The Stunning Shift Toward Employed Physicians

The Stunning Shift Toward Employed Physicians

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By DAVID E. WILLIAMS

I’m amazed at just how quickly physician employment has swung from small independent practices to hospital-based employment. I’ve heard about it anecdotally from medical societies and malpractice carriers who are seeing their constituents shift, and have certainly observed the shift from individual physicians, but I’m still surprised how fast it’s occurring. A new report from recruiter Merritt Hawkins tells the clearest story I’ve seen:

  • In the last 12 months, 56% of physician search assignments have been for hospital jobs, whereas 5 years ago it was just 23%
  • Just 2% of assignments were for independent, solo practice docs compared with 17% 5 years ago

Doctors are becoming more like regular wage earners, albeit high paid ones. There are some strong drivers of this trend including the need to support health information technology, comply with regulations and deal with health plans. There’s also a desire on the part of a younger, increasingly female physician workforce to have a better balance between work and home life. If anything the forces pulling physicians into hospital employment will strengthen in the near term with the arrival of Accountable Care Organizations and other forms of deep integration.

Yet when a pendulum swings it tends to swing too far. Especially considering how quickly things have moved, I do expect that there will be some backlash to the rush into employment. It’s really not all that much fun having a boss, especially when that boss is a big, bureaucratic hospital with other things on its priority list besides MD satisfaction and career development. Patients may not like it so much either. I know I’d rather see a physician who’s not too tightly tied to a hospital.

So what will the reversal look like? I don’t think it’s going to be doctors rushing to put up their own shingles or buy practices of retiring docs like in the old days. Instead I expect to see a new breed of physician employers who recognize what’s needed to make docs happy, treat patients well, manage compliance, and still make money. One example is so-called direct primary care practices such as Qliance. Time will tell what other forms develop.

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85 Comments on "The Stunning Shift Toward Employed Physicians"


Guest
Jun 13, 2011

Finally. The difference between professional compensation and corporate profitability is one of the least appreciated realities of health care. Not just physicians but all medical professionals deserve the highest compensation possible consistent with market economics. But as anyone who understands how to read a P&L knows, compensation and other benefits are expenses, not revenue, and by definition are a drain on bottom line profits.

At the intersection of billing and healing, doctors in “private practice” are double-dipping and the fee-for-service business model is being forced to change.

Guest
Jun 13, 2011

“doctors in “private practice” are double-dipping ”

John, I don’t quite understand what you mean here….

Guest
Jun 14, 2011

Margalit, that’s my short cut (okay, cheap-shot) way of pointing out that doctors in private practice wear two hats. As a physician/healer the doctor is paid for professional expertise. And as an entrepreneur/investor doctors. either individually or as part of an investment group, get income from a corporate investment.

In other words, a doctor working for wages and benefits as an employee of a hospital, clinic or other facility such as this column describes is receiving professional compensation, leaving business and investment problems to someone else. Contrast that with the medical entrepreneur worrying about leasing and depreciation, building and equipment maintenance, subordinate staff wages and benefits, and all the other time-consuming, pressure-cooker demands that come with running a business enterprise. If I were a newly-minted doctor I would take the professional position in a flash and hang up a shingle only if I had no other choice.

Unfortunately (or fortunately) most doctors are better at medicine than business. But like other highly-paid professionals they often find themselves awash in so much income they feel the need to “invest.” Consequently the marketplace is crowded with competing enterprises owned and operated by groups of doctors who often find their professional success tied more to a corporation than their well-deserved but then endangered professional competence.

Medical professionals should receive the best professional compensation the market allows, but that is certainly not the same as corporate profits for a business venture. Let investors bear the risks of corporate success or failure in the market while allowing the medical professionals the same security of good compensation that comes more from performance than investing.

Does that help?

Guest
Barry Carol
Jun 14, 2011

John –

The problem with your comment is that you cannot become rich in America working for a salary, even a high salary that is subject to ordinary income taxes. You get rich, putting inheritance aside for the moment, by being an owner of or partner in a successful business. For corporate executives, that means stock options and restricted stock awards. For others, it’s investing in real estate, oil and gas ventures, media, and a host of smaller business opportunities.

