Power to the Physicians, Not the Hospitals

President Obama has explained his approach to health reform on numerous occasions. “Let’s find out what works, and then go do it,” the president says. In other words, let’s find something we like and then go copy it. Yet after spending millions of dollars on pilot programs and demonstration projects, there is little to show on behalf of this concept.

The Congressional Budget Office has studied the demonstration projects on three separate occasions (here, here and here) and each time has concluded that their performance has been lackluster and disappointing. They are producing no serious savings and are unlikely to do so in the future.

What about grading hospitals based on the quality of care? One recent study finds that Medicare’s reporting has had almost no impact on mortality. Another survey finds that quality report cards not only don’t work, they may do more harm than good. What about paying for results? The latest study of pay-for-performance finds that doesn’t work either. Accountable Care Organizations? The latest results show no reason to be hope­ful. Electronic medical records? The latest survey of all the academic literature shows they don’t improve quality or reduce costs. Indeed, a new study in Health Affairs found that when doctors can easily order diagnostic tests online, they tend to order more tests — increasing costs.

Yet, even as all the demonstration projects are failing, there are numerous highly successful examples of success prior to and outside of the periphery of the Patient Protection and Affordable Care Act (PPACA).

Putting Hospitals in Charge. Have you noticed that in every area of the country, doctors and healthcare professionals are nearly all congregated around hospitals? This is true regardless of whether you live in a rural area or in the city. Why did that happen? Is it because the doctors want to be close to the hospital so that their patients can access the hospital quickly from their offices? Not really. Rarely does a patient go to the hospital for inpatient treatment directly from their doctor’s office. However, hospitals have outpatient imaging, laboratory, and physical therapy departments that are often accessed by patients directly from the physician’s office. This close proximity makes it more convenient for patients to access their needed outpatient diagnostic testing. It allows the doctor to make rounds during the day without taking too much time away from the office. This congregation of physicians around hospitals also allows physicians to talk to each other during lunch hours in the lounges and on the inpatient units – thus facilitating exchange of clinical information and cross referral patterns. These are all valid reasons for the congregation of physicians around hospitals.

However, a primary cause of our escalating Medicare costs is that hospital financial viability depends upon their ability to fill their beds on a daily basis. To make matters worse, the supply of beds exceeds normal market demand in most urban areas. No general acute care hospital can exist and operate its required ER, inpatient, and ICU units based on outpatient revenue alone. The capital equipment, high priced labor, ER related bad debt, and regulatory costs are prohibitive.

Unfortunately, hospitals are trying to solve this problem in three undesirable ways.

First, they are responding to the over-supply of beds by trying to exercise significant control over the referral patterns of the physicians. They have typically built and controlled the placement of physician office buildings in order to control and capture all inpatient and outpatient referrals. Too often these hospitals have offered significant financial incentives for physicians to lease space in the hospital-owned physician offices located adjacent to the hospital and to utilize the hospital on a preferred basis. Hospitals have also formed Equity Joint Ventures with physicians and Physician-Hospital Organizations (PHO’s) in order to integrate the physicians into the hospital goal structure. (See the MedPAC report here).

Physicians have found that the hospital environment allows them to significantly increase their incomes and this has resulted in churning of specialist referrals, unnecessary and duplicative procedures, and longer lengths of stay for patients. (Remember that the longer the hospital stay, the greater the probability of costly nosocomial infections and medication errors.)

This close relationship and dominant position of the hospital with respect to the physician has also resulted in a huge increase in unnecessary and preventable admissions (examples of regional variation here). Some physicians are paid fixed stipends under the guise of medical supervision fees by the hospital to help the hospital fill its beds every day. Others are under other financial arrangements. In Texas and in other parts of the country many hospitals pay physicians up to $7,500 per month or more for essentially doing nothing other than to being loyal to the hospital and attending a couple meetings a month. “Being loyal” means, among other things, admitting patients when the hospital administrator or marketing person calls and tells them there are too many empty beds.

The second undesirable trend is hospitals buying up physician practices and employing physicians immediately after medical school residencies or after having been in private practice so that the hospital can exert even greater control over physician referral patterns. (See more information here.) This trend has an even greater impact on cost escalation than joint ventures and the other physician control practices mentioned above. The hospital typically pays the doctor a salary greater than previously possible when the physician was in private practice. It also allows the physician to go home earlier. The hospital basically buys the physician’s loyalty. As a result productivity suffers and practice costs increase. The hospital either passes this higher cost onto the patients or absorbs it.

