Published 10/1/2009
Jacque Roche Buschmann; Kevin J. Bozic, MD, MBA

Hospital-physician alignment: Passing trend or a new paradigm?

HCSC examines trend to hospital-based physician employment

What does the future hold for orthopaedic practices in the 21st century? Increasingly, hospitals are seeking to employ not only individual physicians but also entire practices—from primary care to specialty physicians. A recent meeting of the AAOS Health Care Systems Committee (HCSC), chaired by Kevin J. Bozic, MD, MBA, focused on hospital-physician alignment and examined the issue from a variety of perspectives.

Topics discussed included a historical perspective on hospital-physician alignment; current trends in orthopaedics; physician, hospital, and legal perspectives on hospital-based physician employment; and bundled payment initiatives between hospitals and physicians.

Putting it in perspective
Hospitals first began acquiring physician practices in the early 1990s. At that time, hospitals focused mostly on primary care practices to improve negotiating leverage with managed care companies.

According to Samuel G. Agnew, MD, physician-hospital alliances and agreements historically lacked implementation and educational plans, benefit measurements, and business model metrics. Consequently, they rarely outlived the hospital chief executive officer who established the agreement.

Most of these early acquisitions resulted in financial losses; by the end of the decade, most hospitals had divested themselves of physician practices. Today, however, hospitals are focused on increasing market share, ensuring service line stability, and filling gaps in areas such as call coverage. Although hospitals are still acquiring primary care practices, their interest in specialty practices has increased.

Dr. Agnew noted that government and social demands—ranging from reporting requirements to lifestyle issues—are key forces supporting employment relationships between physicians and hospitals. In addition, the hospital employment trend also seems to have a generational component, as younger physicians seek a more balanced lifestyle.

The trend in orthopaedics
John Cherf, MD, MPH, MBA,
a member of the HCSC, presented an overview of current trends in orthopaedics. Although hospital revenues in orthopaedics are high, said Dr. Cherf, costs—primarily related to the price of orthopaedic devices—are also rising. As a result, hospitals have experienced a decline in bottom-line profits in orthopaedic service lines.

Demographic trends—including the aging of “baby boomers” and the increasing number of mature individuals participating in sports—point to a continued increase in volume for orthopaedic procedures such as total joint replacement. Whether the supply of orthopaedists will be sufficient to meet the demand, however, is questionable. (See “When demand exceeds supply”)

Paralleling the aging of the general population is an increasingly older orthopaedic surgeon population. According to the 2008 AAOS “Orthopaedic Practice in the United States” survey, the average age of responding orthopaedic surgeons is 51.2 years old. About one in six (16.5 percent) full-time orthopaedists is age 60 or older. Overall, morale in the physician community is low, due to declining reimbursement and increased regulation.

Speaking from experience
J. Melvin Deese Jr., MD, of Brunswick, Ga., and Melbourne D. Boynton, MD, of Rutland, Vt., are AAOS members who recently merged their practices with hospitals.

From their perspectives, hospital-employed physicians are looking for stable work hours, less administrative work, and reduced handling of malpractice issues. Hospital employment also eliminates concerns about practice expenses, because salaries and supply purchases are no longer under the physician’s control. The salary arrangement also reduces concerns about decreasing physician reimbursements.

But, they point out, hospital employment does not necessarily have to trump the physician’s entrepreneurial spirit.

Both Drs. Deese and Boynton highlighted the importance of a balance in power between the hospital and physician. When contracting with a hospital, physicians must understand the accounting and legal aspects of the merger; negotiation skills are vital.

The hospital perspective of physician practice acquisitions was presented by Frank Molinaro, FACHE, chief executive officer of Weiss Memorial Hospital in Chicago, who has specific experience in orthopaedics. Mr. Molinaro explained that hospitals are interested in increasing their market share, stabilizing service lines, and filling identifiable clinical needs in their communities.

“Hospitals are looking for physicians who know how to grow business on their own,” he said, echoing the entrepreneurial remarks of Drs. Deese and Boynton. Hospitals consider quality and outcomes to be the most important aspects of the relationship and believe that integration is vital to the relationship and alignment between physicians and hospitals.

According to Todd Rodriguez, Esq., a health lawyer for Fox Rothschild LLP with specific experience in physician representation, physicians must be practical when thinking about merging their practice. He suggested that physicians ask themselves the following questions:

  • Is your practice in a good condition to be sold?
  • Are you ready to be an employee?
  • Do your business and clinical philosophies align with those of the hospital?
  • Does the proposed contract cover the following issues: the term of the agreement, reasons for termination, compensation, control, dispute resolution, and posttermination?

Payment trends
James Caillouette, MD,
and Peter J. Daly, MD, presented their experiences with bundled payment initiatives between facilities and physicians. According to Dr. Daly, Minnesota is currently developing a “baskets of care” bundled payment system, as required under recently passed legislation. Under the system, a single bundled payment is made covering all providers involved in an episode of care.

Two of the baskets—low back pain and total knee arthroplasty—relate to orthopaedics. High-risk patients such as those who have a body mass index of 35 or higher and/or an ASA greater than 3, however, are excluded from the basket payment program. The program is still under development so no results are available yet.

At Hoag Hospital in Southern California, Dr. Caillouette has helped develop an episode of care price for hip and knee replacement procedures. By re-evaluating the processes of care, the hospital and its physicians were able to reduce costs while maintaining or improving quality, thereby creating incentives for the hospital, the surgeon, and the payor.

The episode of care pricing has also opened new opportunities to attract patients. The hospital has begun marketing the program to groups outside California that were considering sending patients abroad for hip and knee replacement


What’s next?
The HCSC, in conjunction with the Practice Management Committee, will use the information obtained from the meeting to develop resources addressing the needs of the AAOS membership. The committee’s plans including the following:

  • to develop educational resources related to hospital-physician alignment and employment relationships
  • to expand the referral resource directory to include specialists in hospital-physician relationships
  • to develop a self-assessment tool for AAOS fellows who are considering entering into an employment relationship with a hospital
  • to create a checklist of hospital and physician responsibilities that should be included in any hospital-employment contract.

Jacque Roche Buschmann is a federal policy analyst in the AAOS office of government relations and the staff liaison to the Health Care System Committee. She can be reached at roche@aaos.org

Kevin J. Bozic, MD, MBA, chairs the AAOS Health Care Systems Committee. He can be reached at bozick@orthosurg.ucsf.edu

For another perspective on the survival of the private practice of orthopaedics, see “A roadmap to the 21st century”.