For an orthopedic surgeon, it might be working with a device manufacturer to develop a more effective or longer lasting device on which he can then earn royalties. For an oncologist, it might mean working with a biotech company on the development of new cancer treatments in exchange for stock options or stock awards. I don’t fault doctors who aspire to become wealthy. I think they can still be very good doctors and not over treat their patients.

That all said, when it comes to primary care, the trends including the need for more technology investment, more regulation, pay for performance approaches, capitation, etc. make it more attractive to be a salaried doc in a hospital or large multi-specialty group practice than to work solo or in a small group.

Guest
Craig "Quack" Vickstrom, M.D.
Jun 14, 2011

@Barry,

Maybe not all people who go into medicine do with the desire to “get rich.” My father told me several times growing up, “there is no such thing as an honest rich man.” Meaning that the only ways to get rich is to steal or defraud. Point out to me a “self-made millionaire” and you’ll be pointing to someone who cheated somebody sometime. In this corrupt, fallen world in which we live, there simply is no way to amass a huge fortune and do so without cheating someone.

So no, I’m not rich, and don’t want to be rich. I make a good living providing a valuable service at market price, using my own skill and knowledge. That is all I want or need.

Guest

Ahhh.. a breath of fresh air. Thank you.

Guest
Jun 16, 2011

Agree.
(Mathew, any way to get a “like” feature in the comments thread?)

Guest
Jun 14, 2011

Barry, I’m in complete agreement with you. Few people will ever earn as much as they want and the traditional alternatives include what you described, as well as consulting fees or originating some breakthrough performance technique which transforms a specialty. But those are the exceptions, not the norm, which unfortunately is crowded with more pedestrian operations vying for “market share.”

A few film stars eventually become producers, some sports stars become franchise owners, In time big-name entertainers can get their own record label, and at least one Oprah cranked up her own network. But these are the exceptions, not the rule. I’m sorry, but for every Magic Johnson their are thousands of highly-paid basketball stars who have saved, redirected and invested their income in ways that furnish comfortable lifestyles for two or three generations, over and above their earnings alone.

These are not the people I have in mind when I tossed out that “double-dipper” snark. That barb is aimed at the fee-for-service manipulator who (to use a phrase Margalit used in another comment) “upcode(s) diagnoses so the panel looks sicker ” or contributes to the large and growing number of questionable tests and procedures that yield little more than a healthier revenue stream.

When healing and profitability pull in opposite directions where do you think my sentiments fall? As one of Maggie Mahar’s fans I give you one guess. Thanks for reading.

Guest
Jun 14, 2011

John,
I am afraid that healing and profitability may be pulling in opposite directions all over the spectrum of care delivery, but somehow, I feel that this pull is less significant in a small private practice. Sure, the physician wants to maximize revenue, and some may upcode, and others may buy a dexa machine or some in-house analyzers, stress test stuff and so forth. Very amateurish and not significant in the big picture.
However corporate medicine is a different story altogether. They have the financial and business expertise to really bring in the big bucks. On top of that, they are the ones creating a double dipping effect. When those corporations buy a private practice, they still have to pay the doc whatever he took home before (at least for a little while), they still have the same, or greater overhead (small practices are very lean and efficient), but now they also have to create some sort of profit for the organization. How do you do that? Either by charging insurers more for the same exact service from the same exact physician, and by creating more ancillary profits (tests, referrals, procedures, admissions, etc.).
If the few profiteering independent physicians are akin to petty thieves, then corporate medicine is like organized crime.

And what is wrong with fee-for-service? We pay fee-for-service on almost everything else we purchase. If people want to commit fraud, they’ll find a way, whether you pay fee-for-service, capitation, by the bundle, or any other arrangement, and unlike a small time doctor, big corporations have the means and expertise to do it all, and avoid paying taxes on top.

Guest
Jun 14, 2011

Margalit, I defer to your knowledge of healthcare. I’m sure your take on the big fish eating the smaller ones is right. And I hope you are correct about the healing vs. profits tension being less ominous for smaller practices than big ones.

“If the few profiteering independent physicians are akin to petty thieves, then corporate medicine is like organized crime.”
That’s in the wish-I’d-said-that category.

