Santa Barbara, Calif.-based Tenet Healthcare Corp. is severing contracts with a number of physicians in the Philadelphia area and embarking on a plan to reduce its physician network across the country.
By the end of July 2001, the health system's total number of physician practices will be down to about 500, a 50% reduction from its peak last year, according to Tenet spokesman Harry Anderson. Tenet lost approximately $100 million on its physician practices in fiscal 2000.
Tenet, the nation's second-largest hospital chain, is the latest health system to announce that it is reducing its physician network. Others include MedStar Health in Columbia, Md., (see May, page 6) and Memorial Hermann Healthcare System in Houston (see April, page 84).
According to Anderson, Tenet did not actively pursue physician acquisitions but inherited a large number of practices through several hospital acquisitions.
Now, the system is focusing on returning to its core business and returning physicians to private practice.
"We said as long ago as our last annual report (last summer) that we were going to substantially reduce the losses in physician practice management," he says.
"What we want at the end of the day is a win-win situation. We want the doctors to have what they need and for us to be out from under this substantial red ink," Anderson says.
Tenet acquired eight Philadelphia-area hospitals, Allegheny University of the Health Sciences and the practices of 170 physicians from Pittsburgh-based Allegheny Health Education and Research Foundation in November 1998 for $345 million after AHERF filed for bankruptcy. Tenet extended 90-day contract extensions to the 170 physicians, then pared that number down to the current 110. Although Anderson would not confirm the number of contracts being terminated, the number is estimated to be between 30 and 40.
According to Anderson, the Philadelphia practices being sold this time were evaluated on a case-by-case basis, and terminations are based on economic performance and long-term benefits for the hospitals. The terminations are not acrimonious, Anderson says, and Tenet hopes to maintain referral relationships with the physicians. Tenet is offering some assistance, including administrative and in some cases financial assistance, to physicians who are being terminated. Tenet declined to offer specifics on terms of the sales.
"We're going to work with them heavily in terms of building their practices and making them successful," Anderson says.
Hospitals and health systems bought physician practices at breakneck speed in the mid-1990s, but by the late '90s many of those systems were suffering tremendous losses. Physician productivity often declined after acquisition, and the health systems struggled to cover physicians' salaries and the expenses of acquisitions.
"We've been saying for more than a year that we're going to significantly reduce our losses in physician practice management, and we're doing that by returning many of the physicians whose practices we own or manage to entrepreneurial private practice," Anderson says.
Harris Clearfield, M.D., chief of gastroenterology at Tenet-owned Hahnemann University Hospital and president-elect of the Philadelphia County Medical Society, says the general mood among Hahnemann physicians now is "cautious optimism."
Clearfield says he's been "pleasantly surprised" by Tenet and is comfortable with the system's plan to transition physicians back to private practice.
"The concept of buying up physician practices was appealing to me several years ago. I thought it was a good idea and it made sense to have a network of referring physicians," he says. "But we didn't realize the end result would not be financially sustainable."
Jeff Peters, president of the Chicago-based consulting group Health Directions, a subsidiary of ZA Consulting, says that not all systems are pulling out of physician ownership. In fact, he says, some systems are actually picking up more practices.
"I would not say everyone's exiting. At the most, 50% are," Peters says.
"Some of the better hospitals are getting their losses down to about $20,000 or less per (employed) physician. What they've found is it gives them such leverage with managed care and such a vehicle to pursue new markets that they're seeing it's a sustainable strategy," he says.
Peters points to markets like Chicago, where the hospitals that are thriving (Northwestern Memorial Hospital, University of Chicago Hospitals and Evanston Hospital) all have large physician networks. Meanwhile, other inner-city hospitals that do not have physician networks are struggling.
"What they've done is not manage the practices like hospitals but manage the practices like physicians do," he says. "They make sure physicians are in the leadership process and that the strategy is being driven by physicians. Then they align hospital and physician incentives, meaning the physicians are compensated based on bottom-line performance."