Many hospital organizations have also purchased Electronic Health Record (EHR) systems and are giving these systems away or selling them at “below cost” to their loyal doctors. They believe that owning and having immediate access to the clinical data generated by these doctors will allow the hospitals to increase their admission rates.

The third undesirable trend consists of hospitals responding defensively to PPACA by forming their own Accountable Care Organizations (ACO’s) and trying to either intimidate or entice physicians into joining their ACO’s, even though physicians know that this is not in their own best long term interest or the interest of their patients. This is the fault of the legislation itself. By allowing hospitals to even form an ACO, the new health reform law fails to recognize that hospitals are simply a complex clinical tool in the hands of physicians and that the hospital’s overriding motivation and focus is filling beds, not improving the overall health of their patients. Putting hospitals in control of an ACO through management contracts is as ridiculous as letting the fox guard the henhouse. CMS has exacerbated the problem by awarding Pioneer ACO status to Hospital-based Physician Organizations (HPO’s) around the country instead of awarding Pioneer ACO status to true physician-based organizations that function as Integrated Delivery Systems (IDSs).

Hospitals are financially motivated through the DRG reimbursement system to send their hospitalized patients home early; often resulting in readmissions for the same diagnosis. Although we now have “admission and discharge criteria” regulations in place that try to prohibit hospitals from profiting from readmissions, it is relatively easy for them to circumvent the regulations because the DRG system has expanded significantly to allow different diagnostic codes (ICD-9 codes) for basically the same clinical problem. Hospitals are in a position to game the system and this is a common practice today. It is a very costly game, however, and the taxpayer is the ultimate loser.

Putting Physicians in Charge. The physician is the only one truly positioned (through clinical knowledge, experience, and relationship with the patient) to improve the health of patients and any legislation that is enacted must recognize this truth. (This is not to say that patients don’t have considerable power over their own health, but sickness and injury happen to the best of us and we are often powerless to heal ourselves without the knowledge and experience of a good physician.)

If hospitals were not empowered by legislation to control physicians in these three ways, unnecessary admissions and lengths of stay would decrease dramatically across the country. Costs would go down across the board, regardless of age group, but especially among Medicare patients. This has been the experience of many physicians who have formed or participate in an Independent Practice Association (IPA) that engages in patient centered, care coordination whose primary goal is the improvement of the health of their patients (gates but available with free membership).

These physician-based care coordination organizations empower their participating physicians to offer patient centered Medical Homes and surround these Medical Homes with care coordination that significantly reduces healthcare costs through reduction of:

  1. Unnecessary ER visits.
  2. Unnecessary hospitalization and readmissions.
  3. Fraud and Abuse (billing for visits, tests and procedures that did not occur).
  4. Duplicative services billed due to lack of continuity of care.
  5. Duplicative billing of services, testing, and procedures that were only performed once.
  6. Unnecessary procedures and services , and
  7. Churning of specialist consults in inpatient settings.

Care coordination organizations also improve medication compliance and disease management compliance, which in turn reduces costly ER and hospital utilization. They do this primarily through the establishment of patient-centered medical homes. This is a system that ensures that the patient’s PCP is engaged with the patient directly in the physician’s office and across the continuum of care (including specialist, outpatient, and institutional care). The patient’s clinical and medication history is known throughout this continuum of care. Also, the PCP or physician extender is available to the patient 24/7.

Physician extenders are often used by care coordination organizations in the homes of patients to ensure that the patients are in compliance with their prescribed medications and treatments and that the home environment is relatively safe. All information gleaned from these home visits is shared with the PCP or specialist involved with the patient and clinical goals and care plans are updated and refined in order to assist the patient in staying well. Patients with chronic diseases are encouraged to take advantage of their medical home by going there often and the PCP is compensated well through profit sharing by the IPA for being available 24/7 and actively engaging in best-practice medicine and care coordination.