And fee for service is also not altogether bad by definition. When I take may car to be repaired or contract to build a house, it’s clearly necessary to tally up the main parts and services to make sense of any invoice.

But itemizing aspirin, sponges, and the like (I’ve seen some shocking items on a hospital bill or two), along with some arbitrary, always extravagantly out of sight, room charge…. is like having an auto repair bill list an upcharge for the courier service that delivered a part, or having a building contractor itemize fixtures used by an electrical sub-contractor. There comes a point when fee for service gets over the top.

And as you mentioned “charging insurers more for the same exact service from the same exact physician” is plainly out of line. Charges should be to patients, not insurers, based on actual costs plus operational expenses whether for profit or not. The practice of sending higher bills to insured patients than to those paying cash should be considered a violation of best practices. But I know that if I tell the business office I am paying my own bill the result might be an instant reduction of the charge. I know people insured with one of those high-deductible policies who pay cash for the first five grand every year and they know from shopping around the price spread is ridiculously vast, clearly not reflective of any actual “costs.” And when an uninsured family member informed a podiatrist he was gonna pay his bill himself because he didn’t have insurance the doctor reduced his charge dramatically on the spot… which underscores your point -, btw, about small practices being more tractable than the healthcare factories.

After a lifetime in the business world my post-retirement work has been in the health care environment and I am amazed at the un-businesslike practices I have observed. I could rant for a page or two about percentages, budgeting, write-offs and stuff, but cutting to the chase my impression of what passes for “billing” is “throw a bunch of sh** against the wall, see what sticks, and write off the rest.” It makes my head swim to think about it. From what I have seen, the quality of healthcare is tolerably okay but the business aspect is an economic train wreck.

My guess is that if the true costs could be measured — sans over-rides, waste, marketing, kickbacks, tax schemes and the rest — the outcomes would look much better on those world-wide comparisons because we ain’t spending as much on healthcare as we are losing on non-healthcare related expenses.

Guest
Jun 14, 2011

‘…we ain’t spending as much on healthcare as we are losing on non-healthcare related expenses.”

I completely agree. When people talk about finite resources and the need to ration care, I always have this uneasy feeling that we are nowhere close to exhausting our resources, if we just spent them on actual care delivery, including sizable incomes to those who deliver care directly.
Judging by the recent frenzy of everybody and their grandma, from accountants to lawyers to guys selling computer cables, to “get into healthcare” nowadays, this is about to get much worse.

Guest
Peter
Jun 14, 2011

What the hell is wrong with a rich doctor? I don’t get it?
It is okay for a movie star to be rich, but not a doctor? Please.

Admin
Jun 14, 2011

The real problem that David scoots over is that hospitals make a LOSS on the doctors practices they purchase. We’re talking about hospitals forming ACOs and reducing overall costs. But I ask you, if they’re all buying doctors’ practices and losing money on each one they buy–won’t they make it up on extra services delivered elsewhere?

Guest
Barry Carol
Jun 15, 2011

“But I ask you, if they’re all buying doctors’ practices and losing money on each one they buy–won’t they make it up on extra services delivered elsewhere?”

Matthew –

Not necessarily. I think their expectation is that if the hospital owns the practice, it will capture more of the physician referrals and hospital admissions thereby increasing its market share. Moreover, it is likely to incorporate some measure of productivity in its compensation system, especially for determination of bonuses, in order to encourage the doctors to drive revenue for the mother ship. So, in the end, I think it’s more about driving market share than increasing services provided per patient.

This dynamic is probably not a good thing from a system perspective because it could easily drive cost higher if the market share winners are the hospital systems that already have the greatest market power, market share and prices per procedure. While ACO’s as currently proposed have the potential to increase care quality by reducing duplicate testing and adverse drug interactions and, possibly, hospital readmissions, they are likely to cost far more to establish than the government thinks. In all likelihood, only hospitals will be able to afford the cost and manage the complexity. Also, most of the costs to run a hospital are largely fixed in the short to intermediate term. While payers want to keep patients out of the hospital, hospitals want to fill beds and salaried physicians who work for hospitals are likely to be incentivized to do just that. Risk adjusted capitated payments and global budgets sound fine in theory but they are unlikely to work in practice without rationing in my opinion.

