In the first installment of this series of articles, we outlined the key questions that your organization should address as you embark on the development of a physician alignment strategy. In this installment, we will identify the alternative strategies that we have seen employed, and discuss the pros and cons of each.

First, it is important to dispel the myth that there is a proverbial “silver bullet” strategy that will position your hospital for success. That is simply not the case. Hospitals that are successful in working together with their medical staff most often have several key strategies and tactics in play. Also, because of the constantly changing environment, successful organizations take a very disciplined and structured approach to weighing the effectiveness of their strategies at periodic intervals. Remember, what is effective today may not work in the future.

Strategies and Tactics At A Glance:

Strategy/Tactic Complexity Resource Requirements Risk Vs. Return
Medical Directorships Low Modest: Stipends, Job Descriptions Low Risk & Low Return
IT Integration High Moderate High Risk & Moderate Return
MSO Services High High: Dedicated Resources High Risk & Moderate Return
Co-Management Medium Moderate Moderate Risk & Moderate Return
Physician Employment High High: Dedicated Resources High Risk and High Return


Medical Directorships. Payments made to specific physicians for the provision of management and administrative duties that fill strategic needs for both the hospital and the community. A common and appropriate way to engage physicians for both clinical and administrative leadership services related to a service line.


  1. Attain the services of a skilled physician leader to bridge the gap between clinical guidance and the demand for solid administrative leadership to help in the implementation of key hospital strategies.
  2. Have a leader that understands what it’s like to be a physician in your service area, and can assist in strengthening relationships between physicians and your hospital.
  3. Adds prestige to your hospital’s service line by aligning with a well regarded doctor in your community.


  1. You run the risk of alienating other physicians that might have also had their eyes set on such a position.
  2. It is often difficult to define objective measures to determine the success rate of the leader’s initiatives.
  3. Stipends are tied to the time spent on the job, which requires the physician director to track and record his/her time spent in the role of medical director.

IT Integration.  Provides a physician group access to an EMR and Practice Management software supported by the hospital. This link allows the hospital and the practice an easier avenue in which to share pertinent clinical data.


  1. Practice does not have to make the capital and human resource investments required to purchase and support such systems.
  2. Practice and hospital now have access to similar reporting capabilities critical to patient care.
  3. Easier on patients to transition from one mode of care to another.
  4. Provides a tangible solution to the physicians for a very costly and complex issue that every practice is facing.
  5. Offers a platform upon which trust and a common vision is able to be nurtured.


  1. The complexities of linking the system to an independent party can be difficult to implement and operate. Physician expectations may not be in sync with what they are prepared to pay for the technology.

MSO Services. The hospital provides management services to the practice. These services vary widely depending on the situation, but customarily consist of:

·    Billing, collection, and accounts receivable management

·    Hospital could employ the employees and lease them back to the practice

·    Take over the complete management operations of the practice for a pre-determined management fee


  1. The physician is able to focus entirely on the clinical aspects and taking care of patients. The hospital deals with all of the day-to-day management issues.
  2. The physician remains in private practice.
  3. The loose affiliation lays the foundation for a more structured relationship in the future.


  1. Extremely risky for the hospital if the services are not adequate and the practice is not managed as effectively as when the physician was managing the practice.
  2. There is almost always a discrepancy between the level of service desired by the physicians and the amount they are willing to pay for the MSO services.
  3. Provision of MSO services is a no-win scenario for the hospital. Extremely risky and almost certainly the risk outweighs any benefits.

Co-Management. A management company is formed by both the physicians and the hospital to jointly run the activity within a specific service line. The goal of the management company is to achieve certain quality improvement and cost containment initiatives relating to that service line.


  1. Empower physicians to develop more efficient clinical pathways, as well as new quality improvement and patient satisfaction initiatives.
  2. Physicians participating in the arrangement can receive additional compensation for the achievement of the stated goals.
  3. Potential to be recognized as a preferred provider for these services by third-party payers.


  1. The hospital is the primary financier of the new co-management entity, responsible for paying both fixed and incentive compensation to the participating physicians.
  2. Need to cede service line control to the physicians participating in the arrangement.
  3. Typically not a sustainable model, as incentive payments tend to decline over time, while the effort required to maintain improvement grows over time.
  4. Potential legal issues for all parties involved if the management company is not structured appropriately.
  5. Hospital and physicians may not see eye-to-eye as to what the important goals might be.

Physician Employment. Hospital employs all physicians and employees currently employed within the group, as well as purchases all assets and equipment at fair market value. Physicians are able to retain any outstanding A/R, but all future billings are collected by the hospital.


  1. Allows the hospital to bolster or grow key service lines important to the hospital’s overall strategy.
  2. Allows the hospital to enter new markets in which it previously had little to no presence.
  3. Frees the physicians to focus solely on treating patients, as the hospital is now responsible for all fiscal and administrative burdens.
  4. Hospital employment provides both financial and succession planning stability for the group.
  5. Hospital has the ability to better position itself in the face of certain reform initiatives.


  1. Requires significant cash outlays both to purchase the practice, and to employ all the physicians and employees going forward.
  2. Employment requires a long-term strategy.
  3. Running a successful employed physician network requires a significant commitment of resources by the hospital to ensure the proper framework and infrastructure is in place.
  4. Ensuring that the transition from private practice to employed practice is a timely and costly endeavor which, if done poorly, can lead to significant losses within the practice early on.
  5. An employed practice requires continual management to ensure that the practice is adequately handling day-to-day operational duties in a satisfactory manner.

For more information on physician alignment strategies, contact John Hill, Partner, at 502.814.1185, or

Neal D. Barker

Partner and Managing Director, Compensation and Compliance