The Way Forward. In summary, hospitals must be taken out of the control and management of ACOs and physicians must remain independent and free of hospital control in order to appropriately participate in patient centered care coordination. The current trend of hospitals employing physicians following medical school residencies and purchasing thriving primary care practices is a threat to physician directed care coordination and will bankrupt both the hospitals which employ these physicians and the healthcare system itself. Physician independence and physician engagement in medical home and care coordination through integrated Independent Practice Associations (IPAs) is essential to dramatically lowering the cost of Medicare. Hospitals must be viewed as a “utility” available to the physician when necessary. Current experiments in bundling of physician and hospital services together in an Evidence-Informed Case Rate (ECR) methodology by an IDS or ACO are important to determine if this methodology can lower the cost of coordinated care when hospitalization is necessary. It is quite possible that bundling of physician and hospital services together into one fee, when controlled by the independent physician organization, can foster competition and thereby lower costs for hospitalization. Still, the multiple benefits of taking hospitals out of the “control” position relative to physicians and care coordination and empowering physicians to take the lead in IPA controlled Care Coordination systems are manifold.

Comments (24)

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  1. Ralph @ MediBid says:

    What I have seen lately is EXTREMELY distressing to me. With the re-admission penalties under obamacare, hospital administrators are under pressure to prevent re-admission. Sometimes that means keeping the patient there longer than needed.
    Meanwhile GOOD physicians want to get the patient discharges as soon as possible. Not only to reduce the risk of MRSA, C-Difficile etc., but to get the patient home where they can save money, and recover faster.
    Tennessee just passed a bill which allows the hospital administrator to grant access to the controlled substances database to a quality improvement team if they suspect a doctor from prescribing for his own benefit. Will this open the door to more witch hunts, as the wedge between administrators and physicians grows?

  2. Devon Herrick says:

    Hospitals are buying physician practices in large numbers. There’s nothing inherently wrong with integrated health care delivery systems. But unless integrated health care systems have incentives to compete on price and quality (for customers willing to pay their own bills), the opportunity for abuse is significant. I’ve heard doctors employed by medical groups complain about pressure to boost referrals and diagnostic tests. In just about any other service industry, those on the front lines providing the service are pressured to hold the line on inputs that boost costs for the vendor. Why is health care different: it’s due to the perverse incentives of third-party payment.

  3. Ralph @ MediBid says:

    Devon,
    The MLR has increased the incentive to increase, not decrease medical costs to get up to 80% of premium. At the same time, it has decreased competition, as smaller carriers who used to spend more on customer service than the big 6 can no longer meet the MLR.

  4. Alieta Eck, MD says:

    The is an extraordinarily important issue and you have done a very good job of explaining what is happening. Hospital CEOs are becoming very powerful and well-compensated, reaping $millions in salaries and benefits. They recognize that their power and income will be preserved best when they can control the physicians, politicians and the media.

    This cannot be good for patients, physicians or overall medical costs. The AAPS is taking action and initiating litigation against the onerous actions of hospital administrators. Some are using sham peer review panels to expel physicians who do not cowtow to their wishes.

    AAPS has been at the forefront of preserving the patient/physician relationship since 1943, and our mission is becoming more and more difficult as it is clearly becoming more and more important.

    Thanks for bringing this issue forward.

    Alieta Eck, MD
    President, AAPS

  5. Brant S Mittler MD JD says:

    John, this is an excellent but complex post that requires a lot of comment. I agree with some parts, and disagree with other parts, escpecially the parts about the positive aspects of physician run IPAs and the allegedly positive benefits of care coordination. The latter is something that everyone aspires to, but few deliver on well. It does provide a lot of good salaries to nurses and other coordiators.
    But as for the malignant role of hospitals, you are on point. In San Antonio, hospital systems have been importing interventional cardiologists for years and guaranteeing them yearly salaries of $650,000. That encourages unnecessary stentomania and is far more money than any of these folks could earn on their own. In San Antonio, physicians are signing contracts that allow the “Hospital’s Chief Operating Officer” to remove a physician from certain arrangements if in the “opinion” of the CEO the physician “is deemed significantly disruptive to the Service Line or delivery of medical care” –whatever “disruptive” means. Those kinds of actions can be deemed peer review/quality issues in which hospitals set the rules and courts enforce with almost 100 percent certainty in favor of the hospitals. The medical profession has sold out to hospitals in the name of greed and fear, and this is why patients can no longer trust doctors who enter in such arrangements with hospitals. It’s about trust, not just dollars and cents.

  6. John Seater says:

    Finding what works is easy. It’s the same thing that works with anvils, band-aids, computers, doorway chin-up bars,…,zucchini: THE FREE MARKET.

