Seeds of Destruction

I never used to talk much with hospital CEOs. After all, if you’re running a hospital, improving the revenues of the physician practice by 6%, when the physician revenues only make up 10% of your overall revenues, doesn’t really make it to the scheduling screen.

Now it seems that hospital CEOs are the only new people I meet. In fact, I recently had dinner with over 100 of them at a meeting of the Leadership Institute in Washington, D.C. I gave the breakfast speech the next morning…it was awkward.

You see, I’m dying to be liked by these people—all people really—but these are health system/hospital CEOs and CMOs, many of whom are currently thinking about adding hundreds or even thousands of doctors to their payrolls. For a guy who does business services for doctors, who better to be friends with?! And yet, the only thing I could think to say to them was that they were sowing the seeds of their own destruction! I try to be smooth and cool when I get up in front of these groups, but somehow, when the microphone turns on, I can’t keep what’s on my mind from pouring out of my mouth!

I’m not exactly sure how I said it then, but let me try to say it like a grown-up now.

First, these days offer perfect conditions for planting seeds of destruction. Why? Docs fear Barack! Well, maybe not the man himself, but they fear for the near future of their practices. They have looked at EMRs in the past and…well…taken a pass. EMRs can cost a lot of money upfront, successful implementation is not a sure thing, and, on average, EMRs just slow down patient throughput. So a doc who lives on patient throughput finds this proposition to be a non-starter. Now, with new federal incentives, he or she feels compelled to get an EMR. And those who aren’t immediately enticed face future penalties. Add to this the health reform bill which adds millions to Medicaid rolls (not the best payer), and now doctors have compounding fears. They will need to fork over upfront capital for a product that will slow them down, and their income is about to decline.

What’s a doc to do? Same thing they always have done when such a storm is brewing: SELL THE PRACTICE TO THE HOSPITAL! They make the following offer: I’ll sell you my practice on the cheap IF you buy me all the EMR that Barack wants and make it work, AND IF you “keep me whole” on what I am making today.

What’s a hospital to do? DO THE DEAL! Most hospitals are buying practices and promising them EMRs as well as salary subsidies. Regardless of what happens over time, it makes short-term sense to keep OTHER hospitals from buying and re-purposing these practices! Hence we are in a bit of a free agent season where docs are concerned. Primary care docs are routinely getting salary subsidies of over $100,000 per year and cardiology subsidies are routinely exceeding $250,000! This type of free agent season happened in the early 1990s between docs and hospitals. Then, in the late ‘90s when hospitals asked docs to take pay cuts, the docs started complaining to hospitals about the finer points of their billing and management and the mergers broke up. So will it be déjà vu all over again in 2015 when the rates come down and hospitals must ask their newly acquired docs to take pay cuts?

No, I think it will be worse.

In 1990, hospitals didn’t load large amounts of capital expenditure into the deal when they acquired practices. This time they are! The capital expenditure layered onto each doc acquired for EMR software and hardware can be around $50,000 to $70,000! Now add the fact that EMRs generally reduce patient throughput and require “EMR departments” to maintain (up to $18,000 per physician in annual maintenance costs), update, and load the software with clinical data each day.

Lenders are generously offering to finance these expenditures over 10 or 15 years for hospitals. Ever seen a 10 or 15-year-old piece of software? Ever wondered what would happen if the docs and hospitals break up? Do you think the docs in the community are going to use those hospital-based software systems or will they switch to web-based systems that maintain themselves and cost less? If this happens anywhere, that hospital will have to remove the software asset from its balance sheet. IF they do that, they will trigger their loan covenants and freak out their lenders.  If their lenders freak out at a coming wave of hospital defaults, they will tighten up on their other hospital loans. Uh-oh.

So what’s the moral of the story?

Hospital: If you want to remarry your ex-practice-spouse, go for it. That practice has grown up a lot over the last ten years, and this really may be the Cinderella story of integrated care you hoped it would be. All I ask is this: don’t have kids right away! At the very least, think twice before investing millions of dollars in software. Use the power of the Internet (and web-based EMR solutions) instead of large amounts of capital expenditure, so that if things don’t go well and you break up again, you can still be friends.

Jonathan Bush co-founded athenahealth, a leading provider of internet-based business services to physicians since 1997. Prior to joining athenahealth, he served as an EMT for the City of New Orleans, was trained as a medic in the U.S. Army, and worked as a management consultant with Booz Allen & Hamilton. He obtained a Bachelor of Arts in the College of Social Studies from Wesleyan University and an M.B.A. from Harvard Business School.

