Is a Hospital Acquisition the End of the Physician as Businessperson?

If you think your days of caring about practice management are behind you, now that you’ve sold your practice (or are preparing to sell your practice) to a hospital, think again. So argued Marc Halley, an expert in hospital-physician integration to attendees of the MGMA 2010 annual conference October 25.

Hospitals are busy buying up independent practices around the country, as they seek to expand their market share by taking ownership of the referral base. The industry has seen this trend before: Many hospitals pursued a similar strategy in the 1990s, but many of those deals unraveled because of mistakes made by both sides in the structure of the practices under the physician-employment model.

Starting around 1998, Halley said, hospitals that had tried and failed to successfully integrate independent networks of practices started giving up, convinced that independent practices are too unwieldy, and instead started looking for “another silver bullet” to allow them to access market share. But, hospitals have discovered that “there is no other silver bullet. The silver bullet is to connect with physicians,” and so Halley said, “We’re at it again.”

But how to avoid another round of doomed marriages? First, he said, understand the mistakes that were made in the first place, many of which he’s seeing made again:

Many hospitals in the 90s simply overpaid for the practices they bought. Today the purchase prices seem more modest, but the hospitals are overcompensating the clinical staff. They added costly new employee benefits that weren’t covered by additional revenue. They consolidated many practices into centralized medical campuses, driving away patients who found the campuses too distant from their homes to be convenient.

But worse than any of that was (and still is, in some cases) the embracing of a management culture that fails to enforce accountability for low physician production, while allowing the doctors to become “technicians”-highly paid employees who disconnected from practice operations. “I can't tell you how many practices we go into when we're asked to do a turnaround, and the majority of docs are below MGMA benchmarks - the majority. There’s simply too much tolerance in many hospital-owned practices of low physician productivity. Yet physicians often expect to maintain a similar level of independence that they enjoyed in private practice, even though they are no longer independent businesses and aren’t spending their own money.

“Knowledge workers are very difficult to supervise,” Halley said, paraphrasing management guru Peter Drucker. “And physicians are the classic knowledge workers.”

He advises his hospital clients to manage their private practice operations like a network of practices with a common vision but independent cultures, rather than as a single group practice. He suggests using at least two management levels, through physician-chaired “councils” of doctors and hospital executives that are responsible for driving financial performance and clinical excellence, and for holding their peers accountable. One council would set key policies and performance objectives for the network at large. Others would set policies and procedures at each practice level. When a new policy is set by the network council, any intransigent practice within the group would answer to the hospital CEO and network physician chairman.

Well-devised physician compensation plans that allow doctors to control (to some degree) their own income through their patient volume is also key to achieving financial accountability in a hospital-owned network, Halley said.

For more MGMA 2010 conference coverage, be sure to visit our MGMA Conference Insider page.