    Unless there is some major market failure, we can let the market do the job of determining and allocating production with full confidence (because of the First Welfare Theorem) that it will deliver a socially optimal solution. I have repeatedly challenged those who believe there are market failures in the health industry to produce just one example that is of appreciable magnitude and that was not put there by the government. So far no one has done so. My conclusion is that there are none, so I say, ON WITH THE FREE MARKET.

  7. Ralph @ MediBid says:

    @john Seater,
    You are right about the free market….but….
    First you must define what you want a free market for.
    If you want a free market for insurance or “healthcare”, this the payment schemes will continue to drive the care.
    If you want a free market for Medical Care, then we are on the same page, and that is exactly what we are creating at http://www.MediBid.com

  8. Amber Jones says:

    The author of this Health Alert was actually Larry Wedekind, the CEO of IntegraNet http://www.integranethealth.com/.

    We’ve made the correction and regret the error.

    Amber Jones
    Blog Manager

  9. Linda Gorman says:

    In my area I hear stories of hospitals telling insurers to send patients to their ambulatory surgery centers or deal with the fact that the flagship hospital of the chain with the surgery center will not be in their network.

    This is not good for stand alone surgery centers.

  10. Bob Geist says:

    John, good analysis until you claim that a physician run ACO is good and one run by a hospital is bad. 1st you are behind the curve since the frenzy of hospital system ACOs is already well advanced. 2nd everyone has forgot about the problem of double agency when your doc is also your insurance underwriter whenever writing a prescription for care.
    ACOs are a “back to the future” prescription to “transform” the failed 3rd party managed care insurance system of government price-fixing and of profit driven mega corporation gatekeepers into a system of mini “provider” gatekeepers sharing rationing of care profits (“gainsharing”) with the 3rd party “payers”.
    It is ironic that to legalize ObamaCare ACO implementation, the “Patient Protection” law requires federal waivers of anti trust and anti fee splitting laws. Patients need protection from mega and mini 3rd parties seeking to profiteer from inducing or coercing clinicians into gatekeeper “shared” profiteering contracts. ACO-HMO merger manaia comes next. Bob

  11. T Rosenwasser MD says:

    It is possible to have a free market in medical care, but the further down this Socialist road we go, the more difficult it will be. Get government out of the way.

    Medical care is not a proper function of government. There was nothing wrong with our medical care system in 1965. It was only the power-hungry vote-buyer Johnson, following on the heels of FDR, who had no idea of what our Constitution meant.What happened in the 1930′s was a coup d’etat.

    This system will implode. Physicians need to get out of third-party entanglements, but it is quite difficult. However, every bit helps.

    Patients need to take much better care of themselves. I would not have seen about 2 of every 3 or maybe even 3 of every 4 patients, except for booze, smoking, violence, illegal drugs, poor choices of sex life, lousy diet, no exercise, and overexposure to sun.

    Politicians have no idea of what goes into medical practice. If they want to practice medicine, fine-they can go to medical school, and the physicians can run the nation. The physicians will do a much better job running the nation than the politicians will do practicing medicine, I can guarantee it.

  12. Ralph @ MediBid says:

    Good comment. The key is this: I would not have seen about 2 of every 3 or maybe even 3 of every 4 patients
    “Healthcare increases utilization

  13. Thomas W. Newsome, MD says:

    John:
    I follow your writings regularly and feel that you have many sound suggestions based on accurate observations. This is the first time that I question your facts. I practiced for over 30 years at two major medical centers, three smaller hospitals, and two ambulatory surgery centers and was never once offered myself or heard of another physician being offered “up to $7500 a month” to be “loyal,” a quality which would include “admitting patients in response to a call from a hospital administrator or marketing person.” Clearly, surgery centers offer high volume surgeons incentives, often in the form of operating room time and equipment, to admit patients to those sites. On the other hand, your suggestion that physicians are paid stipends to make unnecessary admissions is very damning to hospitals and physicians. If this practice is pervasive, it is one that should have attracted the attention of the investigive reporters who are ever eager to burrow into the machinations of the health care delivery system. Please tell me that you were bending facts to stress a point.

    Thomas W. Newsome, MD

  14. Richard J. Webb says:

    Neither side will succeed by holding all the power and control. Hospitals cannot succeed without doctors. Doctors lack the skill, time, facilities and capital that patient-centered care coordination will require, and hospitals are ready to provide. The successful hospitals and physicians will find a way to work together and share control.

