Hospital-employed doctors opting for independence

Select groups of physicians are saying goodbye to their hospital employers, choosing instead to work for independent organizations, and leaving some experts questioning whether more will follow.

Over a six-month span, two factions of North Carolina-based doctors left their respective health systems to form or join independent physician groups.

About 90 Atrium Health doctors then employed by Atrium sued the system in April 2018 for having allegedly cut their pay and including “draconian” noncompete conditions in a new contract, ultimately spawning Tryon Medical Partners in September.

In March, 42 family doctors, obstetricians and gynecologists who were employed by Novant Health left to join  Holston Medical Group, an independent practice.

Proponents of the moves say that the presence of physician groups not owned by hospitals creates a countervailing force to the power of a health system and improves care. And the stakes are growing ever larger as outpatient care takes on a greater share of revenue in the industry.

Independent physician groups are needed to keep people outside of the hospital and move them through outpatient and other settings that are in the best interest of patients, said Dr. David Cook, a primary-care physician who left Novant for Holston.

Also, an independent model offers more transparency and flexibility, doctors said, noting that it’s important to foster a collaborative rather than competitive relationship with the surrounding health systems. “We want them to remain wonderful hospitals and help them break free from the grips of a system to create real integral change in the outpatient arena,” Cook said. “We feel that the only way we can accelerate that is outside of being an employed physician.”

The level of transparency is a differentiator, said Dr. Dale Owen, CEO of Tryon, which has quickly grown to eight clinics in Mecklenburg County that serve more than 100,000 patients. Tryon recently announced that it joined the new North Carolina State Health Plan Network, which uses a reference-based pricing model under which providers are reimbursed at Medicare rates plus an average of 82%.

Both patient complaints and compliments are rapidly disseminated throughout the group, allowing Tryon to hone best practices and respond quickly, the cardiologist said. Each decision and the rationale behind it is explained rather than “an ivory tower making decisions for everyone in a vacuum.”

“If patients want quicker access with a portal, phone system or online scheduling, all those things can be handled very quickly,” Owen said. “What would take months and a number of committees can be implemented in a couple of weeks.”

The departure of Owen and his peers ignited the exit of Cook, Dr. Ehab Sharawy and their colleagues from Novant, they said. “We didn’t fall into the corporate model,” Cook said. “As corporate physicians where we are embedded in a big system, the alignment to solve for the quadruple aim is not always there.”

Novant said in a statement that the resignations were unexpected, but it values and respects the departing physicians. Novant quickly filled the open positions, the organization said. Both Atrium and the doctors that eventually formed Tryon said they hope to work together to make the transition as smooth as possible.

A few cases of out-migration will not tip the scales. Hospitals and health systems have been on physician acquisition sprees for years and the vast majority of today’s graduates opt for hospital employment. Still, experts question whether in the purported era of transparency, affordability and transition from the hospital hub, this could be the start of a larger movement. “Hospitals thought that the patients are connected to the corporation and the brand—they are really not,” Cook said. “Patients are connected to the nurses and staff.”

Still, less than half of U.S. physicians have ownership stakes in a medical practice, marking a new dynamic, American Medical Association data reveals.

The number of hospital-owned physician practices increased from 35,700 in 2012 to more than 80,000 in 2018, according to recent data from the Physicians Advocacy Institute analyzed by Avalere Health. Forty-four percent of U.S. physicians were employed by hospitals or health systems by January 2018, compared to just 1 in 4 in 2012.

More than 75% of 51 health systems that responded to Modern Healthcare’s 43rd annual Hospital Systems Survey said they plan to employ more physicians next year.

“It doesn’t surprise me at all that hospital employment of doctors is going through the roof,” said Dr. Scott Fowler, CEO of Kingsport, Tenn.-based Holston Medical Group. “I think there is a reversal to a certain degree by doctors who get it.”

Hospitals seek to control referral networks and better align doctors to reduce clinical variation. Meanwhile, more doctors are looking to reduce the business-end burden of healthcare, and physicians are happy to hand that off to health systems’ centralized administrators.

Hospitals’ acquisitions of physician groups represent “the most significant change in the healthcare marketplace in the last decade,” said Richard Scheffler, a University of California at Berkeley professor who recently studied the matter as it applies in California.

In highly concentrated markets in the state, Scheffler’s research found, the employment shift was associated with a 12% increase in Affordable Care Act premiums, a 9% hike in specialist prices and 5% boost in primary-care prices from 2013 to 2016. Part of it is related to facility fees charged in hospital-owned outpatient departments, increased bargaining leverage with insurers and referral patterns that shift more care into the health system network, Scheffler said.

