicians available to fill them also suggests shortages of urologists and gastroenterologists, Smith says.

Tenet Healthcare Corp., Dallas, last year formed a joint venture to provide services to physicians who practice at its hospitals, says Stephen Newman, Tenet's chief operating officer and a physician. The partner on the venture is Med3000, a Pittsburgh-based provider of healthcare management and technology services. Over time, the joint venture will take over the management of Tenet's 460 employed physicians and provide information technology and other services to improve communication and coordination of care with physicians having privileges at Tenet hospitals, Newman says.

Reimbursement pressures are prompting more physicians to approach Tenet with opportunities, Newman says. The company has been strategically acquiring physician-owned ambulatory surgery and imaging centers, he says. Acquiring surgery centers not only provides an alignment opportunity but also frees space in its hospitals for more complex procedures, he says.

Health Management Associates, Naples, Fla., told investors last week that it has acquired some surgery and imaging centers and completed physician syndications at 16 of its 55 hospitals in 2009.

Adding cardiac capacity was a major draw for St. David's HealthCare agreeing to buy the 58-bed Heart Hospital of Austin from MedCath Corp., Charlotte, N.C., and its physician partners for $83.6 million (Feb. 22, p. 20).

Two months into Austin Heart's alignment with St. David's, Phillips says, the physicians who aren't involved in administrative tasks can't tell the difference in their practices—just as Austin Heart hoped when it entered into the deal. For the practice administrators, he adds, once they get used to some new forms and procedures, they will find things have changed for the better: They won't have to administer pension and health plans, lease office space or handle human resources. That should free them up to focus on clinical quality instead, he adds.

“It took physician energy to manage that stuff,” Phillips says. “It's probably not the best use of our time. It's not what we're all about.”