Hospital employment of physicians in the United States has passed through periods of intense activity and decline over the past several decades. In the early 1990s, many hospitals sought to acquire primary-care physician practices, with the goal of increasing market share by controlling referrals of patients enrolled in managed-care plans and increasing negotiating leverage with managed-care organizations. In general, these employment relationships were hastily developed, with very little foresight and planning regarding the goals and responsibilities of each party. Furthermore, the importance of physician leadership, accountability, and cultural differences between hospitals and physician practices were grossly underestimated. As a result, most of these relationships resulted in financial losses and were divested by the end of the decade1-3.
Since the year 2000, there has been an increasing trend toward the acquisition and employment of specialist physicians by hospitals. According to a recent survey of members of the American Academy of Orthopaedic Surgeons (AAOS), more than three times as many orthopaedic surgeons are employed by hospitals today as compared with when they entered into practice4. Physician recruiting agencies note that hospitals are among their fastest-growing clients and now comprise the largest percentage of their physician recruiting activity. Specialist physicians, including orthopaedic surgeons, are among the most common hospital-based physician recruitments5.
Multiple factors are driving this trend. Hospitals are seeking increased alignment of their interests and goals with those of specialist physicians for many reasons, including the desire to gain and/or preserve market share in a particular specialty area, such as orthopaedics; to neutralize competition from physician owners of imaging and physical therapy facilities, ambulatory surgery centers, and specialty hospitals; to stabilize their medical staff; and to meet urgent clinical needs, including emergency call and indigent care. Furthermore, alignment with specialist physicians may allow hospitals to rationalize large capital investments, such as the conversion to electronic health records, and to reduce operating costs and improve the overall quality of care by encouraging physician participation in supply chain and quality initiatives. In addition, health-care financing and delivery reforms, such as episode-of-care or “bundled” payments and accountable care organizations, favor hospital-physician alignment6.
From the physicians’ perspective, factors driving a trend toward hospital-based employment include declining professional reimbursement, rising overhead, increasing federal regulation, a desire to off-load their administrative responsibilities and financial and regulatory risk while focusing on clinical practice, and an increased need for financial and job security due to general uncertainty about the future of medicine. Additionally, most physicians lack the formal business training that is necessary to run a successful clinical practice, and many younger physicians are willing to trade-off the potential financial rewards of private practice for the simpler, more predictable lifestyle and work environment that come with hospital-based employment5,7.
There are many potential benefits associated with the hospital-based physician-employment model, including the potential to improve the quality and efficiency of care through enhanced coordination of care, seamless transitions between inpatient and outpatient care, shared information technology platforms, and improved financial performance as a result of aligned financial incentives. Other potential benefits include increased access to quality-improving cost-saving technologies, such as electronic health records and inventory management, and the potential to increase the patient’s satisfaction and experience through simplified, coordinated delivery of care8.
Despite these benefits, there are also many potential risks associated with the hospital-based physician-employment model, including decreased physician productivity; the potential to increase cost by providing certain services in a less-efficient, higher-overhead environment (e.g., hospital-based imaging and outpatient surgery centers); and decreased competition through consolidation of providers, resulting in fewer checks and balances and decreased choice for patients7,9-11. Additional drawbacks include the potential for fragmentation of the profession and loss of professional autonomy.
The keys to a successful hospital-physician partnership are having clearly articulated roles and responsibilities for each party, well-defined goals and performance metrics, and careful consideration of the legal aspects of the partnership, including indemnification, dispute resolution, and well-defined exit strategies for both parties. The partnership must result in sustainable, patient-centric value creation in terms of improved quality and efficiency of care. Furthermore, strong physician and hospital leadership is essential to guide the partnership through the difficult integration of two different cultures and to build trust and mutual respect.
The orthopaedic profession and the role of our professional societies may also change with the increase in hospital employment of physicians. Our current autonomy offers an unbiased voice for our profession, which has been particularly important when discussing and debating major changes to our health-care system. Our professional societies continue to work on behalf of their members and their patients to ensure that high-quality musculoskeletal care can be delivered effectively and efficiently in different practice settings. Our views and those of the public often conflict with those of the American Hospital Association and other stakeholders. This has led to concerns that, with an increase in hospital-based employment, physician loyalty may shift from our professional base to that of the employer (the hospital) over the long term. This could erode our professional independence and minimize another important check and balance in the health-care system12.
