Hospitals continue to add physicians at a brisk pace, defying predictions that the practice acquisition binge would end in a fiscal fiasco.
Unlike the 1990s, when system purchases of physician practices led to losses and an unwinding of many deals, hospital systems this time around appear to have found a way to absorb the costs associated with employing physicians, which usually include a steep overhead tab and the higher salaries and benefits paid for office-based specialties. Experts point to the welcome influx of paying patients from healthcare reform, efficiencies associated with hospital consolidation and the continued improvement in the overall economy as factors offsetting those higher costs and cushioning hospitals' bottom lines, at least for the moment.
But just as significantly, hospitals have taken a number of steps to hold down costs related to their physician-practice acquisitions. They include leveraging their heavy investment in health information technology, focusing their acquisition strategy on primary-care practices and moving quickly to standardize physician activities at the newly acquired practices.
“Obviously, there's an investment to be made in bringing them on,” said Paul Marmora, executive director of the medical group at Atlantic Health System in Morristown, N.J., which grew to 383 employed physicians in 2014, up from 316 the previous year. But “the costs will come down as we share some of the best practices,” he said.
Health systems across the country are continuing to expand the number of physicians they employ despite the increased costs that come with having physicians on staff. Physician employment increased 3.8% between 2013 and 2014, according to Modern Healthcare's annual Systems Survey, which this year included responses from about 80 health systems across the country.
But few are writing big checks simply to inflate their totals. System officials say they are becoming more selective about which specialists they hire. They are also looking more closely at compensation models and how they integrate the new physicians once they are on board.
Spectrum Health in Grand Rapids, Mich., had a 40-member primary-care group just six years ago. Now the number of employed physicians has swelled to 668, including a 10% bump since 2013.
Much of the growth has come as the system has expanded farther into western Michigan through the acquisition of several rural hospitals. But it is also part of its strategy to expand service lines and build up its tertiary and quaternary care offerings.
“We don't see this slowing down,” said Dr. David Ottenbaker, associate chief medical officer at Spectrum Health Medical Group. The number of employed clinicians could conceivably reach 1,500 by 2020, he added. “We call it growing with purpose. We want to grow where it makes sense.”
Demand is particularly high for primary-care physicians, the backbone of both referral networks as well as value-based care models that emphasize keeping people healthy. “The supply and demand equation for them has turned upside down,” said Bob Collins, managing partner at The Medicus Firm, a physician recruitment agency. “There's an arms race for primary-care providers. By far, that's where there's the greatest angst and need.”
Spectrum and its insurance arm, Priority Health, are not participating in accountable care organizations. But physician employment will allow them to consider adding risk-based contracts, where they will be paid based in part on outcomes, Ottenbaker said.
“At the end of the day, we're committed to driving down costs,” he said. “Our goal is always to get into the bottom quartile for cost and the top quartile for quality.”