Salient Health Ventures - committed to successful hospital physician joint ventures Salient Health Ventures
"We connect Physicians and Hospitals"

Salient Salient

Salient Health News

How have relationships Between Hospitals and Physicians Changed?


The relationship between doctors and hospitals has always been dynamic with opportunities for both collaboration and conflict. “They need each other, but they don’t always realize they need each other,” says Jay Weatherly of Cullman-based Salient Health Ventures.

Years ago, hospitals didn’t provide the beds, physicians did. “Hospitals started out on the first or second floor of physician offices,” says Gary Griffin, advisor with Gary Griffin & Associates in Gadsden. He recalls a Pell City hospital facility above a pharmacy.

“The pendulum has swung from one extreme to the other,” says Thalia Baker, CMPE, healthcare adviser with L. Paul Kassouf & Co, P.C.

Baker says about 10 years ago hospitals reacted to anticipated managed care changes by buying physician practices in an effort to increase market share. “They thought if they didn’t have the physician head count, they would not get the managed care contracts. It was great for the physicians, tough on the hospitals.”

She says hospitals quickly realized that managing physician practices was totally different than managing hospitals. Today’s hospitals avoid owning physician practices. “The only place you still see that is in rural areas,” says Baker. “Those hospitals have to find a way to put patients in beds.”

Baker says physicians are trying to move the services they use most to places where they have ownership. Could physicians again own the hospitals one day? Only time will tell.

Besides their naturally different viewpoints, technology, regulatory and reimbursement issues all contribute to increasingly strained relationships between hospitals and doctors.

Different Perspectives
One reason for discord between physicians and hospitals is their unique natures. “Physicians are a lot like professional athletes,” says Weatherly. “They’re the stars, the ones who bring skills to the table. Hospitals are like the owners who bring the stadiums and the marketing to the table on behalf of the players.”

“A hospital that moves methodically can seem frustratingly slow to a specialized physician who is used to moving rapidly,” says Steve Nyquist of Salient Health Ventures. “It is difficult for those two cultures to meet on common ground. Physicians have gotten so frustrated that they decide to do it themselves.”

Because of their size and scope, hospitals work from a corporate viewpoint. “Physicians are at heart entrepreneurs who want to run their own businesses,” says Baker. “Although a lot is dictated now about how they bill for their services and what they can do with their patients, they can still run their business the way they want.”

Work styles are different. “When a physician goes to a hospital and sees all these people in suits sitting in meetings making decisions, he may not be comfortable with what’s going on,” says Baker.

Technology and Legislation
Technological advances have increased emphasis on outpatient treatment, which can be another source of tension. “The shift from the inpatient to the outpatient arena opened opportunities for physicians to establish those services and either be co-owners with the hospital or to do it themselves,” says Weatherly.

“Most of our orthopedic groups own their own MRIs,” says Mary Elliott, CPA with Warren Averett Kimbrough & Marino, LLC.

Regulatory issues exacerbate the situation. Besides dealing with OSHA compliance, wage and hour, Department of Labor rules, Fair Labor Standards Act and other matters, like all businesses, doctors and hospitals also deal with industry-specific regulations. Both the federal Anti-Kickback Statute and the Stark II Legislation deal with financial relationships between referring physicians. “Except for the nuclear power industry, this is the most heavily regulated industry in our country,” says Jim Stroud, CPA with Warren Averett Kimbrough & Marino, LLC.

“Some of the rules aren’t quite fair to either hospitals or physicians,” says Griffin. “That causes a lot of frustration. It even causes frustration when a physician is trying to work a joint venture with a nonprofit hospital vs. a for-profit hospital. A nonprofit cannot do certain things that a for-profit can offer to a physician. That makes it very frustrating to the nonprofit and to physicians.”

A new Centers for Medicare/Medicaid Services (CMS) proposal will pay more to physicians who are more appropriate utilizers of care. “They’re trying to use money to motivate correctness of care,” says Baker. “That’s the way to go. That’s how the world works.”

Financial Pressures
The complexity of the current reimbursement system puts pressure on both physicians and hospitals. Physician revenues have been reduced by flat or reduced reimbursements. The days of annual increases from the government and insurance companies have gone. It’s not uncommon to see reductions in fee schedules several years in a row while expenses continue to rise.

“Most physicians’ incomes have stabilized and in some cases decreased,” says Weatherly. “There are very few professions where incomes have stagnated over an entire decade.” He says some physicians have the same income in 2005 as they did in 1995. He says efforts to redirect that trend also have affected relationships with hospitals.

In today’s reimbursement climate, physicians must process people efficiently, while making sure each one clearly understands what’s going on and feels they’ve received excellent care.

“There’s more and more surveillance about the quality of care,” says Stroud. “The government even has pilot programs to gauge the efficiency of medical care and in some areas have programs to chart treatment and preventive care.”

Griffin says Medicare payment rates sometimes drive physicians to provide care outside the hospital. “It’s more expensive to provide care in the hospital than in a physician’s office.”

Physician groups have become larger in an effort to improve efficiency and cut costs. “Over the past couple of years a lot of our groups are affiliating with multiple hospitals instead of just one,” says Elliott. Specialty groups may have offices at two or three hospitals.

Managed care has contributed to the trend for physician groups to affiliate with more than one hospital. “With privileges at only one hospital, a physician may find that some third party payors will not include you because you don’t have privileges at another hospital where they have a significant contract,” explains Weatherly.

Hospitals sense disloyalty when they see physicians dividing their time among several campuses or using off-campus surgery centers. “They respond by recruiting a competing doctor in the same specialty,” says Stroud. “A tug-of-war starts. It gets worse and worse until somebody drops their end of the rope.”

Repercussions of a new doctor or a new group will ripple through the campus. Change occurs in surgical schedules, use of ancillary equipment and staffing demands. “Everybody gets bumped around a little,” says Stroud. “That’s part of the challenge for a hospital administrator.”

In hopes of improving income, many physicians seek options outside their practices. Independent or joint venture ownership of service facilities is often an option. These enterprises can spark strife. “It can get to be a tug-of-war where the hospital perceives that the physician has done something disloyal,” says Stroud.

Only a few decades ago, hospitals owned the POBs and could negotiate deals on rent. “Today hospitals have to charge fair market value,” says Elliott. “They are not allowed to discount the rent rate.”

Except in smaller communities, hospitals are exiting the landlord position, selling POBs. A physician facing rent increases now has to blame an outside landlord, not the hospital. Newer office buildings are owned by physicians or outside investors.

Can We Talk?
Though all these factors play a part, poor communication may be the primary problem. Doctors and hospitals may be responding to perceptions instead of facts or simply no information at all.

“The worst is where doctors read about what the hospital is doing in the paper,” says Elliott. Telling the public about major moves before informing their doctors jeopardizes trust and physician confidence.

Both sides have been guilty of not communicating. “Under the shroud of darkness, physicians are agreeing to projects without the hospital knowing until an announcement is made or a sign goes up,” says Nyquist. These projects also confuse the community.

“Sometimes we get caught up in the disagreements. You don’t always hear about the common elements,” says Griffin.

What would happen if an administrator could get all physician strengths pulling in the same direction? “You can do some really powerful stuff — change systems, improve delivery, and get excellence in patient care going,” says Stroud. “You can do spectacular things that will get lots of good publicity when you are efficient and top-notch at your medical care.”

This article taken from the September 2005 issue of the Birmingham Medical News.

© 2005-2008 Salient Health Services, Inc. All rights reserved.