Physician Strategy News: November '06
Deciding to Employ Physicians?
You’re not alone. Fueled by physician shortages, distribution issues, competition, and the growing financial challenges of private practice, hospitals and health systems are increasingly looking to physician employment to guarantee supply and meet their strategic goals.
Employment questions arise in several contexts: 1) Whether to employ or guarantee an income; 2) Whether to employ existing private practice physicians within the community; and 3) Determining the appropriate focus of the employment strategy (i.e., to meet community need, ensure on-call coverage, strengthen competitive position, expand services, protect market share, or a combination).
Employment relationships present significant risk, even under the best of circumstance, and it is important to filter opportunities according to several key guiding principles.
Principle One: Employment should be primarily reserved for physicians of strategic importance to the organization. Is the organization’s goal to build a primary care base or secure specialists to support growth strategies? If so, those are likely candidates for employment.
Principle Two: Employment should be considered for physicians who contribute significantly to community health, such as when the physician is needed but will not make an adequate income in private practice or the environment is relatively unattractive. The stability of income and security provided by employment might offset downsides related to the opportunity.
Principle Three: Employment should be considered when there is hospital need but not community need. The hospital need might be strategic, for example to build volume in an important service line, or it might be patient care oriented, for example to ensure adequate ED coverage.
Principle Four: Employment should be considered if a key physician group is disintegrating. The hospital must weigh the cost of letting a group fall apart versus the cost of rebuilding. Circumstances might make employment a good option, thereby minimizing disruptions to patient care and hospital volume.
Principle Five: Do not employ physicians with low productivity. This situation is always bad, requiring the hospital either to subsidize or attempt to align compensation with productivity. You can find better uses for resources than subsidizing an underproductive physician, and attempts at alignment will most likely not result in behavioral change. This principle also applies to physicians who want to sell their practice as they slow down.
Principle Six: Do not employ physicians based on politics. Often done on the basis of long-term relationships with decision makers, these types of deals will likely cost the organization, diverting resources needed to address strategically important issues. However, if you must, be aggressive in negotiating the compensation plan.
Principle Seven: Ensure the board understands projected financial impact of employment, both costs and benefits. The benefits mostly relate to ensuring a steady flow of revenue, as well as improved access to care. The costs can be significant, particularly for practice start up, and should be delineated. However, the overall strategic importance in controlling a primary care base or ensuring you have an adequate staff of specialists may more than outweigh the losses.
Principle Eight: The national trend is toward greater employment, so get ready. Because of supply problems nationally and changes in physicians’ desires and expectations, employment is growing. While you should wisely choose when to pursue this option, resist it at your own risk. Your organization should develop criteria for when to consider employment and a plan for how you will implement an employment model if it becomes necessary. Planning for this scenario is the only prudent course in today’s environment.
