Physician Strategy News: January '08
The Evolving Landscape of Hospital / Physicians
The relationships between physicians and hospitals are changing.
The driving factors are many, though we see three that are most important to these transitions:
- Changing practice economics, making it harder to generate a living in primary care and compelling specialists to pursue procedural revenue.
- Changing lifestyle expectations physicians, generating increased interest in employment.
- Dwindling supply of physicians in some specialties, driving hospitals to step in to guarantee the availability of specialists.
The following describe some of the markets we have experienced around the country. They are not sequential nor are they mutually exclusive. However, they are representative of the stages of evolution that tend to affect markets. And the trajectory of market change is away from the first (private practice) and toward the last three.
Private Practice. There are markets dominated by private practice. In these markets, fiercely independent physicians are still scratching out a living. Specialty physician supply is adequate due to the attractiveness of the market. And the hospital and physician relationships fall in a bell curve, with some being collaborative and others being contentious. Those with collaborative relationships will most gracefully proceed to meet new market challenges.
Contentious Competition. If the medical staff relations are weak to start with, economic and lifestyle pressures will foster a very competitive landscape. If physicians and management are not used to collaborating, the physicians will exclude the hospital from their considerations as they create strategic responses to the market. Most likely, they will create their own outpatient imaging centers, ASCs, or even their own specialty hospitals.
And, in some cases, despite close working relationships with hospitals, physicians have created aggressive competitive strategies. This can occur when a physician leader has a change of heart or retires. However, it is much less likely to happen under that scenario than if there is a history of conflict between the hospital and physicians.
Economic Integration. In some markets, economic integration is an accepted reality. Employment situations are being pursued, at times enthusiastically, because primary care physicians cannot make a decent living in private practice, and specialists are more open to employment because of the stability it creates and because physicians can make more as employees (due to supply and demand of physicians) than they can in private practice, where they have no leverage with payers. For physicians who stay in private practice, there are joint ventures and other opportunities to work with the hospital.
The Employment Stampede. In some markets, employment is not just accepted but strongly desired. This can be created by the market if private practice physicians are failing in large numbers. Or, it can be artificially created if the hospital is paying too much for practices or for ongoing compensation. In any case, this market creates special problems for the hospital, as the need for management infrastructure grows exponentially.
Almost Fully Integrated. In these markets, employment is an accepted approach and there is a track record of success, and physicians in private practice have established détente with the hospital. In some of these markets, the physicians are the system leaders and own the hospital.
While there is clearly competition between hospitals and private practice, there is also a mutual focus on business success and quality. These communities and institutions are best poised to deal with the challenges of the evolving healthcare system.
Again, these descriptions are not exhaustive. However, to the degree you see your desired market described above, they can be instructive.
For example, if you have a contentious private practice based relationship, moving toward economic integration through employment and joint ventures likely makes sense. If you have a stampede on your hands, you cannot overinvest in infrastructure to manage that stampede. The value of studying these different market stages will help you envision how your organization and market could progress in the future.
