Cleveland partner Steve Eisenberg authored an article, "The Boomerang Effect: Hospital Employment of Physicians Coming Back Around," which was published in the February 3, 2009, edition of Physician's News Digest.
According to Eisenberg, "The [healthcare] landscape is looking very much like the mid-90s, where health care systems moved to employ as many physicians as possible in as much of a defensive mechanism rather than an offensive strategy. But like Marty McFly learned when he traveled from 1985 to 1955 and back, hospitals, physicians and health care lawyers have learned that many things are different in 2008 as compared to the mid-90s."
Eisenberg continues: "The early proliferation of hospital-owned physician practices was prompted largely by two factors, one predominately rural and the other predominately urban. The first motivating factor was cost-based reimbursed rural health clinics in the late 1980's. Cost reimbursement largely transferred the fiscal risk associated with such ventures to the federal government until cost containment efforts began in the 1990's. The second and much larger factor, was the attempt by hospital systems to control and expand their market share in the 1990's. Hospitals wanted to vertically and horizontally integrate health care service delivery in response to the 'managed care' threat. Hospitals largely assumed they would be able to improve profitability of physician practices based upon three assumptions: (a) physician practices were grossly mismanaged, (b) improved economies of scale that hospitals could bring to the table, and (c) hospitals had lower costs of capital, especially in the case of non-profit hospitals. Many of the early generation hospital-owned physician practices, which included a large proportion of primary care physicians, resulted in substantial losses for hospitals and healthcare systems. Losses were frequently in excess of $100,000 per employed physician. As a result, many of the practices were divested by hospitals within a few short years of their acquisition, often accompanied by bitter litigation."
However, the long-term trend, at present, again favors continued growth of hospital-owned physician practices, but the basic character of the acquisitions is changing, according to the article. "Physicians and physician practices are being acquired by hospitals and integrated delivery systems where they have both a strategic need for the physicians in their communities and the sophistication to manage physicians, financially and culturally. And the compensation models are changing. Rather than large salaries and bonuses that were not supported (and in some cases could not be supported) by productivity, compensation is now more focused on both strategy and productivity."
Eisenberg provides insight into the cause behind this new trend, noting, "there are many drivers, the most important of which is that both physicians and hospitals need each other more than ever." According to Eisenberg, these drivers include:
Eisenberg also notes that "the compensation models used now differ greatly from the models used previously" and that "only time will tell whether the new breed of physician employment will succeed. It is clear that the relationship between physicians and hospitals has changed, with external factors other than competition and compensation supporting the employment relationship. Also, counsel are approaching these relationship much differently, greatly streamlining the transaction process."
To read the full article from the Physician's News Digest website, click here.