The Contented Doctor: Hospitals, Health Networks Provide Physicians with Financial Stability

History repeats itself. For example, consider that beginning in the mid-1980s, US hospitals and large healthcare groups began buying up primary care medical practices in an effort to better deal with the advent of managed care.

“Coming together is a beginning. Keeping together is progress. Working together is success.”—Henry Ford

History repeats itself. For example, consider that beginning in the mid-1980s, US hospitals and large healthcare groups began buying up primary care medical practices in an effort to better deal with the advent of managed care. Much of that activity cooled around 1998, but by 2003, these same hospitals and healthcare groups began realizing that they were losing market share.

“Primary care providers were the source of that market share because they would drive business to specialty physicians in hospitals,” explains Marc Halley, MBA, the CEO of Halley Consulting Group and author of The Primary Care — Market Share Connection: How Hospitals Achieve Competitive Advantage. So, once again the push was on to employ primary care physicians so as to recoup lost market share—a trend that continues today.

Only this time around, primary care physicians have added incentive.

Everybody is Motivated

Today, not only are hospitals and large health systems actively looking to own and operate primary care practices, both primary care physicians and specialists are looking to these entities for employment options rather than starting a private practice. The key reason, says Halley, is financial security.

“We’re seeing more hospitals buying practices and providing a more secure income for physicians,” Halley explains. “Even physicians coming right out of residency, they’re so saddled with debt that they’re just not in the mood to be entrepreneurs and take on more financial risk.” (The average medical school graduate now faces nearly $140,000 in education debts.)

Those sentiments are echoed by Nelson Fernandez, MD, who a year ago joined SelectCare of Texas as medical director after owning a private practice for 25 years. “It’s very simple,” Dr. Fernandez explained. “Reimbursement from Medicare and all commercial payers has been decreasing, or at a maximum, maybe increasing one percent a year. That doesn’t catch up with inflation. When I had my practice, at a minimum I would see a 5% increase in expenses across the board—fixed expenses that I could not impact significantly. So doctors are seeing their profit margins shrinking and shrinking.”

But jumping off one bandwagon and onto another is easier said than done.

Think Team

Halley points out that there is a common misconception on the part of physicians, particularly those who are young and inexperienced and fresh out of medical school. The belief is that if they work for someone else, all they have to worry about is the clinical side of the ledger, and let someone else take care of the business side.

“Of course, that’s a foolish notion,” says Halley, “because even if you’re employed you need to be engaged in the business if you’re going to be successful and protect your own future. And physicians can learn that. Even though it’s not taught in medical school, they can pick it up very quickly.”

Both Halley and Dr. Fernandez agree that the most successful practices, regardless of who owns them, have physicians who are engaged and understand what it takes to be productive from a business perspective. Even in large networks, says Halley, “you can’t mandate that kind of energy from an ivory tower. You have to make sure the decision-making is pushed as far out to the practice level as possible so that physicians are engaged as partners in the process.”

Make the Right Choice

Physicians need to select the right hospital or healthcare network the same way physician-investors need to do their homework when making investment decisions. For example, Dr. Fernandez explains that SelectCare of Texas was originally established by physicians, and today, the partnership with physicians remains solid at every level of the organization.

“If you belong to a huge network and you’re just a small person with little or no say, you take it because of the financial security, but you’re unhappy because you have little recourse in getting things done,” says Dr. Fernandez. “You have to choose a plan where, at a minimum, you trust the working relationship.”

Halley points out that hospitals and health systems are very good at running hospitals and health systems, but not so good at running medical practices. “They’ve made a bunch of errors, and physicians have too,” he says. “One of which is selecting the wrong partner. If you select a hospital where senior leadership isn’t ready to help you be successful in the practice of medicine, you may gain a little bit of financial security in the short term, but your quality of work life becomes a source of great frustration.”

In contrast, selecting the right partner not only means stability in terms of paychecks, benefits and well-funded retirement plans, but access to capital. “Hospitals do generate capital, and that can provide for equipment and staff,” says Halley. “And when it comes to negotiating with insurance carriers, it’s a whole lot nicer to negotiate as a member of a physician network than a three or four provider office.”

Ed Rabinowitz is a veteran healthcare writer and reporter. He welcomes comments at edwardr@ptd.net.

12%Percentage of Americans with the skills to manage their own healthcare proficiently.(Agency for Healthcare Research, 2008)

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