Entrepreneurial private practitioners: A depiction empowering salaried position proponents

Douglas W. Jackson

President Barack Obama has made implications in speeches and televised press conferences that money is a motivation behind many surgical procedures. In July he said, surgeons make “a lot more money” if they take a kid’s tonsils out, the implication being that the surgeon would have operated whether the tonsils had to come out or not. He has also said, “Our proposals would change the incentives, so that doctors and nurses finally are free to give patients the best care, not just the most expensive care.” This statement also implies that many decisions in patient care are based on the financial incentives to physicians. These are the same type of innuendos being used by those proposing salaried positions for physicians.

The touted examples of salaried positions for physicians include Kaiser Permanente, the Cleveland Clinic and some large multispecialty groups. Some of these organizations with salaried physicians are currently viewed as more cost-competitive in providing care. Many of these models are gaining and/or maintaining market share in comparison to other hospital systems in their same geographic areas. Because of this and other financial reasons, many hospitals are rapidly pushing to establish new relationships with certain groups of physicians usually working in large multispecialty groups, for-profit organizations, and/or new or existing foundations, non-profit models.

Salaries in the new models

In the new models that are advocated by hospital administrators, the non-profit parent company (the system) has at least two subsidiaries: the hospital and the physicians. The physicians don’t “own” the non-profit foundation, which results in certain tax-exempt aspects. These relationships between the hospital and physician groups may vary. The physicians can often control the board of directors of the foundation that employs them, but when the foundation is a non-profit that exercises some tax-exempt status, the compensation to the physicians must be limited to the “fair market value.”

This relationship potentially changes when the hospital ventures with a large, private practice (for profit) multispecialty group where there are no real limits on physician compensation. Most of the benefits, such as reduced call or immediate consultations, can be achieved in a for-profit group. However, if the physician compensation is high, there is less for the rest of the system.

Based on changes being supported by the Obama Administration, many hospital administrators and large clinic establishments are coming to physicians and offering them salaried positions. The physicians, as employees of the hospital or in a foundation model, work closely with the hospital. This new relationship has the potential to eliminate or reduce previous sources of competition between the two.

Changes in belief and position

Many changes and adjustments are currently impacting private practice including: the prolonged recession, perceived threats in the pending health care/health insurance reforms; decreasing reimbursements; reasonable profit margin difficulties; and the debt that many young physicians carry following their training. Based on these factors, many younger physicians are willing to work for a salary and avoid some of the uncertainties of running a small business. Hence, we will see fewer individuals choosing solo practice or small groups. Also, the younger generation wants a more balanced lifestyle without frequent night and weekend call. They do not want the hassles that come with the business of medicine; they would rather have a guaranteed salary instead of the uncertainties of private practice.

A survey the American Hospital Association released in April noted that between September 2008 and March 2009, hospitals have reported the amount of physicians seeking full-time hospital employment increased 71%, the amount of physicians seeking to sell their practices increased 31% and the number of physicians seeking to partner with hospitals on equipment purchases increased 22%.

The foundation models and other large-system models that coordinate services across the spectrum of care are looking at the increase in physicians willing to consider salaried positions as a method of attaining lower costs and improving the quality of care.

Larger systems are willing to be held clinically and fiscally accountable for the outcomes and health status of the population they contract to serve. Aspects they seem to share are functioning electronic medical record systems and ongoing quality improvement programs. Their strongest point: the potential to deliver lower cost-per-patient care.

Selling practices, gaining time

New systems and foundations are being implemented and/or planned in several different settings and versions across the country. In some cases, physicians are selling their practices to hospitals or turning over the business side of their practices to newly formed foundations. When the hospital and/or a foundation buy the physician’s practice, they often get some of their assets and accounts receivable and employ some of the physician’s staff for some period of time. Not much is paid for goodwill. The physicians become employees of the hospital or contract with the foundation.

Often, the foundation boards of directors are run by physicians and they decide or have significant input into the physician/employee incomes. Salaries and details vary, but most are tied to productivity and performance or the outcomes-incentive process. These organizations subsidize the low producers and will be ready to make future adjustments to diminishing profits. Some have had growing pains already. A few isolated examples have occurred where younger orthopedic surgeons joined a hospital-related foundation system and were given the prime block times in the OR, while the older physicians who did not join were slowly eased out of their previous times.

Many hospital administrators see this as a way to regain control of the outpatient imaging and scanning, physical therapy and surgery ancillary services that private practitioners have been providing and profiting from. This issue has resulted in active lobbying for state regulation and inclusion in national health care reform by the hospital organizations, medical groups and other special interests. Some hospital administrators and health care reformers feel that when physicians are salaried, it will eliminate their ability to own ancillary services.

Negative physician labeling

Obama’s Administration and certain hospital administrators are clearly encouraging that physicians be salaried. They do not expect that all physicians will want to participate initially, nor do they want them to. Those pushing for these new systems clearly state that the foundation model is not intended for “entrepreneurial private practitioners.” This type of labeling, as well as Obama’s impugning physicians for using financial incentives as indications for surgery, imply physicians in private practice are greedier and work hard to keep more of the fee-for-service income they generate. In an organized public relations effort, it is implied by some politicians and hospital administrators that salaried physicians are more virtuous because they do not have an incentive to order tests and do procedures.

Selective politicians, hospital administrators and physicians are working toward the foundation model by claiming the salaries being offered are comparable to private practice. This will be true as long as there is a viable and competitive private practice alternative. The basis for future salaries will have less negotiating clout if private practice fails. But remember, if the foundations have decreasing profit margins, physician salaries will be eyed for cuts.

In discussing this with my long-time friend and Orthopedics Today Editorial Board member Alan Morris, MD, he reminded me that we have seen this type of experience in the past, when a hospital system bought some primary care practices and handled all their contracting, bill collecting and staffing for a guaranteed income over the first 3 years. During those 3 years, the doctors were happy and worked less, but accounts receivables fell as the hospitals signed less favorable contracts, and they were less aggressive in collections than the physicians’ office staff was previously. At the 3-year mark and time for negotiating a new contract, they would say, “Doctor your AR is down, so your new contract will be for less money than the last 3 years.” The true beneficiaries of this agreement were the hospitals and not the doctors. Beware of giving up control of the business side of medicine; you may never get it back.

Under attack

The private practice model is under attack from all sides. Our model of practice is being denigrated as a system where doctors’ incentives are the fees for each service provided and the primary basis for the recommended treatments and procedures. It is described as the system that results in many treatments, tests and procedures being done that are unnecessary because, of course, the more procedures and tests they do, the more they are paid. They state the main reason private practice doctors work longer hours and do extra work is to generate larger incomes.

They feel salaried physicians will work less hours and have less incentives to do extra work. Those of us in private practice need to pay attention and understand the implications of what is being said and respond in a meaningful way. The health care and/or insurance reform will most likely involve new contractual relationships for all of us. However, it will take quite awhile to implement these new large-scale models on a widespread basis.

In the meantime, there is much to be said for the private practice model. Only we can stand up and speak with authority and respond. We need to refute and not tolerate untruths and be willing to correct the deficiencies in it.

Surgeons in private practice do not have the influence or inroads to legislators and or a voice in the current debate. For example, because the legislators are basically writing the reform, financial influence will be felt disproportionately. We must have a seat at the table of these discussions. However, our opponents are well funded: The health care industry alone spent more than $220 million in the second quarter of 2009, not including spending by labor unions and other special interests.

Remember, when we move to new models, returning to a previous version will be much harder (if not impossible) than trying to preserve the best aspects of what we do.