If I believed in reincarnation, I would think that American hospital CEOs must have done something wicked in an earlier life to be condemned to their current role in this life.
After all, what other managers in modern economies are asked to manage enterprises over whose costs they have so little control? The bulk of their costs are incurred over the signatures of independent, itinerant professionals—self-employed physicians, who view the hospital as their free workshop whose employees they can order to do this or that, incurring this or that cost for the hospital—all without taking any responsibility for the costs they have triggered with their orders. On top of all that, they get privileged parking, free of charge!
Could this work in any other branch of the economy? Surely not.
It has worked in U.S. healthcare only because hospitals' paying clientele include some truly docile and kindly souls—private employers and their agents, private health insurers—who traditionally have more or less passively paid each hospital enough to cover its costs, whatever those costs were.
These kindly payers have thought nothing of paying Hospital A in some city three or more times as much for an identical service than they paid Hospital B in the same city. And no one ever really knew about these payment differentials, because everyone kept them as jealously guarded as trade secrets.
And thus a managerial model that could not possibly work in theory has actually been working in practice for over half a century. Only in America, as they say.
Alas, this wondrous economic arrangement is coming apart at the seams, under a two-pronged attack.
One attack is spearheaded by proponents of accountable care organizations, whose lineage dates back to the 1990s, when they were introduced with great fanfare as “virtual HMOs” or “physician-hospital organizations.” The idea here is that hospitals will be at the center of or a major part of some organization that is held formally and openly accountable for the cost and quality of the healthcare it provides to entire populations. Most of the current ACOs may not fare better in this decade than did their forebears in the 1990s; but the threat that they might become de rigueur cannot be ignored by hospital CEOs.
The other prong of attack comes from the inexorable shift toward high-deductible health insurance, that is, from the idea to control health spending by rationing healthcare more and more by income class. Naturally, the insured faced with high out-of-pocket costs will demand that they be given robust, prospective information on the prices of healthcare charged by competing providers of healthcare. Someone will provide that information.
Acutely aware of these threats, hospital CEOs now seek to gain control over the itinerant professionals who drive their costs, simply by bribing them with sizeable upfront payments to become the hospitals' employees. This preemptive strike is now proceeding at a feverish pace all over the land.
Unfortunately, in the short run at least, converting hitherto itinerant physicians into employees appears to be a money-losing proposition. For one, there are high setup costs, as hospitals must cover not only the upfront bribe, but also offer added office space, generous fringe benefits and so on. Furthermore, converting hitherto self-employed physicians into hospital employees is no easier than domesticating eagles.
So what advice could one give the legitimately anxious hospital CEOs?
First, developing five-year plans on the premise that the traditional, cost-plus reimbursement model will persist for very long is a bad idea. It probably won't.
Second, consider the upfront losses you take on newly employed physicians as just another investment in the long-term future of your enterprise.
Third, do not treat physicians as regular employees. Work to avoid their resentment against too distant and too opulent a C-suite. Instead, as much as possible, make physicians feel part of the management team that jointly makes or breaks your enterprise. That includes regularly sharing managerial and financial data on your enterprise. Speaking as a professional, I believe that in this regard proper respect is much more important than any financial incentive you might pay physicians to join you in the collective challenge ahead.
Fourth, and finally, consider a workable alternative to employing physicians—e.g., the Kaiser Permanente model, the mother of all ACOs.
