Medical Staff

To Employ or Not To Employ, that Is the Question

Medical Staff Affairs Monthly, February 11, 2009

Our consultants are honored to be invited by medical staffs and hospitals across the country on a daily basis. It is possible to sense, feel, and experience what is occurring in real time. There has been a definite sense that with the tanking of the national economy, physicians and hospitals alike are feeling a great deal of pain. Fear and anxiety are increasing. There is an almost unprecedented move among many physicians to seek a different relationship with the hospital, the most frequent being that of employment. However, there is a concern that many physicians and hospitals may be rushing headlong into arrangements that have not been thoughtfully approached from a strategic, cultural, and financial point of view. Many hospitals have learned from their mistakes or those of others after the anticipation of "serious" managed care in the 1990s, including capitation, led hospitals to purchase physician practices and get into the business of employing physicians. In many markets, hospitals created a buying frenzy, making it a sellers' market for physicians. Hospitals were not in a position at that time to establish performance expectations and contracts that linked physician compensation with financial or other performance measures. As a result, hospitals quickly learned how little they knew about managing physician practices and how much money they could lose by employing physicians. Most looks at employment today generally address productivity through RVU standards; however, we are seeing few other quality or performance metrics.

In this decade, multiple trends are causing hospitals to rethink employing physicians:

  • Graduating physicians prefer employment
  • Declining physician incomes and increasing expenses are driving many private practice physicians to seek employment
  • Physician-hospital competition continues to increase
  • Physicians' resistance to take ED call is a major challenge in some markets
  • There is a growing physician shortage

Now, with the rapid and prolonged decline of the national economy, these forces are accelerating and leading many physicians and hospitals to react to the crisis at hand. It is important to understand these drivers; however, a comprehensive and thorough analysis of your organization and its community and medical staff is essential to avoid the debacle of the 1990s, in which some hospitals exited the business of employing physicians, often giving back the practices they had paid millions of dollars to purchase just a few years earlier. Others gradually wrestled their employed physician practices into acceptable losses or, in some cases, break-even operations. Clearly two to three years from now, you do not want to be in a position of unraveling all the employment agreements and contracts you entered into hastefully to deal with a crisis.

Another word of caution is necessary when considering employing physicians. As many learned in the 1990s, just because you employ physicians does not mean you can tell them what to do. Physicians still consider themselves independent. They are neither selected nor rewarded for being team players during their training—they are rewarded for being rugged individualists—and many still see the hospital as the physician's workshop. Especially in the surgical specialties, physicians retain the "captain of the ship" mentality. Although some of these patterns are changing as the new generation of physicians emerges, they are not going away. Hospitals need to be aware of the limitations posed when employing physicians before they decide on employment as a new medical staff model. Further, the underlying political challenge regarding physician employment is that such arrangements will still be seen by some as a hospital-driven strategy to achieve greater control over private practicing physicians for all the reasons we've just enumerated. However, physicians are increasingly approaching hospitals asking to be employed. Regardless of the political position you may take regarding physician employment, be prepared for the politics surrounding the issue to continue to evolve, particularly as a mixed medical-staff model will be the predominant form in most U.S. hospitals for the foreseeable future.

All that said, employment of physicians when done thoughtfully, strategically, and for the best reasons can truly be a win-win for all. It is a chance to achieve a higher degree of alignment between physicians and the hospital on such diverse challenges as financial alignment, ED call coverage, quality outcome measures, and other performance metrics. One can point to organizations, such as Mayo Clinic, Geisinger Clinic, and Kaiser Permanente, that have been able to align physician and hospital incentives with great success using an employment model. Some hospitals, especially in rural, hard-to-recruit-to places, are already employing all or most of their physicians. A few hospitals in other markets are shifting to an all-employed physician model, and some experts predict more will go in this direction. Most hospitals recognize that they will be forced to employ more physicians, but that not all medical staff members will want to be employed, creating the need for most hospitals to live with a mixed-model medical staff.

The Greeley Company strongly believes that a comprehensive approach to strategic medical staff development planning is essential for organizations to answer these challenges. Such an approach looks at the right number and type of physicians as traditionally done, including aging, specialties, and community demographics. However, that is only the start. The crux of the issue is obtaining the right quality physicians in the right relationship with the hospital, be it as an independent, employed, or contracted member of the medical staff. And it doesn't end there because to succeed organizations need to assess, develop, train, and enhance their medical staff leadership to drive the cultural, structural, and process changes necessary to achieve both physician and hospital success. Please let us know if we can be of help in providing this comprehensive analysis for your organization.

Until next time, be the best that you can be.

William K. Cors, MD, MMM, FACPE, CMSL
Vice President
The Greeley Company

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