Guest
tcoyote
Jun 15, 2011

Barry is right. Hospitals are buying hospital revenues by purchasing physician practices, but the yield is declining rapidly and the losses are greater than the last time hospitals tried this twenty years ago.

This physician practice buying binge is different from the 1990’s version in several important respects. First, there are no physician practice management firms bidding up the price. Second, rather than buying primary care physicians cheap, hospitals are buying specialists- cardiologists, oncologists, surgeons. Until the ACO came along, there was no strategic reason for this.

These specialists had become absurdly dependent on self-referred imaging revenues (nuclear scans, CT, PET and MR), and when the feds cut imaging payments in the 2005 Deficit Reduction Act, their practice business models collapsed. (This was the real double dip that Ballard referred to, not simply charging for physician visits.) A small cardiology group would come to the hospital and say “Do you want all my angioplasties and bypass referrals-or none?” It was highway robbery. Hospitals scrambled to avoid losing the business and gave them absurd income guarantees far in excess of their present (imaging depleted) incomes.

When these contracts expire, there will be a work out period and many will be cut loose. Hospitals cannot afford to continue losing money at the arterial bleeding level they are now, and many will be found to have violated Medicare anti-kickback statutes when the feds look at the contracts. This is going to be a huge mess.

After the debacle with Phycors and MedPartners, it will be a very long time before Wall Street pours capital into physician practice management, but they may back existing multi specialty or single specialty groups desiring to expand and take capitated risk/disease management fees. With the ACO idea melting down, it’s far from obvious how hospitals (or patients) benefit from the sudden, opportunistic surge in physician employment.

Guest
Jun 15, 2011

“Hospitals cannot afford to continue losing money at the arterial bleeding level they are now, and many will be found to have violated Medicare anti-kickback statutes when the feds look at the contracts.”

Help me understand how hospitals are losing money. I already know about uncompensated ER care, declining Medicare/Medicaid reimbursements, and insurance companies that play hardball. But a lot of hospitals have an impressive amount of expensive amenities having nothing to do with healthcare. Live plants inside and a landscaping regiment outdoors, marble floors and multi-story entrance lobbies with high-end light fixtures that would look good in a four star hotel. I expect to pay more in a shopping mall to stroll about in air conditioned comfort, and someone has to pay for the fountains, escalators and remodeling every five or ten years. But my expectations for a hospital are not the same. I’m happy if the staff is friendly and I can get coffee in the waiting room.

