According to the 2012 edition of AHA Hospital Statistics, hospitals now employ 212,000 physicians, reflecting a 12-year, upward trend. Since 2000 the number of physicians employed by hospitals has soared by 32 percent.
This trend appears to be irreversible. A recent report by MedSynergies, Inc. and HealthLeaders Media reveals that 70 percent of American hospitals and health systems plan on hiring more physicians in the next one to three years and that 76 percent of hospitals and health systems use a full-employment, medical-staff model.
There are at least three forces taking the market in this direction. One, many physicians are crying “uncle” and deciding that the independent practice of medicine is no longer worth the long hours, administrative burdens, and ongoing downward pressure on reimbursements. These physicians are capitulating and seeking the relative safety that a hospital system provides.
The second force driving consolidation is the lax scrutiny being applied to hospital-physician combinations. Unlike the past, state and federal regulators are being more accepting of combinations that in the past would have invited antitrust scrutiny.
The third, and most powerful force favoring consolidation, is the future outlook for reimbursements from government and private payers. One needs look no further than the recent actuarial estimate of the Medicare Trust Fund.
According to A Summary of the 2011 Annual Reports, Social Security and Medicare Boards of Trustees, “Medicare’s HI Trust Fund is expected to pay out more in hospital benefits and other expenditures than it receives in income in all future years...The share of HI expenditures that can be financed with HI dedicated revenues is projected to decline slowly to 75 percent in 2045, and then to rise slowly, reaching 88 percent in 2085. Over 75 years, HI’s actuarial imbalance is estimated to be equivalent to 21 percent of tax receipts or 17 percent of program outlays.”
Stop for a moment to think about what you just read. Unless fundamental changes occur, the Medicare program will spend more than it collects in revenue for each of the next 75 years! Unless we choose to continue ignoring reality, higher Medicare premiums, eligibility cutbacks --including means testing--and lower reimbursements are a given, and overt rationing is a real possibility.
Health systems read the same reports the rest of us do, and know that they can’t print money. Therefore, they must recreate themselves as fixed fee providers of bundled care. This is hard to do unless you control physicians, one of the primary means of health care production.
This is really what the Accountable Care Organization movement is about – nudging health systems to redefine their business models to create savings by operating at a lower cost. While the savings are shared today, the shared savings model is just a warm up for the hard decisions yet to come. Better to learn the rules of the new game with the government’s help and support now, than wait until later when the learning curve is much steeper and the penalties for failure are much greater.
These changes represent a huge transformation in business orientation and organizational culture for physicians and health systems. While physicians will enjoy being relieved of many of the administrative burdens of owning and managing a practice, they will adapt less easily to the loss of freedom and independent decision making that must certainly accompany their integration into a health system.
For their part, health systems are being challenged to transition from service-driven revenue centers to output-focused organizations in which quality and cost are equally important. They will do so by engaging physicians in an employment setting that is much different from the past model in which hospitals competed against each other for revenue-generating practitioners
There’s a saying I’m fond of, that goes like this: “Culture eats strategy for breakfast.” The hardest work to come will not be getting the strategy right, but managing the change it requires.
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