Numerous clients have asked HSG for assistance in providing board education regarding physician employment. Driving this request are the frequent questions they receive from board members about why the hospital must support physicians who were previously independent. And, skittish about legal concerns, such as buying referrals, clients find it a difficult question to answer.

A simple answer we like is: If we want to address community needs we must pursue employment, because younger physicians are not interested in private practice and the laws of supply and demand mean that doctors can earn more through employment. At a more basic level, we told one board that they only had to employ physicians if they wanted to be in the hospital business.

Simple, basic answers will likely reduce the number of board member questions in the short term, but not build board support for the necessary focus and investment that will be required over the long term. To build that kind of understanding and support, other clients have been proactive, educating their boards on the rationale for the hospital’s physician employment strategy. In constructing board education, these executives have focused on the following questions:

  1. What market forces are driving physician employment?
  2. What operating standards must the organization pursue and how do those impact subsidies?
  3. What is the strategic value of the investment in physician practices?
  4. How does the health system’s investment benefit the community?

Market Forces. We mentioned above the competition for physicians among hospitals. For many specialties, such as family medicine, internal medicine and orthopedics, the demand for physicians far outstrips the supply. If the hospital wants to serve its community and retain viable service lines, an investment in employment and network development is necessary. Data on the shortage of various specialties is prevalent, so producing that for the board should be relatively simple.

Operating Standards. Many boards suspect, correctly, that operational deficiencies contribute to the huge practice losses. The losses are the outcome of three primary factors:

  1. Hospital management teams do not have the expertise required to run physician practices.
  2. Rapid growth in the employed network has created further challenges and, in many cases, outstripped the management infrastructure.
  3. Health system executives do not know what indicators to monitor, what dashboard to create, to be confident in their control of the group.

Failure to build the appropriate management infrastructure is the biggest deficiency we see in these networks. Until that deficiency is addressed, the network can’t deliver on its potential for strategic value. Ongoing communication with the board, based on performance as measured by targeted dashboards, will force management to improve performance.

A comprehensive assessment of the practice provides the base for identifying and closing performance gaps. The assessment contrasts performance against industry benchmarks, including: provider productivity, productivity contrasted with compensation, staffing levels and productivity, revenue cycle measures, and others. Sharing practice assessments with the board helps to create transparency, broadens understanding of the challenges and builds support for investment in network development and improvement.

Strategic Value. One client decided to focus on this issue first – to help the board understand, from a strategic perspective, why the hospital was employing physicians. Some practices were employed to grow centers of excellence and create market dominance; some were employed to enhance points of access. Still others were employed to provide specialty access close to home. This client employed a two-step discussion with the board. First: The strategic initiatives that are supported by the employment. Second: The steps the organization will take to minimize subsidies.

At HSG, we are also seeing hospitals employ physicians because of the imperative to manage the health of populations. Part of the objective is to create a multi-specialty group that can manage care processes. Another part relates to ensuring the availability of the more esoteric sub-specialties, those that can help with costly chronic conditions and care coordination. While many of these sub-specialists are not big revenue producers for hospitals, they are required.

Community Benefit. Finally, the board must understand the community benefit of the employed network. This overlaps with prior comments, but is generally about creating adequate local access to physicians across the spectrum, from primary care to sub-specialty service. Employment also helps the health system better meet its mission to serve the community through improved abilities in the coordination and management of care.

Conclusion. As you think about your board and building understanding of and support for network investment, we have two suggestions.

  • Be proactive. Do not approach this from a defensive position. Use data on physician shortages, performance of your practices and the strategic value of your investment.
  • Be repetitive. Boards will not absorb this in one sitting, nor will they necessarily remember a discussion from two years past. Boards tend to have short memories. A quarterly report on this topic, tying it to the overall financial health of the organization, will be valuable.

David W. Miller

Founder and Chairman