Even with all that, the charges are out of sight. Are they getting ripped off for the latest state of the art equipment? I know technology is advancing rapidly, but are the new toys really all that wonderful? Please don’t tell me executive compensation and marketing are eating all the money.
~~~~~~~~~~~~~~~~~~~~~
Incidentally, does anyone have comments about the arrangement mentioned by the author, David Williams? Looking at the link, it appears to be something of a group concierge arrangement but I didn’t see how the monthly retainer fee would be determined.

Guest
tcoyote
Jun 15, 2011

Health systems are losing millions of dollars a month subsidizing physician practices under absurd, often illegal, income guarantees.
All other things being equal, those losses are unsustainable, even if hospital generated incremental hospital revenue from employing the docs. There has to be a sustainable logic to physician employment for hospitals, a sustainable return on the investment. Where is it going to come from? Certainly not from ACO’s, or the other ACA science projects. And it isn’t going to come from “synergies” or “better co-ordination” from salaried practice either.

Not to disagree that there’s a lot of waste, excessive compensation and lots of other things you suggest in the hospital world. Hospitals are not going to be able to pass along the cost of avoidable expenses under the price control regime ACA will bring to private health insurance; ACA will cut off the ability to cost-shift.

Guest
Jun 15, 2011

and I don’t see how physicians benefit from this employment surge either, at least in the long run. When those initial contracts run out, there will be an equal surge in realization that incomes are about to plummet and non-compete clauses outlast the high payment agreements.
Once patients are added to the purchasing system panel during practice acquisition, they are there to stay and few if any will be willing (or able) to follow their original doctor when he decides to leave, or when he is asked to leave.
So I agree with Barry as well, it is about market share, which translates directly into higher per unit (or per head) revenue from private payers. That’s probably the same reason hospitals are merging with each other as well (like the recent deal in KY). Independent hospitals, just like independent doctors are becoming an endangered species in this power game. There is nothing in it for patients or consumers or individuals of any type or profession.

Guest
DeterminedMD
Jun 16, 2011

Responsible health care is terminally ill, and everyone is to blame for the coming demise.

I love watching how more organizations are turning to Nurse Practitioners and other non-MD providers to provide true physician services. An absolute failure, just to save money.

You get what you pay for, yet, that adage is just ignored these days!

PS: here’s a link to make your days!!!
http://www.nypost.com/f/print/news/opinion/opedcolumnists/how_obamacare_destroys_your_privacy_zItwZSGoI661FeB1iC5POI

Guest
Jun 16, 2011

Sounds so noble to toss off “just to save money” but that is the cold-blooded bottom line, sir. And citing an insurance spokesperson to underscore your point is significant. That let-them-eat-cake approach to those who can afford neither medical care nor insurance is the reason for your “coming demise.” You are absolutely correct to say you get what you pay for. Millions of people are getting just that — nothing — because that’s exactly how much they can pay.

Nearly half the working population does not pay income tax because they don’t earn enough, yet they still chip in payroll taxes (for which there is no standard deduction) from the first dollar they earn in order to fund Social Security and Medicare. And anyone who thinks those who don’t earn enough to pay income tax can afford decent health care with or without insurance is living in a fool’s paradise.

Guest
DeterminedMD
Jun 16, 2011

No it is not a bottom line issue in health care, sir, but it is about putting providers in positions that they are qualified to treat, not recklessly substitute! Your rationalizing and minimizing does not validate poor decisions and intentions.

I’ve said it before and now again, we expect to live beyond our life expectancy as a species, and the entitlement and flagrant selfishness that in nearing pandemic levels in this culture especially will bankrupt us all in multiple forms. Reading these threads just reinforces what disgusts me of the politics that comes out in these forums, that being the extremist rhetoric of liberals and conservatives who are only interested in their party and ideology survival, not the well being of the public at large.

Hence why I rarely come here anymore but to share a link that says it better than I do.

You want to save health care, people? Start with yourselves, by asking these questions: What is quality of life to me, what are my abilities to maintain or resume it, and when do I call it quits that is as much if not more fair to those around me as much as for myself?

Look in the mirror and honestly, candidly answer these questions, and maybe things have a chance to rebound in a responsible, effective manner. Until then, bash your heads in fighting your opposite but equally rigid and inflexible opponents!!!

Guest
Jun 16, 2011

It’s time for Docs who scrambled to obtain their coveted MBAs circa 1980s and 1990s to trade them in for MPHs going forward

You want to run a business? Leave the profession of Medicine

Guest
Lynn
Jun 16, 2011

Medicine has become a business. It is no longer a profession. Now it needs to run like a business. If physicians are employees they need to be compensated as an employee. As an economist that means their salary must be less than equal to the marginal revenue they contribute to the firm.
Current Medicare regulations limit a hospitals ability to pay a physician based on their productivity because that would be a violation of Stark…paying for referrals. There is no way to make the current irrational fee for service system work rationally unless the law/regulations change. Thus we face the quandary of viable ACOs.