To be an effective hospital-employed surgeon, one has to examine the goals and objectives of each party (i.e., the hospital and the surgeon). The success and effectiveness of a hospital-based employment relationship will be measured, at least initially, by the ability of each party to achieve its goals, and by the patient-centric economic value created by the partnership13,14.
Hospital-employed surgeons have a completely different set of challenges than those faced by their counterparts in internal medicine and radiology15. Those physicians have worked for many years in a hospital-employed environment and have come to be viewed not only as part of the fabric of the institution, but also as a service component, something specialist surgeons such as orthopaedists may be completely mismatched for in terms of personality profile16-18.
Autonomy and self-mindedness have always been considered attributes of physicians in general and orthopaedic surgeons in particular18. For instance, consider the vast array of treatment options and implant choices available for the treatment of any given injury or condition and the patient risk adjustments that are made on a daily basis. The level of autonomy that physicians are accustomed to in private practice may in fact be considerably different in the employed sector, as compliance with corporate guidelines often supersedes the wants and needs of the individual physician. Unfortunately, the loss of professional independence can inevitably result in a reduction in productivity, whether through a covert difficult assimilation process or an overt process borne out of objection, disillusionment, and an environment of mistrust15-17,19,20.
The medical staff may view hospital-employed surgeons differently than they view private-practice-based physicians, much in the way that there were attitudes surrounding the “town-and-gown” mystique that was prevalent with the advent of managed care and earlier with the expansion of academic faculties and services encroaching upon the established private-practice medical communities. Anytime that there is the perception that a surgeon is being compensated without being tied to some discrete medical or surgical act there is a tendency for criticism or even social disdain on the part of the professional colleagues of that surgeon. Subtle issues, such as “paid time off,” create friction between the production-based practitioners and their hospital-employed colleagues. Income guarantees—sometimes as much as 200% of the amount that can be expected to be earned as a private-practice surgeon in the same region—produce a competitive recruiting advantage in favor of the hospital, in many cases by institutions that have built their reputation on the work and services provided by the very practices that they are now competing against for new surgeons21. For example, a typical scenario would be a private orthopaedic practice that is offering a $15,000 per month “draw,” with the surgeon keeping 65% of collections, which is a two-year income guarantee of $225,000, while a hospital within five miles of this practice offers a $550,000 income guarantee for two years plus a signing bonus.
To be both effective and personally successful in a hospital-employed position, a surgeon has to reconcile the loss of autonomy and the adjustments in the social arena that are the overarching themes of corporate compliance. This can be a difficult process and one that frequently gets initially overlooked when a surgeon is dealing with a professional recruiter and is being offered a six-figure salary guarantee that often exceeds all other regional offers by 80% to 100%. Hospitals and physicians alike will have to begin to develop processes that will produce executive best-fit scenarios18,22 just as other industries have done successfully for years. Executive best-fit scenarios include executive search analytics and profiling as a methodology for physician hiring.
Another consideration is the potential commoditization of the orthopaedic service line that could occur if hospitals believe that they can meet all of their orthopaedic needs with employed physicians. This could result in a decrease in the intrinsic market value of orthopaedic services. This is already being observed in the areas where hospital employment of surgeons has existed for as little as seven years2,16,20. Aggregate estimates from the American Medical Association and the U.S. Department of Labor as well as health-care industry analysts7,18,23 indicate that 60% of all specialist physicians will have some type of employment arrangement by the year 2014.
Another factor that needs to be considered when evaluating hospital-based employment is the so-called “halo effect” that orthopaedic surgeons have on hospital revenue growth. A recent Merritt Hawkins report indicated that the net annual hospital income revenue derived from orthopaedic clinical products and services and the operational components (facility and business transactions) that comprise the service-line ledger was $2.11 million per year, down from a five-year high of $2.9 million in 20045. The cause for the economic decline from 2004 obviously is multifactorial, but analysis performed inside representative facilities (Level-I, Level-II, and Level-III American College of Surgeons-accredited hospitals) found a recurring trend of cost increases in the area of supply chain, technology, and manpower that was specific to orthopaedics and not seen in other service lines. Simply put, the investment in new technology is not equating to reductions in time or manpower needs for orthopaedic surgery as it is with other surgical service lines. A cost-reduction strategy is first and foremost on the agenda for most if not all such facilities, and employment alliances are a first step in gaining control over these cost centers.
As more physicians and hospitals become increasingly aligned, the out-migration of revenue to areas such as privately owned ambulatory surgery centers, and ancillary services such as imaging and physical therapy, will flow exclusively to hospitals and away from the competing physician-owned ventures.