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11 replies »

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  2. Thanks, Jonathan, for your post. I think you do a good job of pointing out the potential perils — to both doctors and hospitals — of the recent practice merger and acquisition rush. Some hospitals will simply add cost to their budgets, without a means to leverage the new physician hires to increase productivity or improve efficiency of service. Some physicians will find their salaries reduced and their independence curtailed. Many will end up being forced to use EHR technology they hate.
    On the other hand, hospitals will be at the center of much ACO activity, and they’ll need well trained and efficient doctors, who know how to use EHR technology to improve processes, primarily by collecting, managing, sharing, and analyzing data and information on patients and populations of patients.
    My best guess is that the hospital-physician partnerships that do best in the next decade will not be those tied to legacy, high-operational-cost EHR systems, the kind that seem to be in vogue right now. The high performers will make the transition from strictly enterprise IT to much more flexible and boundary-less health IT capable of clinical group activity for care coordination and continuity.
    I have called this “clinical groupware,” and the name seems to be sticking to this conceptual model: software as a service, not a product; modular and substitutable apps; organic platforms capable of growing the number of apps they support based on targeted needs, not pre-determined features from a single vendor; and intrinsic design features that enhance data sharing and exchange.
    Keep talking to those C-suite folks in the hospitals and IDNs! It’s a healthy dialogue, in my opinion.
    Regards, DCK

  3. Jonathan,
    You should spend more time around the hospital C suite and learn a bit more about what drives business in a community for a hospital. The practices are acquired for the patients and the affinity that they have with the institution for a broad range of care. If/when ACOs get traction the hospital will be the center of the risk/reimbursement world, and employed doctors are a means to controlling excess and inappropriate utilization with a captive patient population. Look around at the “clinic models” Cleveland, Mayo, Geisinger, Intermountain…they get the press because they pull all of the strings. Some doctors like it, others don’t…but don’t expect that model to disappear in those institutions.
    The EMR capital point that you bring up is folly. EMRs are infrastructure that support the patient, the ancillaries, nursing and all other providers. The idea that the doctor is central, and a risk to employment because of a capX is just fearmongering. It is like suggesting that the number of billers or registration clerks or nurses or docs for CPOE negatively impact the risk of implementation of technology by allowing their jobs to interface electronically with the rest of the hospital system.
    Sure, I guess you are frustrated that physicians rushing to be employed by hopitals will impact your business…but hospital executives really won’t likely care because your business is a utility for which they already have ample service. Systems don’t solve all of the efficiency problems of hospitals, coordinated care using best practices and communication (some by system) along with an activated patient will do a lot more than and EMR. Its about the people that run the systems that makes the difference…as evidenced by the clinic models so frequently discussed on this blog.
    Your market is shrinking because of issues way beyond your control. Maybe you should build a hospital-centric rather than practice-centric model.
    Good luck, 18% hospital employment of physicians is moving to 25-30% faster than you know…and it has nothing to do with EMRs.

  4. Not only the EMR issue to love this health care deform legislation, but read yesterday this little gem to add:
    If you have health care flexible spending arrangements (FSAs) with an employer, guess what you as the patient will need to do as of Jan 1, ’11 to write off OTC products like cold/flu meds, pain relievers, AntiHistamine meds and so on: you’ll need your physician to write A PRESCRIPTION for these OTC products. Imagine the sheer inconvenience and aggravation for all parties for another dumb ass regulation written by politicians!!!
    Oh, and why is McDonalds now getting press to get special exceptions for their health care coverage? Yes, dumb ass rules by dumb ass people who will NOT be affected by this bs. You can all deny, rationalize, minimize, deflect and whatever other lame defenses you can come up with to support this crap. In the end, there will be as much if not more disruption and deception and deterrance to care as any benefits.
    Let’s see who weighs in to defend this crap!!!

  5. Web based systems don’t “maintain themselves” and over a 5 year period, don’t cost less.
    My guess would be that hospitals acquiring new practices will deploy whatever they already purchased for ambulatory. It will make no sense for a hospital to go out and purchase something new, not to mention that hospitals, by and large, do not outsource billing for owned physicians.

  6. There may be people charging $50,000 to $70,000 for purchase and $18,000 a year for maintenance (per physician) and there may be hospitals or doctors stupid enough to pay this but I think that if it doesn’t work out well that they should all suffer for being so stupid.

  7. “Up to $18,000 up to per physician in annual maintenance costs”
    This number is extreme to say the least. I haven’t even seen Epic Ambulatory EMR (which is the priciest EMR around to fully deploy) cost nearly this much in annual maintenance. Other ambulatory EMR vendors are a fraction of his in maintenance costs even if they are server client installs.

  8. The majority of the practitioners in my field will never face the same level of expenses as a medical clinic, but we too have some fear of the unknown. Just today I read an article saying that we need EMR and can get reimbursed and another saying no way of getting reimbursed and that we won’t be required to have it. Dr. Travis Heckes, Chiropractor Overland http://www.drtravisheckes.com