Why is it that we can’t simply accept that medicine is now a business? Let of the myth its a profession.

Guest
Jun 16, 2011

Lynn asks:

“Why is it that we can’t simply accept that medicine is now a business? ”

First, a business strives first, and foremost, to make profits–for its owner, for its shareholders. A good business also tries to deliver a good product to customers, but under U.S. law, a corporation’s first responsibiltiy is to its shareholders, not to its customers..

Customers are told: “Caveat Emptor”– “Buyer Beware.” An educated consumer is expected to understand that the seller will be trying to charge as much as possible– while spending as little as possible on manufacturing and delivering the product. It is up to the consumer to figure out whether he is being short-changed.

Within the healthcare “business” the so-called “consumer” is a sick person who often is in pain, scared, and elderly. We spend 70% of our health care dollars when we are seriously ill. We are not in good position to negotiate prices, or wait for a better buy. If you have cancer and doctor or hospital tells you: “You need this treatment,” and you discover that it costs $$$$, you can’t say: “I’ll wait until competitors come out with a less expensive version. of that treatment.” You can’t say: “I think I can get along without it.”

Secondly, there is the problem that in our economy , businesses are, focused on “growth.” If they don’t grow profits, they won’t attract investors.

But as former NEJM editor Marcia Angell points out, insofar as health care has become a business “the pressure is to increase total health care expenditures, not to reduce them.” Here corporate goals conflict with society’s need to make heatlh care affordable.”Presumably, as a nation we want to constrain the growth of health care costs,” Angell adds. “But that is not what businesses do.”

Finally, as Paul Starr wrote in the final chapter of his Pulitzer-prize winning “The Social Transformation of American Medicine” as health care became a business, “the goal driving [health care planning is ] no longer bbetter health, but “the rate of return on investment.”

Drug companies, hospitals and others decide where to invest based, not on what patients need most, but on where their investments will create the greatest profits. Thus, drug companies invest in more allergy medications (a huge market) and cancer drugs (people are willing to pay anything) rather than resarch into trying to understand Alzheimer’s. And hospitals invest in cath labs (big profit-makers, though we do way too many unnecssary procedures ) rather than palliative care (which would insure that patients don’t die in pain.)

Thanks to John Ballard for calling my attention to this thread.

Guest
DeterminedMD
Jun 17, 2011

How ironic I agree with Ms Mahar for once, yet random chance statistically is 1 out of 20, so I guess we are at the 20th discussion.

And yet, Ms Mahar, per your writings, you seem to be an ally to the mentality of just making doctors assembly line workers. Strange you comment here sounding like you diverge from that philosophy now.

Or, maybe I am just mistakenly interpreting your comment.

Guest
Jun 17, 2011

I’m sure Maggie can speak for herself but “…you seem to be an ally to the mentality of just making doctors assembly line workers” is waaay off base. That line makes me think you have neither read her book nor seen the documentary.

Guest
Jun 16, 2011

June 16, 2011 at 5:45 pm Lynn asks:

“Why is it that we can’t simply accept that medicine is now a business? ”

First, a business strives first, and foremost, to make profits–for its owner, for its shareholders. A good business also tries to deliver a good product to customers, but under U.S. law, a corporation’s first responsibiltiy is to its shareholders, not to its customers..

Customers are told: “Caveat Emptor”– “Buyer Beware.” An educated consumer is expected to understand that the seller will be trying to charge as much as possible– while spending as little as possible on manufacturing and delivering the product. It is up to the consumer to figure out whether he is being short-changed.

Within the healthcare “business” the so-called “consumer” is a sick person who often is in pain, scared, and elderly. We spend 70% of our health care dollars when we are seriously ill. We are not in good position to negotiate prices, or wait for a better buy. If you have cancer and doctor or hospital tells you: “You need this treatment,” and you discover that it costs $$$$, you can’t say: “I’ll wait until competitors come out with a less expensive version. of that treatment.” You can’t say: “I think I can get along without it.”

Secondly, there is the problem that in our economy , businesses are, focused on “growth.” If they don’t grow profits, they won’t attract investors.

But as former NEJM editor Marcia Angell points out, insofar as health care has become a business “the pressure is to increase total health care expenditures, not to reduce them.” Here corporate goals conflict with society’s need to make heatlh care affordable.”Presumably, as a nation we want to constrain the growth of health care costs,” Angell adds. “But that is not what businesses do.”

Finally, as Paul Starr wrote in the final chapter of his Pulitzer-prize winning “The Social Transformation of American Medicine” as health care became a business, “the goal driving [health care planning is ] no longer bbetter health, but “the rate of return on investment.”

Drug companies, hospitals and others decide where to invest based, not on what patients need most, but on where their investments will create the greatest profits. Thus, drug companies invest in more allergy medications (a huge market) and cancer drugs (people are willing to pay anything) rather than resarch into trying to understand Alzheimer’s. And hospitals invest in cath labs (big profit-makers, though we do way too many unnecssary procedures ) rather than palliative care (which would insure that patients don’t die in pain.)

Thanks to John Ballard for calling my attention to this thread