In many communities, tensions between hospitals and physicians are at an all-time high. Recent articles in Modern Healthcare and other media have highlighted stories like these:
* Eight-hospital OhioHealth, Columbus, revokes the privileges of 17 staff physicians who invested in a new surgical hospital.
* The West Allis (Wis.) Memorial Hospital board refuses to validate the election of a physician as chief of medicine because of her investment in a competing cardiac hospital.
* Eastern Idaho Regional Medical Center, Idaho Falls, revokes privileges of five physicians who violated hospital policy by referring patients to a hometown rival, 20-bed Mountain View Hospital, a physician-owned facility in which they were investors.
* Six cardiologists sue Baptist Health, Little Rock, Ark., for revoking their admitting privileges because they are indirect investors in a competing for-profit hospital.
Although hospital-physician economic relationships have long been somewhat ambivalent (even leading to the coining of the neologism co-opetition to describe them), the recent spate of open conflict is unprecedented.
Is the discord all about the money? No, although some of it certainly is. Hospitals have long depended on physicians for their income. Physicians control admissions and play a major role in determining the efficiency and profitability of hospital operations. A recent Merritt, Hawkins & Associates survey showed that the average revenue generated for hospitals per full-time-equivalent physician ranged from $3.13 million for cardiovascular surgeons to $1.65 million for OB/GYNs.
But physicians and medical group managers today face unprecedented economic pressures. Practice revenue per unit of work are flat or declining, while operating expenses climb at about 6.5% annually. Medicare payment rates in 2004 are approximately the same as they were in 1998 and are projected to decline significantly over the next several years. Liability insurance, drugs, labor and supplies are major, and uncontrollable, sources of the rise in expenses. From 1992 to 2002, the proportion of total practice revenue consumed by operating expenses grew from 54.4% to 60.2%. These pressures are further compounded by the growing number of uninsured and underinsured patients seeking care at physician practices, just as they do in hospitals.
Understandably, physicians and medical groups respond to these pressures by looking for new sources of revenue. Adding ancillary services to their practice ranks high on their list of possibilities. The impact of such services on physician income can be profound. For example, adding physical therapy or imaging services to an orthopedics practice can increase physician compensation substantially. In the face of falling payment rates, offering such new services may be the only route a medical group can take to keep its doors open.
But it's not all about the money. The Medicare Payment Advisory Commission recently released preliminary findings from a study showing that physician autonomy and the ability to play a meaningful role in governance are the most significant motivators for the growth of specialty hospitals. Further, there is little question that the overall patient experience for surgical procedures and many other ancillary services in free-standing, physician-operated settings can often surpass that available in hospitals. Patient convenience and satisfaction, and even safety and clinical results can be enhanced. And medical group managers and physicians find that offering these services in their own offices greatly increases physician productivity through less travel time and fewer of the delays often encountered in hospitals.
So is it inevitable that hospitals and physicians will come to blows over competition for surgery and ancillary services? Not necessarily. But avoiding the carnage requires anticipation, planning and leadership. Too often hospital leaders pay lip service to involving their physicians in strategic decision-making. If there were ever a time for that strategy to backfire, it is now.
As a first step, hospital leaders need to initiate a dialogue with their practice administrator counterparts in the medical groups most likely to offer competing services-primarily specialty practices. Administrators of major medical groups can be strong allies in developing physician participation and support for mutually beneficial hospital projects.
If not included in the planning, they can be similarly strong adversaries. Since the majority of the members of the Medical Group Management Association now hold a master's degree or higher, hospital leaders usually will deal with professionals who have excellent business skills and a mind-set for entrepreneurial success. The dialogue must be open and candid if it is to be successful in establishing the essential trust among group practice administrators, physicians and hospital managers.
Second, hospital leaders need to understand the economics of medical practices. If hospitals continue to pursue "build it and they will come" projects without considering their economic impact on key physicians and medical groups, they may quickly find that those projects have, indeed, become "fields of dreams."
Third, early and continuing communication is key. Nothing can undo a project more quickly than rumors that arise from an information vacuum.
Finally, hospitals must decide if they are really serious about treating medical groups and physicians as part of their business, rather than as outsiders. Over the long term, those that build bridges between medical groups and hospitals are more likely to succeed than are those that burn them.
William Jessee is president and CEO of the Medical Group Management Association, Englewood, Colo., and a board member of Exempla Healthcare, Denver.