Interview: Competition to employ physicians heats up

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Karen M. Cheung

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Like the 1990s, hospital-physician employment agreements are exploding, fueled by health reform. In fact, 83 percent of physician employment agreements in 2011 were with hospitals (as opposed to physician practices), according to recent data from physician search firm, The Medicus Firm.

FierceHealthcare caught up with Jim Stone, president and cofounder of The Medicus Firm, to hear his thoughts on what recruitment strategies work, the pitfalls of employment agreements and if today's employment models will work this time around.

FierceHealthcare: We've seen a lot of national stories of hospitals and health systems employing physicians and acquiring physician practices. How much competition is there between health systems to employ, merge or acquire physicians? 

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Jim Stone

Jim Stone: Nationally, we've seen hospitals and larger systems compete to acquire the more sizable, successful, busy practices in an attempt to reinforce or bolster their referral base in strategic locations. Therefore, in metro- and mid-sized communities where there are multiple large systems, there could be a lot of competition against other systems to acquire a particular practice in the area. In smaller communities, we have not seen as much of this, as many hospital executives remember the challenges that ensued after the last cycle of group acquisitions by hospitals in the 1990s. Hopefully this time around, the consolidation among healthcare systems and providers will be a positive thing for the industry.

Employment is another dimension of this trend, and we're seeing employment increase in popularity in many types of communities. Most physicians simply do not want to deal with the rigors of running a practice, particularly in the current environment. Competition to recruit candidates and employ them is as fierce as we have seen.

FH: According to Medicus data, 88 percent of placed physicians are offered signing bonuses, and 93 percent get relocation allowances. Is that a sign of the competitive market for physicians?

JS: Absolutely. Physicians need cash for student loans and other debt, for real estate and to establish themselves and their families in a new community. The average physician student loan debt has been quoted at $140,000-$200,000, and we see some coming out of training with more than $250,000 in debt. 

The employer that can simplify the physician's transition and makes it the easiest for a physician to relocate, establish and grow a practice, will be the employer that ultimately attracts, signs and retains that physician.

FH: The data also indicate that female physicians are more likely to be employed. Why is that?

JS:
The percentage of women in medical schools has been on the rise for the past several years so women are subsequently becoming a larger part of the physician workforce. In 2010-11, women made up almost half of the medical school class, whereas in 1982-83, women made up less than a third of all medical students, according to the American Association of Medical Colleges. The number has been growing steadily over those years, and subsequently the proportion of females in the physician market has also increased. 

Additionally, over the past 10 to 20 years, the division of labor has equalized in many households; we see more husbands of female doctors staying at home or working part-time to help with childcare, which is also allowing more women to focus on physician careers.

FH: Does the of age of the physician make a difference in their "recruitability"? Are younger physicians more likely to seek employment arrangements?

JS: There are opportunities for physicians of all ages. However, we recently conducted a survey of physicians which revealed that many more experienced physicians feel overlooked by employers; they may have to be more proactive than recent grads, only because some employers worry (unnecessarily) about retraining, turnover and retirement.

FH: What are the benefits of an employment agreement for the physicians? What's in it for the hospitals? Do they share common goals?

JS: It is a symbiotic relationship. They share common goals in that hospitals and physicians need each other to survive and thrive for the long-term future.

For physicians, hospitals offer (hopefully) stability, resources (EMR technology, capital equipment, support staff) and security that physicians need in today's economic and healthcare environments. The Affordable Care Act and HITECH Act, combined with ICD-10 and the sustainable growth rate issue are all creating a very uncertain, unstable set of circumstances for smaller private practices to remain sufficiently profitable. Therefore, physicians are increasingly seeking employment opportunities more frequently than in the past decades, when private practice was the "holy grail."

For hospitals, they must have an adequate physician referral base to ensure diagnostic procedures, surgeries and hospitalizations take place in their facility as opposed to a local or regional competitor. Physicians are the lifeblood--how they make money to stay open and profitable. Without physicians to refer, admit and treat patients, hospitals are basically just really sterile hotels.

FH: On the flip side, what's the risk in a physician employment model? What hesitations might physicians have?

JS: The risks fall into several categories:

Compensation: Physician pay is a hot-button issue. Physicians need to be paid well for what they do; they sacrificed many years of their lives to train to be physicians, and the job is enormously stressful and high-pressure. 

Is a pay-for-quality/outcomes compensation model the answer? Some argue that current models pay for volume of patients or procedures and that could influence patient care decisions in ways that may not necessarily be in the best interest of the patient. In my experience, most physicians take medicine more seriously than to be influenced so easily by money alone.

However, they may be more influenced by fear of a malpractice lawsuit. Many studies show that doctors order too many tests and procedures to prevent a lawsuit, not to earn a higher bonus, so I'm not sure that changing the compensation model would alleviate that issue.

Production expectations/management in any physician employment model involve the pay structure and the requirements/confinements placed on the physician. Some physicians might hesitate to give up the autonomy of being their own boss, owning their own business and calling the shots. This is what happened in the 1990s when physician employment models were also popular for a few years. However, they didn't last long nor were they very successful because physicians wanted more autonomy, and they could earn more money on their own.

Control: This time around, I think physicians will be more willing to sacrifice some of their autonomy, as long as they have the primary input on the patient's care. Physicians may be more tolerant of some managerial/administrative oversight than they were in the 1990s, due to the changing circumstances. Also, the employment contracts of this era seem to provide an income more comparable to private practice.

Restrictive covenants: Restrictive covenants are like a "non-compete" clause; they prevent a physician from leaving one hospital for another within the service area.

FH: What type of institution (nonprofit, bed size) do you recommend the physician employment model to work best in? Does it work for all institution types?

JS: The type and size of the institution are not what determines the success of a physician's employment. The efficiency and effectiveness of a hospital's administration/operations, the quality and scope of services it provides, the reputation it has and how well it compares with its competition in the area determine a hospital's success, including the success of their employed physicians, more so than its tax status or size.

FH: What other advice do you have for healthcare executives?

JS: Be creative and open-minded. Decide what type of physician you want to attract and create a practice opportunity and lifestyle that will attract that type of physician to your facility.

For example, a recent story about Ashland Health Clinic, which allows time for their physicians to travel on mission trips, was very interesting. The administrators of that hospital obviously put a lot of thought into their recruiting strategy to attract like-minded physicians with charitable, altruistic values.

Put yourself in the physician's shoes. Keep in mind that physician candidates get hounded by recruiters on a daily basis. What is going to make a candidate want to ignore all those other opportunities in favor of yours?

Recruiting is a tough, competitive process, so remain positive. If you get turned down by a candidate, remember you only need one physician to fill an opening. Leverage that candidate's feedback about your opportunity to help you succeed in recruiting future candidates. Once you identify that one physician you know is the best fit for your staff, do whatever you can to come to a mutual agreement with an employment contract. Tailor the perks and offer specifically to that physician if you have the capability and resources to do so.

This interview has been edited and condensed for clarity.

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