  15. Larry Wedekind says:

    Dr. Newsome,

    FYI, I wrote the article, not John. Your opinion of John should remain intact! Please understand that it doesn’t surprise me at all that you never heard of a stipend arrangement between a hospital and a staff physician. That actually speaks highly of your character.

    However, I assure you that it has been a very common practice in the past and the doctors who receive these stipends do not talk about it because they recognize that they are being treated special. Administrators keep it very quiet because they recognize that discovery of this practice by other PCP’s on staff at the hospital would result in a revolt. AG’s from many states have investigated these practices and have limited these “payment of stipend for nothing” practices in many states to no more than $2,500 per month unless there is ample proof of documentation of value for the stipend. Doctors must now provide monthly documentation of actual time spent performing valued administrative services for these stipends, regardless of the amount of the monthly stipend.

    I admit that I took a little license in my statement that the stipends are often paid to keep the beds full, but this is the truth behind the payment of stipends to unscrupulous doctors who can impact the census on a daily or weekly basis. I know of serveral hospitals that currently pay these stipends to doctors primarily for their loyalty in admitting patients to their hospital. The doctors receiving these stipends document their time spent in Committee meetings or in meetings with staff members to justify their stipend so that they don’t spend time behind bars, but other doctors who attend the same meetings do not get paid for their time….

  16. Dennis Shea says:

    John points out that physicians cluster around hospitals even without government incentives, but then ignores this obvious market driven phenomenon throughout his essay.

    I don’t know–and neither does John–whether hospital organized ACOs or physician led medical home IPAs are the most efficient, high quality form of health care organization. In fact, I rather suspect that depending on local market characteristics and other factors, one may be best in certain areas or types of care and the other may thrive under different local conditions.

    So, rather than pre-judge one or the other, the best approach is to let them compete, leveling the playing field as much as possible. We may learn something.

  17. Alieta Eck, MD says:

    Larry, this topic is eye-opening. What it illustrates is the corruption inherent in any system infused with a great amount of tax dollars. If the hospital had to get its income from individual patients or honest insurance companies, the scenario would be different. The CFO would actually have to demonstrate fiscal responsibility, balancing the books with the limited resources.

    This is the same thing we see with the federally qualified health centers. Money flows in from the feds and the states and the expenses spent on “human resources” are extraordinarily generous. One FQHC near us spends $265,000 on “personnel recruitment.”

    When money gets low, these “non-profits” cry poor, key people make generous campaign donations to well-positioned elected officials, and more taxpayer appropriations become available.

    This is why the AAPS is pushing for real charity to replace government charity with the state simply protecting the physicians from the medical malpractice monster. Let the tax money stop flowing and watch the economy revive.

  18. T Rosenwasser MD says:

    The bigger the government, the more opportunities for corruption. I have never heard of the stipends discussed here, either, but nothing would surprise me anymore. However, if they exist, they have been totally invisible to me.

  19. Deborah says:

    I think this is a great article because it exposes some of the underlying conflicts of interest and “gimme” money that is changing hands due to too much government involvement and perverse incentives: misplaced tax dollars creating fraud, payoffs, waste and abuse. It’s all about money. When it becomes all about really caring for patients, then maybe we will see changes. As long as our tax money is flowing to the big hospital systems, ACO’s composed of hospitals and their affiliated doctors, and other hospital/physician/HMO-structured monopolies with “perverse incentives”, there will be no fixing our healthcare crises. I agree with Dr. Eck above, how can you have fairness, impartiality, and accountability when the right hand and left hand are secretly working together?

  20. Larry Wedekind says:

    Alieta, great Comments! You are obviously well informed about hospital and FQHC operational issues and your point that excess federal and state tax and charity funding often leads to corruption is well founded. I learned early on in my career that most non-profit hospitals exist primarily for the benefit of the top executives and governing Board members and the For-Profits for the benefit of the executives and shareholders. Again, the primary goal of “filling the beds” causes many perverse incentives. If the primary goal in hospitals was truly improving short and long term patient outcomes and financial incentives were aligned and supportive of this goal, the perverse incentives and constant escalation of costs would disappear. Physicians and physician organizations must get more involved in establishment of proper incentives. Kudos to AAPS for its expanding role.

