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Seventeen years ago, Bill and Hillary Clinton’s efforts at healthcare reform and the then newly ushered-in era of managed care sparked intense competition for primary care market share, and the race began. Physician practice management companies grew at unprecedented rates. Hospital acquisitions of physician practices reached levels previously unheard of, and physician salary offers soon reached absurd amounts. A few tumultuous years and many unwound deals later, we once again find ourselves in an environment of reform. The difference this time is greatly heightened regulatory scrutiny, savvy hospital administration and effective hospital-physician alignment strategies, now brought to bear with a focus on quality, cost control and patient empowerment.

Other differences in today’s market include the fact that the antiquated voluntary medical staff model, designed for healthcare in the 20th century, is in its end stage. Combined with profound pressures experienced by physicians in such areas as lifestyle balance, declining reimbursement, limited ancillary opportunities and regulatory pressures, many doctors are looking to hospitals as possible partners or employers.

The question on the minds of many hospital and health system leaders is, “Now that reform is here, what exactly is our physician strategy?” Systems that adequately plan for this are generally better at being less reactionary in addressing how physicians will be integrated into the hospital’s delivery model.

Interestingly, acquisition and employment may not be the only strategies. Many hospitals use economic integration tools that include joint ventures or management arrangements; some are using these in lieu of employment models. Others use a combination of employment and other economic integration methods in ways that fit the needs of the medical staff. Examples of these include leases, payment for on-call services, administrative contracts, clinical co-management arrangements, gainsharing and equity joint ventures. Yet others include alignment of physicians through the use of management service organizations to provide critical back-office and electronic health record infrastructure. Many hospitals are still in the business of employing physicians – primary care, specialists or both – through vehicles that include direct hospital employment, foundation models, hospital-owned group practices and provider-based clinics.

With today’s economy, physicians in many markets have been the ones to initiate employment negotiations. Specialties like cardiology, cardiovascular surgery and medical oncology are among those approaching hospitals seeking employment, but often for different reasons, including future prospects for reimbursement, advances in medical technology and treatment options or market trends.

In the modern movement back to physician employment, the wisdom gained from mistakes of the past, combined with the need to ensure that hospital, physician and payer objectives are in sync, has helped to foster better financial arrangements. Gone are the huge “goodwill” amounts found in the 1990’s purchase prices of many physician practices. Lucrative multi-year salary arrangements have been replaced with base-plus-incentive models that reward physicians for productivity, quality, patient satisfaction and outcomes metrics.

Future models will be adept at addressing the division of bundled payments based on an episode of care, in which providers will vie for packaged reimbursement and incentives. Unfortunately, however, few models will be successful without significant fee-for-service payment reforms (namely, the correction of the flawed Sustainable Growth Rate formula). Without Congressional intervention into the problem of the looming 23-plus-percent Medicare Physician Fee Schedule cut, patients may inevitably suffer from a lack of access to care if providers opt out of the Medicare program or limit the number of Medicare patients they treat.

We are on the cusp of a new beginning in healthcare – the dawn of the reformed market in the U.S. – and the decisions made today will affect how healthcare providers, insurers, the federal government and, most importantly, our nation’s citizens fare under this new world order. Long before Barack Obama announced his candidacy for President of the United States, the marketplace had begun a transition to adapt to public demands for quality, cost control and coverage for the uninsured. Hospitals and physicians, seeing the movement toward change in the delivery of healthcare and the way providers are paid, began to restart the drive toward increased collaboration that was born out of the failed Clinton healthcare reform initiative back in the 20th century.

With reforms in insurance, payment and delivery of care now law, a greater sense of urgency exists among hospitals and physicians to align themselves as a means to establish a defensive posture, gain control over reformed payment structures, and harmonize in the face of the challenges of interoperable health records, greater regulatory scrutiny and quality directives. Those who do this – and do it well – stand the best chance for success in this reformed marketplace.



Greg Anderson is a partner in health care services at HORNE LLP. He serves as the director of HORNE's health care valuation services group. Greg concentrates his practice in the design, implementation and valuation of hospital/physician employment and other compensation arrangements; financial analysis and consulting on compensation plans for physician group practices; and valuation of medical practices, hospitals, diagnostic facilities, ambulatory surgery centers and other health care facilities.

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