Is hospital employment the future of orthopaedics?

That question kicked off the 2012 Fall Meeting of the AAOS Board of Councilors (BOC)/Board of Specialty Societies. During a symposium that addressed the future of orthopaedics, presenters examined current trends in physician employment as well as their impact on orthopaedics and the AAOS. Moderated by BOC Chair Fred C. Redfern, MD, the symposium featured presentations by the following:

• Alexandra E. Page, MD, vice-chair of the AAOS Health Care Systems Committee
• Kevin D. Plancher, MD, MS, associate clinical professor at the Albert Einstein College of Medicine
• Henry Allen Jr., MPA, JD, senior attorney, American Medical Association
• Diane Thome, MBA, consultant with DT Research, LLC

Solo/small practices in decline
According to testimony on “The Decline of Solo and Small Medical Practices” presented to a Congressional subcommittee by Mark Smith, president of the physician search firm Merritt-Hawkins, only 2 percent of searches conducted in 2011–2012 were geared to starting or joining a solo/small practice. A 2011 survey of final-year residents found that just 1 percent expressed an interest in establishing or joining a solo/small practice.

The trend toward hospital employment of orthopaedic surgeons is being driven by the following five factors, noted Dr. Page:

• Flat or declining reimbursements
• Increasing regulatory and administrative paperwork
• Medical liability insurance costs
• The implementation of information technology
• The effects of health reform

Pointing out that employment was “more than a paycheck,” Dr. Page reviewed several employment situations (staff/foundation, hospitalist, and academic) as well as options such as joint ventures, medical directorships, and the “physician enterprise model.” In this model, a hospital employs physicians through a separate but affiliated legal entity that is formed as a “group practice” to meet IRS, Stark Law, and antikickback statute regulations.

Current healthcare trends—such as an increased emphasis on moving to integrated care systems and value-based reimbursements—are driving physicians toward employment models, said Dr. Page (Fig. 1). Similarly, hospitals are seeking to employ physicians so they can address challenges such as emergency department scheduling. But a tipping point may be in sight.

According to a recent report from the Medicare Payment Advisory Commission (MedPAC), “hospitals often choose to employ physicians to ensure a stable stream of tests, admissions, and referrals to specialists who perform their services at the hospital.” Because hospitals often receive higher payments for services performed in their facilities than physicians do for performing the same services in their offices, MedPAC has recommended reducing payment rates for evaluation and management office visits provided in hospital outpatient departments and making them equivalent to outpatient/office payments.

“The facility fee differential results in reimbursement rates that are 80 percent higher for hospital-owned practices than for physician-owned practices,” said Dr. Page. “If the MedPAC recommendation is adopted, Medicare could save up to $2 billion—and it may affect the rate of employment.”

Dr. Page also noted that the shift to hospital employment could have an impact on the patient-physician relationship. “We all realize that transition to complete employment could give decision making to hospital administrators, strangling the physician’s ability to advocate for his or her patient,” she said.

Labor law, antitrust considerations
An important factor in the employment future of orthopaedic surgeons is the increasing consolidation of healthcare providers and insurers in various markets. Physicians are less able to negotiate favorable reimbursement levels and working conditions if health insurers and hospitals have “monopsony” or “buyer” power in a specific market.

“Where hospitals compete, a physician considering hospital employment may weigh alternative offers and negotiate a competitive employment agreement,” said Mr. Allen. “Once a hospital acquires a virtual monopoly, however, employed physicians have no bargaining power and antitrust laws offer no postmerger remedy.”

Mr. Allen noted that the Antitrust Division of the Department of Justice recognizes that the exercise of monopsony power in physician service markets ultimately harms both physicians and consumers and should be prevented. Mergers of health insurers that enhance their power have been determined to directly injure physicians by depressing physician earnings and reducing employment opportunities in health care. In addition, increases in hospital market concentration resulting from mergers are associated with increases in hospital prices.

“As the cost of hospital care associated with monopolization rises, the portion of the health care dollar left for physicians declines, diminishing physician satisfaction and practice sustainability,” said Mr. Allen.

Mr. Allen noted that both employed physicians and those in private practice need antitrust enforcement to protect hospital employment options for physician services in local markets.

“If a hospital is allowed to acquire monopsony power through an unchallenged anticompetitive merger, physicians entering into an employment relationship with the hospital, either voluntarily or coerced, will have to take its offer, even if it is unattractive,” he said. “Refusing the hospital’s terms and leaving the community is not a realistic option. To do so, the physician would incur the heavy costs of abandoning existing professional and patient practice relationships and of abrogating likely close social and family ties to a particular community.”

Is the grass greener?
Dr. Plancher discussed the commonalities and differences between private practice and hospital employment, with particular attention to the pros and cons of each. He noted that, for those considering entering either a private practice or hospital situation—as well as for those considering a switch from one to the other—asking the right questions is key.

The right questions, however, will change, depending on where the physician is in his or her career. For example, a young physician may ask which job will provide the best mentor, while a midcareer physician may be looking for growth, and an older physician may be assessing retirement options.

Dr. Plancher also reviewed the results of AAOS surveys on orthopaedic practice settings. From 2004 to 2010, for example, the percentage of respondents in solo private practice dropped by 28 percent, while the percentage of respondents who were hospital employed increased by more than 300 percent (Table 1).

Ironically, he noted, when surveyed, 58 percent of those currently employed said they would consider moving to private practice and 58 percent of those in private practice said they would consider moving to being employed full-time. He covered several contract issues, including productivity formulas, termination clauses, call requirements, and outside activities.

“You are the one bringing in the patient volume,” he reminded the audience. “Only cardiovascular surgery has higher reimbursements for hospitals than orthopaedics. An orthopaedic surgeon working for a hospital brings in anywhere from four to six times his or her salary net to the hospital—and you should never forget to raise that issue during negotiations.”

The impact of employment
Ms. Thome reviewed the results of the hospital-employed orthopaedists and state societies study conducted in 2011. The email survey received a 12 percent response; respondents were an average of 55 years old and had been in practice for an average of 22 years.

Respondents identified the primary benefit of being hospital employed as “No direct contracting hassles with payer networks,” followed by “No medical liability expense.” As a result, she noted, hospital-employed physicians may feel insulated from the repercussions of decreasing reimbursement models and less engaged in legislative dialogue.

Ms. Thome also noted that state orthopaedic society membership is similar for both hospital-employed and non–hospital-employed respondents. On average, however, respondents in private or group practices were more satisfied with their membership than their hospital-employed counterparts.

The survey also found that many physicians entered into their current arrangements with no professional assistance. This presents an opportunity for the AAOS and state orthopaedic societies to reach these physicians through courses or products on contract negotiation. She also suggested that an interactive, online panel discussion of physicians who are hospital-employed and/or comanage hospital orthopaedic departments might be helpful. Participants could provide insight into the contracting process, the process of moving into hospital employment from private practice, and their experiences with their contractual arrangements.

To view these and other presentations from the AAOS 2012 Fall Meeting, visit www.aaos.org/fallmeetingpres

Mary Ann Porucznik is managing editor of AAOS Now. She can be reached at porucznik@aaos.org