Different lifestyle, economic, and personal situations govern our decisions regarding the practice model that works best for each physician17,24. Hospital employment, whether as a group or individually contracted, is an appealing and ever-increasing practice environment for new and established orthopaedic surgeons. The benefits of employment include an easy transition from residency or fellowship with no added debt burden or start-up costs. In addition to early risk reduction and paid benefits (401[k] plans, as well as disability, malpractice, and life insurance plans), other additional services, including human resources, marketing, and legal and/or regulatory counsel, are provided at no cost to the surgeon.
The overhead to run a physician practice today is increasing at an unsustainable rate25. Leverage from a large multispecialty hospital-based group can enable consistent, competitive reimbursement, with an integrated corporate compliance division. Feedback on coding and collection issues helps educate the surgeon while providing guaranteed collection rates. The ability of a hospital to make large capital expenditures (e.g., electronic medical records, digital radiography, and rehabilitation facilities) with the benefits of depreciation minimizes physician expenses while providing access to these cost-saving and quality-enhancing technologies26. The development of a multispecialty group allows surgeons to generate a strong, consistent source of referrals. Many hospital-employed surgeons are paid for emergency call, have an experienced nurse practitioner or physician assistant to take first call, and have limited emergency call and weekend coverage responsibilities. Having an experienced management team allows the surgeon to focus on the clinical aspects of his or her profession. The management team is integrated into the hospital structure and provides a good communication pathway for the surgeons. The efficiencies of practicing at one hospital allow development of a team approach. Surgeons can also support the hospital in implant negotiations while maintaining access to newer technologies.
The concerns of becoming an employed physician are mainly related to loss of autonomy. Before considering an employment relationship, it is important for the surgeon to define the reasons for becoming employed, and to make sure that those reasons fit into the model and vision of the hospital. All contracts have exit clauses, and good legal representation is critical. Most contracts also include a local non-compete clause, and most hospitals enforce a heavy Medicare regulatory oversight. Even when employed as a full partner in an employed group, a surgeon cannot prevent the hire of a new administrator or a competing surgeon. The concerns over developing the hospital’s reputation and brand instead of the surgeon’s own practice are always present, and marketing resources for the surgeon’s practice should be negotiated on a yearly basis. Hospital-employed physicians do not build equity in their practice, and they receive an Internal Revenue Service Form W-2 that restricts their ability to deduct work-related expenses from their income tax. It is important to understand regulatory issues such as fair market value, especially at a not-for-profit hospital, and the buying and accounting cycles of a hospital. Capital investments, such as conversion to electronic health records, are made by the hospital on the basis of the needs and practice styles of many disparate groups of physicians, and implementation of any new protocol takes longer than it would for an individual practice to accomplish. Another risk is that contracting, billing, and collections for professional services are delegated to the hospital. With respect to contracting, in some cases, the hospital may choose to trade off lower rates for professional services in return for more favorable hospital reimbursement. Furthermore, hospital billing staff usually have less experience with billing and collections for professional fees and are often less aggressive in pursuing denied charges. Finally, the surgeon’s relationship with the chief executive officer may change, and commonly surgeons will see several administrators come and go throughout the term of their employment with potentially varying and often conflicting visions.
For a hospital-employed surgeon’s practice to be successful and to thrive, it is critical for the surgeon to take a leadership role in the hospital. The orthopaedic service line is usually a profitable and important one for the institution. Employed surgeons need to work collaboratively to prepare for the changing economic and regulatory future, and they need to trust and be open with the hospital administration27. The surgeons also need to present themselves as a common voice with leadership to drive change28. Hospital-employed surgeons should work together as a team to plan a strategy to provide superior patient care within integrated care pathways, and they should work collaboratively with other surgeons and hospital administrators to deliver high value care while maintaining personal autonomy regarding patient care. They should align their own mission and philosophy with the growth plan for the hospital, and present their mission and philosophy yearly to the hospital administration. Developing a multispecialty orthopaedic group allows the development of specialized clinical expertise and intergroup referrals while minimizing competition.
In general, hospitals are not looking to become practice or career developers15. There may be other suitable options that still allow both parties to achieve their mutually agreed-upon goals. If the service provided is particularly unique and specialized, then an independent-contractor relationship based on mutual performance metrics may achieve the goals and objectives of the partnership.