“I can imagine that what is happening in part is the issue of physician autonomy. I think when you get into a healthcare system, by design they lose some of that,” he added.

Still, with the backing of well-capitalized private equity investors, many large physician groups supported by physician practice managers have offered the kind of administrative relief that health systems can provide.

“Where private equity roll-ups start to look attractive again is when they can bring cash to the table to fund some of those big expenses related to administration and electronic medical records,” said Jennifer Breuer, a partner at the law firm Drinker Biddle & Reath.

While it’s too early to tell whether these cases are outliers of dissatisfied doctors or if this is a beginning of a trend, Scheffler said, now the question is how health systems will work with the formerly employed doctors, which could raise some antitrust issues, he said.

“Are they going to somehow or another be kept out of the marketplace by making it more difficult for them to use the hospital when they need it?” Scheffler said. “That is going to be the fundamental issue.”

The employment shift has alarmed antitrust enforcers who have blocked or regulated the purchases of physician practices by hospitals. They’ve even used the seldom-cited vertical merger theory amid rising scrutiny.

In addition to regulators, the transition also has the attention of hospital and health system executives, 53% of whom in a recent Advisory Board survey said that they aim to strengthen primary-care alignment. Physician alignment—which can mean anything from generating referrals for the hospital system to sharing financial risk through a capitated payment model, depending on who is asked—was the third-highest priority.

There are more options for physicians as private equity firms increase their investment in the industry, said Rob Lazerow, a managing director at the Advisory Board.

“We’ve seen the physician employment surge continue, but we’ve also seen some notable shifts,” he said. “Health system executives realize they can’t over-assume the strength of the relationship they have built with physicians.”

Hospital executives are in a difficult place as they try to weigh a health system’s finances with clinical operations. “Hospital administrators have it hard because they still have bricks and mortar to deal with; that’s not necessarily the same interest of a physician practice,” Breuer said. “They have to figure out how to not only keep physicians happy but also move the needle in the right direction. Maybe some of it has to be paying less regard to how the hospital is doing.”

Independent groups offer a more affordable care option than a hospital, which ultimately delivers on patient expectations, Fowler said. If it costs about $45,000 to perform a total hip replacement in a hospital, Holston can do it for around $20,000, he added.

“Service lines that are overutilized in high-cost systems are ones we want to control in our value piece,” Fowler said. “We lose control when we go into models driven by profit rather than value.”

Physicians go into a health system for protection around their salary and getting a payer, Holston Medical’s Cook said.

“We as physicians can become very complacent in that system, which can lead to misalignment—‘I need to fill a bed and make money on high-dollar imaging,’ ” he said. “You don’t wake up and say, ‘How do we do things better from the standpoint of lowering costs and improving quality?’ ”

The Southeast, primarily North Carolina and Georgia, are steeped in fee-for-service medicine. This could be one reason the Charlotte region has seen an exodus of hospital-employed doctors as they step out onto a stable platform where an independent group can launch a practice without taking on additional risk, Owen said.

While it is difficult to pin down other markets that could be ripe for a physician migration, it would likely need to be a larger market with a solid fee-for-service base, experts said.

Only about 28% of physician practices were owned by hospitals in the South and West as of January 2018, compared to 32% and 38% in the Northeast and Midwest, respectively, according to the Physicians Advocacy Institute/Avalere analysis.

“The epicenter of change you are going to see from an independent physician standpoint is Charlotte,” Owen said. “Fee-for-service allows groups to solidify themselves and pave the way for others to come out. You can start up a practice while standing on fee-for-service and morph rapidly into value-based medicine.”

Despite the divorce, it is not about an adversarial relationship with hospitals, he said.

Independent doesn’t mean anti-hospital, it means patient-centric, Sharawy said.

“Healthcare starts in the room between a provider and patient,” he said. “There are things to focus on like economies of scale and a common purpose to grow, but you never take away the self-determination to do what you know is the right way to take care of the patient.”

The city of Charlotte is one of the highest-cost places to receive care in the country, Sharawy said.

Under whatever model physicians operate, stakeholders need to look themselves in the mirror and ask what they can do to make a difference, he said.

“We need to push people and entities into thinking how we can deliver lower-cost care,” Sharawy said. “In that vein, I do think (hospital-employed doctor migration) is a trend that can continue.”