The Future of Hospital-Physician Relationships

December 24, 2014

Here are six key forces that will influence the future relationship of hospitals and physicians and their likely outcomes.

The responses to surveys of senior hospital leadership reveal that physician relations is a top concern, along with financial challenges. Not surprising, the two are actually linked. A term that is commonly used to describe this bonding process is "alignment." While hospitals have some clear goals for the alignment process, are they the same for the physicians they hope to align with and, beyond that, are the goals of physicians even remotely the same as that of the hospital? Complicate this further by introducing market initiatives of commercial and public payers. So where is this headed?

Gaining the cooperation of physicians in addressing issues such as care cost, quality, and efficiency is critical to hospital survival. A national consulting company I spoke with is advising its clients that cost reductions of 15 percent to 25 percent are needed to survive in the value-based environment. Changing vendors to get a better price on surgical sponges is not going to achieve that goal. Physician leadership in standardizing care, improving outcomes, and better managing the care process will.

Clearly cost is not the only important issue. A growing number of payers, led by CMS, are linking payments to quality measures and patient satisfaction. An active and focused medical staff is key to meeting these challenges as well.

The only thing certain in this environment is uncertainty. What, then, are the forces that will influence the future relationship of hospitals and physicians and what are the likely outcomes?

Hospital employment of physicians will increase

This is certainly not a surprise. Repeated surveys of physicians find that both young and old physicians simply do not find private practice attractive. Issues such as financial stability, quality of life, and size of paycheck are all part of this shift away from entrepreneurial medicine.

As hospitals increase the number and mix of employed physicians, they often end up competing with private physicians in their market and, at some point, these physicians will explore ways to return the favor.

Employment does not mean alignment

These terms are not interchangeable. Simply because a physician is on the payroll does not mean that they will be a positive partner in achieving the cost reduction and quality improvement goals of the hospital. It is likely that some of those community physicians have the interests and skills needed and are the same ones that are being alienated by the employment process.

Physician care management sophistication will increase

The transition from volume to value will take time and it is still unclear what care models will survive the current exploratory process but the shift will take place. The market is demanding a better return for their care investment and the dollars will drive the shift. As this happens and incentives change, physicians will quickly refine their approach to patient care to support this change.

Physicians have always understood that they are the ones that drive hospital revenue through admissions, orders for ancillary services, and the introduction of new services. Regulations prevented them from directly benefiting from this support. Not so with care management. They will expect to share in cost reductions and quality improvements. Hospitals will not only need to reduce their operating costs but will need to factor in the share of revenue that will need to go to the physicians that drive that improvement.

Payers will seek to destabilize the hospital/physician partnerships

Both public and private payers realize that they need physicians as partners if they are to achieve the financial goals that customers, and the federal government, require. Commercial payers are already providing financial incentives for the use of freestanding imaging and ambulatory surgery centers and are directly informing their members about the cost advantages of these care settings.

In some markets, these payers are forming partnerships directly with physician organizations that are not hospital-affiliated. This model has proven very effective in cost management in markets such as California for many years. Hospitals become vendors to the care partnership rather than a dominant player.

Care management incentives will make private practice more attractive and reverse the hospital employment trend.

Innovative hospitals will make physicians true partners

Hospitals that understand they need to engage physicians in the redesign of the care process and the management of supply and labor costs will create joint ventures around service lines that provide a gain-share relationship with clear quality management goals. Physicians that do not buy into this process, employed or not, may find themselves looking for other opportunities.

The strength and value of this approach can be seen in many of the dominant health systems nationally. The Geisinger, Mayo, and Cleveland systems are good examples.

"Wait and see" might mean "get left behind"

Hospitals, physicians, and payers will continue to experiment with payment and delivery models as all three try and find the formula that provides the best care at the best price. The departure of many of the original Pioneer ACO sponsors demonstrates that not all of the models will have sustainability. What is clear, however, is that the role of the physician will be central to the success of any model. If hospitals don’t create collaborative environments for innovative physicians, payers will. If physicians don’t embrace the need to work together in care redesign and cost reduction, hospitals will find some that will. Payers will use the carrot and stick approach with their dollars to drive the changes that are needed to lower the total spend on care. Providers that respond to those incentives will do well financially and those that resist will find the future very challenging.

At the least, markets need to identify thought leaders from all three interest groups and begin a meaningful dialogue on how they can, together, achieve the goals required to thrive in the evolving care environment.