Hospitals have been bingeing on snatching up physician practices and ambulatory surgical centers. Insurers are consolidating and some are acquiring healthcare systems. All of them want to capture “patients” and control costs through streamlined purchasing strategies and standardizing care.
Uncle Sam is dumping fee-for-service and replacing payments to hospitals through a pay-for-performance system which is supposed to reward providers who can figure out how to reduce the costs of treating patients while maintaining quality metrics.
“Get bigger. Capture the Bundle, ” said Dick Rothman, M.D., the founder of the Rothman Institute, to his orthopedic colleagues at an annual meeting of the American Academy of Orthopaedic Surgeons.
In the middle sits the surgeon who is the only player in the healthcare system sworn to act in the best interest of the patient.
Hospital Employed Physicians
Some orthopedic surgeons are okay becoming employees of hospitals and accepting the rules of standardized care developed by their peers. Some are leading efforts through organizations like National Orthopaedic & Spine Alliance (NOSA ) where physicians control the clinical standards and assume financial risk. Some don’t like it and believe focusing on cost savings will compromise their clinical options and potentially harm their patients.
Orthopedic Surgeon’s Whistleblower Suit
Ray Horwood, M.D., the orthopedic surgeon who recently left the Cleveland Clinic’s Fairview Hospital over the clinic’s decision to limit the number of orthopedic device vendors at their facility and standardize surgical procedures, is one of those surgeons.
But he’s not the only one.
Another orthopedic surgeon, Michael Reilly, M.D., of Fort Lauderdale, Florida, thinks it’s a bad idea for physicians, patients or society when hospitals buy up physician practices.
He felt so strongly about it that he filed a whistleblower lawsuits against North Broward Hospital District in 2010 accusing the publicly owned hospital of violating the False Claim Act by engaging in improper financial relationships with physicians. The whistleblower complaint was unsealed last month.
On Tuesday, September 15, 2015, the hospital system agreed to pay the U.S. $69.5 million to settle the allegations. Reilly will receive over $12 million from the settlement.
Reilly’s lawsuit claimed that the hospital hired community doctors, paid them millions of dollars and tracked the revenue generated from the admissions, procedures and tests generated by those doctors. He says the hospital’s CEO told him, “We are making money off these guys.
Reilly claims the hospital’s system carefully tracked the return on their investment of the doctors, recording the value of referrals and pressuring them to increase volume if they lagged.
Stark and False Claims Challenges
The government said the hospital provided compensation to nine employed physicians that exceeded the fair market value of their services and, therefore, violated that Stark Statute and the False Claims Act.
According to Reilly’s lawsuit, over a decade ago, Broward started hiring some orthopedists and cardiologists for more than $1 million per year. He says the hospital paid Erol Yoldas, M.D., the team doctor for the Florida Marlins, nearly $1.6 million in 2009. The hospital also agreed to pay senior executives large bonuses if they increased revenue and the bottom line.
Reilly’s lawyer told him that the deal the hospital offered him was illegal, so he rejected it.
Physicians on staff feel compelled to generate ordering procedures and use a particular brand of orthopedic device. By staying independent, Reilly said if he had concerns about the hospital’s radiology department, which he claims some doctors did, he could refer people to a different facility.
But that freedom can go away if you are an employee and raises the odds that a patient will end up at a higher-cost, lower-quality facility, according to a recent study from Stanford University researchers cited by Reilly.
“My wish would be that the hospital-physician employee contract would go away, ” said Reilly in an interview. “You could pick just about any hospital, and I will tell you there is a component where that contract is driven by referrals.”
Reilly told Kaiser Health News in an October 7, 2015 article that he worries that these types of arrangements between hospitals and physicians will keep occurring. “We have got to get hospitals out of the business of hiring doctors, ” he said in an interview. “It’s potentially detrimental to the patient, and it’s terrible for health care.”
“Doc Binge Buying Rolls On”
But the trend is continuing as a June headline in Modern Healthcare stated, “Doc Binge Buying Rolls On.” According to the American Medical Association, a third of doctors now work directly for hospitals or for practices with at least partial hospital ownership.
