To many hospital CEOs, there are days when it seems as though every physician on the medical staff wants to be employed.  In reality, that’s not true — quite a number of physicians prefer to remain independent.  However, finding ways to align with key independent physicians without putting them on the payroll has its own set of challenges.

While there may not be many new and exciting physician alignment models, often the situation just requires focus, effort and dusting off some old standbys.  At HSG, we’re seeing renewed interest in five “old-school” alignment models:

  1. Co-Management. Co-management has been the alignment strategy of choice for hospital service lines, but it’s just as useful under healthcare reform, as hospitals work to engage and collaborate with physicians on quality and economic challenges. Correctly structured, this is an exciting model that can bear many positive returns.
  2. Professional Services Agreements. While traditionally used for hospital-based services like ED and anesthesia, Healthcare Strategy Group frequently recommends PSAs to deal with private physicians who want security and assistance, but not necessarily employment.  A hospital can, for example, acquire a primary care office’s employees and facilities, and contract with the physicians to provide professional services at the office.  This model helps the hospital gain control and information, without having to put reluctant physicians on the hospital payroll. We have also seen a PSA used to secure a key practice or physician that’s culturally a poor fit with a hospital’s existing employed network.
  3. Cooperative Recruitment. Whether through an income guarantee or by embedding employed physicians within an existing group and buying overhead (what we refer to as an “incubator model”), cooperative recruitment is a highly efficient strategy that can be useful when a group doesn’t have the financial wherewithal to expand. While income guarantees can only cover physician salary and incremental expenses, incubator models can also help the group economically by reducing existing overhead burden.
  4. Management Services Organizations. For years, we’ve discouraged MSOs. However, the growth of hospital employed groups has supplied many organizations with the in-house resources and talent to make an MSO feasible. The result is an upsurge in this type of activity, as hospitals use their physician practice management and billing expertise to help struggling independents not only survive, but thrive.
  5. Physician Hospital Organizations. As hospitals search for direct and joint contracting opportunities, many PHOs have been reactivated and reinvigorated. PHOs are a highly effective method for aligning hospital and independent physician interests on managed care issues.

Hospitals, of course, can also provide a variety of subsidy arrangements: medical directorships, direct subsidies to hospital-based groups, service contracts, etc. Though not addressed here, these are clearly appropriate alignment tools in some situations.

Neal D. Barker

Partner and Managing Director, Compensation and Compliance