Third-party management of physicians, although very much in its infancy within orthopaedic surgery, may be an option that yields the same clinical and personal satisfaction while alleviating the surgeon of the rigors of day-to-day operational issues and permitting the surgeon to maintain some desired degree of personal autonomy within the framework of the hospital staff. Certainly, third-party service-line management has proven beneficial to both surgeons and hospitals alike29. Third-party management pertains to orthopaedic trauma almost exclusively, as the demand for trauma coverage in many smaller urban markets has increased dramatically over the past ten years. The hospital contracts directly with an orthopaedic management firm to provide surgeons who will provide on-call and outpatient services twenty-four hours a day, seven days a week, 365 days a year. These providers are given advanced personal freedoms as the typical work assignment is ten to thirteen days per month, thus allowing dedicated time for other personal or professional pursuits. There have also been recent developments pertaining to such third-party management of other inpatient product lines such as spine surgery and total joint arthroplasty, and these have come more in the form of franchising of a particular practice into a new geographic area.
Finally, crafting individualized comanagement arrangements within the orthopaedic service line of the hospital may prove to be the best option for some surgeons, particularly if a surgeon has the leadership and management skill set necessary to create a growth strategy for the orthopaedic service. In this arrangement the surgeon is compensated, oftentimes through a management service organization arrangement for administrative duties and programmatic successes within the institution, in addition to the compensation earned through the clinical practice. Time allocation for these duties has repeatedly proven to be difficult, as the unpredictability of surgeon-specific processes within the infrastructure of the facility often leaves little time to devote to strategic planning and service-line management unless these issues have been addressed in the initiation of the alliance.
At the 2010 Annual Meeting of the AOA in San Diego, the meeting participants were polled regarding their current practice situation and their opinions about hospital-based employment of orthopaedic surgeons. Fifty-seven percent of the respondents were currently practicing in an academic practice, while only 25% were practicing in a private-practice orthopaedic group and 8% were practicing as a hospital or health-system employee (nonacademic). Fifty-four percent of the respondents agreed with the statement “I am currently a hospital employee or am actively considering leaving my practice to become a hospital-employed physician.” The majority of respondents (48%) indicated that their relationship with their primary hospital was collaborative and/or cooperative, 26% responded that it was neutral, 15% indicated that they were reluctant cohabitants, and 10% said that the relationship was adversarial. Fifty-five percent responded that the primary obstacle to hospital-physician collaborations was reluctance to share power and/or control, while 24% cited a lack of trust and/or mutual respect and 11% indicated that cultural differences were the primary obstacle to hospital-physician collaboration.
As hospitals and physicians have consistently learned, merely being a good practitioner does not, in and of itself, make one a good leader, system developer, and manager of a team, all of which are required for a department or service line to be successful from a business perspective. Regardless of the model chosen for hospital-physician integration, the key ingredient for success is physician leadership. Long-term success within a hospital-employed model is certainly a relative term specific to each practitioner and his or her unique circumstance. Hospitals have the potential to be a positive partner in a surgeon’s career; the critical steps to creating that relationship start with the right surgeon, at the right facility, with the right agreement-contract.
In summary, there is an increasing trend toward hospital employment of orthopaedic surgeons. Health-care delivery and payment reforms favor provider alignment, including the development of pilot programs for accountable care organizations and bundled payments. Policy experts often point to the advantages of vertically integrated delivery networks such as Intermountain Healthcare, Geisinger Health System, and the Mayo Clinic. The expansion of hospital-based employment of specialist physicians is associated with potential risks and benefits for surgeons, hospitals, patients, and our health-care system. Many questions remain regarding the transition to a more integrated health-care delivery system, such as those regarding the sustainability of this model and the impact of health-care reform legislation. It is important for orthopaedic surgeons to understand the implications of this trend and the factors necessary for success. Moving to a more integrated health-care delivery system has many benefits for patients and providers. However, we need to be cognizant of the short-term and long-term implications of this trend and how it may affect our patients and our profession.
Strong physician leadership will be necessary to address the large-scale impact of hospital-based employment of orthopaedic surgeons on all health-care stakeholders, including orthopaedic surgeons, hospitals, payers, and, most importantly, our patients.
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Disclosure: None of the authors received payments or services, either directly or indirectly (i.e., via his or her institution), from a third party in support of any aspect of this work. One or more of the authors, or his or her institution, has had a financial relationship, in the thirty-six months prior to submission of this work, with an entity in the biomedical arena that could be perceived to influence or have the potential to influence what is written in this work. No author has had any other relationships, or has engaged in any other activities, that could be perceived to influence or have the potential to influence what is written in this work. The complete Disclosures of Potential Conflicts of Interest submitted by authors are always provided with the online version of the article.