According to the story, hospital purchases of physician practices in the 1990s led to losses and an unwinding of many deals. But this time around the hospitals appear to have found a way to absorb the cost of employing physicians. One reason given for this is the influx of paying patients from reforms in the Affordable Care Act. Efficiencies associated with hospital consolidation and an improving economy have also contributed to this “binge” buying of practices.
Modern Healthcare’s Annual Systems Survey, which this year included responses from about 80 health systems across the country, found that despite the increased costs that come with having physicians on staff, physician employment increased 3.8% between 2013 and 2014.
Hospital system officials say they are becoming more selective about which specialists they hire and looking more closely at compensation models and how the new physicians are integrated into their system.
While the hiring of high-priced surgeons gets attention, the real prize is primary-care physicians. They are the backbone of referrals to hospitals. For example, Spectrum Health in Grand Rapids, Michigan, had a 40-member primary-care group just six years ago. Now the number of employed physicians has swelled to 668, including a 10% bump since 2013, according to the Modern Healthcare report.
Bob Collins, managing partner at The Medicus Firm, a physician recruitment agency said, “There’s an arms race for primary-care providers. By far, that’s where there’s the greatest angst and need.”
“But surgeons are also in demand, particularly in the subspecialties of cardiothoracic and neurosurgery. “It’s all about fulfilling a broader service line in the community, ” said Mark Folk, a healthcare attorney at Waller Lansden Dortch & Davis.
The Prize
And the investments in physician employees appear to be paying off.
The average revenue increase from buying physician practices as reported by Modern Healthcare was 10.2%. The average operating margin in 2014 rose to 3.3% among systems in the survey’s financial database, an increase from 2.5% the previous year. That’s because large systems are able to spread out their fixed costs such as health information technology. In other words, Big Data to drive clinical practice standardization.
What About Pay-for-Performance?
In theory, moving away from fee-for-service (volume) payment models to pay-for-performance (quality) was supposed to create a more value-based care delivery model.
But that’s not what’s necessarily happening in some systems where labor costs account for more than half of revenue and systems are trying to manage expenses. Compensation still largely follows productivity-based formulas, despite moves toward value-based care delivery models, said Travis Singleton, senior vice president at Merritt Hawkins.
The physician recruitment firm actually has seen a move away from value-based payment incentives. Only 24% of its assignments feature bonuses linked to quality or value metrics, down from 39% the previous year. “As much as we want to believe our system is moving to outcomes, by and large, our system is based on volume, ” Singleton said.
Provider as Payer
Beyond buying up physician practices to capture more patients, some health systems are taking another route. They’re deciding to become insurers themselves.
Those systems are watching the consolidation in the insurance industry and see a threat. Consolidation could drive up premiums and limit choices for patients. Frank Williams, the CEO of Evolent Health Inc., told Modern Healthcare that providers are starting to realize they need to control their own destiny.
“It certainly is going to give providers reason to be nervous about sitting across the table from a payer that is going to use that size and scale in their negotiations, ” said Steven Glass, the chief financial officer of the Cleveland Clinic. Cleveland Clinic hasn’t made a decision yet about starting its own insurance plan, but is keeping the option on the table, Glass said.
Health systems getting into the insurance game is not a new concept, large systems like Kaiser Permanente in California and Geisinger in Pennsylvania have been doing it for decades. But the Affordable Care Act has made it easier for local hospitals to offer plans under the private health insurance exchanges. It’s also easier for them to buy up rehabilitation and skilled nursing facilities to give them a broader network of services.
For-profit hospital operator, Tenet Healthcare Corp. operates six health plans with about 100, 000 members. Tenet entered the business two years ago when it acquired Vanguard Health Systems.
A new health plan should aim for an enrollment of at least 100, 000 to spread the risk, said Ray Herschman, president of xG Health Solutions, a Geisinger spinoff launched two years ago to help other hospitals develop insurance plans.
In a December survey of 45 large healthcare systems by Advisory Board Company, one-third said they already offered an insurance plan. Among the remaining respondents, three-quarters said they had either made the decision to start an insurance plan in the next three years or were considering it.
So the buying binge of physicians continues because hospitals need a large enough network of doctors to attract consumers to their facilities and health plans. In the meantime, surgeons have to continue to act in the best interest of their patients. As demonstrated by Drs. Horwood and Reilly, what’s best for the patient is still open for debate.
