Physician employment has revitalized hospital interest in service line development. The alignment of incentives created by employment has created new possibilities and has improved the ability of hospitals to respond to the market’s needs. We’ve identified seven historic challenges with service line planning that physician employment has helped address:

Many of our hospital clients have concerns about the willingness of independent specialists to develop regional strategies. Travel required to develop these strategies is inherently inefficient for the doctors, and when combined with the shortages in many specialties, the dynamic has been for practices to pull back to their core.

Due to this dynamic, tertiary facilities are facing the risk of losing business if a competitor better addresses this regionalization opportunity, while community facilities find that specialty clinics are drying up and leaving their communities underserved.

Employment has changed this dynamic by providing an opportunity for the hospital to underwrite this marketing effort, leading to more robust service line strategies.

Care Processes.
Traditionally, physicians have not had great incentive to help hospitals improve care processes, given that such work often meant reduced productivity for the physician. And while more efficient care led to savings for the hospital, the physician was unable to be rewarded by the hospital for his or her efforts. Employment has made it much easier to address this challenge.

Through the structuring of care processes based on best practices, the doctors can improve the efficiency and effectiveness of hospital care. They can also improve the care of the patient throughout the episode of illness by working with post-acute providers. By structuring the incentives, the hospital can give employed physicians the incentives to work on such process improvements.

Client hospitals are consistently working to define how their employed doctors can help with quality metrics, and incenting them to perform as needed. This is particularly true with measures tied to reimbursement: core measures, never events, readmission rates, and HCAHPS are getting greater attention. Within key service lines, hospitals are making these issues part of the service line strategy, and through employment are able to give the incentives necessary to get physicians engaged.

Expanding Services.
Expanding the scope of services often requires growth in physician and hospital capabilities. Employment reduces some of the barriers to this growth, especially on the physician side. If the doctors are in private practice, expansion requires the physicians to add new associates. This may create significant financial risk for the doctors. Realistically, employment does not remove all this risk, but it generally allows a buffer period during which the hospital absorbs most of the risk.

Clinical costs in a service line are driven by the care processes addressed above, but also by the cost of the supplies. Managing the supply chain is easiest when all the specialists in one service are employed, and again, financial incentives can help as well. Narrowing the list of supplies becomes much more feasible under this scenario.

Employment makes it easier to promote physicians, allowing the compliance officer to better sleep at night. We believe too many hospitals have been too timid about promoting private practitioners, and that the barriers are often not real, but employment at least eliminates the argument.

This is the least tangible, but often the most important. Great products and services do not emerge from groups that do not share a culture and a vision. With the hospital and physicians in one organization, with common objectives, it is easier to begin to develop a common culture. Common beliefs about customer service, clinical care processes, care coordination, and a common vision of what the service will be in five years will facilitate the development of a true “center of excellence.”

Other models, such as co-management and bundled pricing, allow you to do some of these things with private practitioners. Those models are very helpful when employment is not likely. But they add a layer of complications, both operationally and legally, that are not present with employment. That is why we see renewed interest in a service line focus among organizations that have significant employment, and why that focus is producing great results for many hospitals


David W. Miller

Founder, Board Member