  21. Don McCormick says:

    I have watched Larry’s IPA produce great medical outcomes for the last sixteen years in Houston, as have three or four other Physician run IPAs in the city. The HMOs that have used these IPAs and the physicians who are members of them have done very well financially and the patient satisfaction has been very high. They have been ACOs long before the Federal Government could say what that meant. At the same time the hospital systems and the major insurers in Houston have controlled their own IPAs and have failed in every way you can think about, particularly in cost control and quality of care. Care coordination does require that nurses and doctors work for the IPAs, but the critical work is being done in QA Committees and Peer Review Committees with member physician only paid for their meeting attendance (about $150 per meeting twice a month). I have seen hospitals here pay physicians for part time work, but usually it is only those who have high admission rates and the work is usually nothing like Larry calls care coordination and quality assurance.

    Bravo for this article. Those people, medical professionals and others, who doubt the things Larry has said about what’s wrong and how to fix it have their heads in the sand and won’t contribute much to the goals he espouses: Better health Care, Better health and Lower cost.

  22. Charlie Bond says:

    Hi John,

    Great post. Probably could have written much the same thing. In fact I did—in 1993. (See, An Alternative to a Hospital-Dominated Future, first published by the California Medical Assn., copy posted at PhysiciansAdvocates.com)

    This article was in response to the first wave of hospital acquisition of physicians’ practices. That first wave did not go so well for the hospital industry. Because of my advocacy for the independence of the medical profession I was labeled anti-hospital. I am not. In doing health care policy work for the last 3 ½ decades I have been staunchly and unshakably pro-patient.

    In being pro-patient, I also happen to believe that the sine qua non of great health care, the most indispensible element in that care, and the foundation of the patients’ trust in that care is the physician’s freedom to exercise of his or her independent medical judgment. As patients, we all rely on our doctors being able to use their medical training and skill to diagnose our problems, then be free to prescribe the same course of treatment for us that they would prescribe for their own mother, spouse, child or loved one. We depend on this ultimate exercise of informed compassion by our physicians and it is the basis of the excellence in our system and any good health care system.

    To protect and preserve the independence of medical judgment (which assures the bond between patient and physician), I authored what are now known as “The Bond Clauses” to be inserted in every contract a doctor makes. These clauses simply assure that the physician may exercise his or her medical judgment independently without fear of retaliation and the he or she may vote his or her conscience in medical staff affairs. These clauses are endorsed by AMA policy, and every physician—and every patient— should unite behind their universal adoption.

    Many hospitals are reluctant to do so because of a longstanding culture of top-down management. Administrators (supported by their legal advisors) want control. They come by this culture of top-down control naturally. When the Hill-Burton Act was first passed at the end of WWII, it was a back-to-work public works project for returning vets to build hospitals in every community nationwide. But who would run them? The returning pool of leadership was comprised of military officers. So if you check the post-war records, the early administrators of most of these community hospitals, were majors, colonels, captains, etc. To the extent these early administrators received management training, they got it from institutions that taught people how to run factories. This combination of military and manufacturing mentality created the seeds of a top-down environment that persists today in hospital administration. And that does not work real well if you are trying to manage a bunch of doctors, Nowhere in current health care policy is there capital or even contemplation of coping with this considerable culture clash going forward.

    This cultural dissonance is enhanced by the increasing economic disparity between even the best-paid physicians on the medical staff and the hospital administrators. In most hospitals across the country, the CEO’s are bonuses based on net revenue (the term used for profit in a non-profit organization), resulting in a surprising number of 7-figure compensation packages—even in relatively small towns. And this does not count outside compensation the administrator might receive as a “consultant” to health plans, medical supply companies, etc. This emphasis on the bottom line can contribute to a climate that promotes care of profits over care of patients in some hospitals. Fortunately, there are conscientious administrations and boards, but the financial trends are disturbing.

    In the meantime, doctors are struggling economically. With regards to stipends paid to doctors, federal regulations very strictly prohibit the buying of “loyalty.” I routinely negotiate contracts for physicians with their hospitals across the country. These contracts pay for time the physicians are on call and for time they spend doing administrative and consultative work for hospitals (attending meetings and otherwise lending their expertise to the running of the hospital). Such contracts are not, as you characterize them, just to buy a referral pattern. That is legally prohibited, and the amount of compensation that is paid to the physician must be fair market value as established comparatively. Such contracts are replacing the traditional model that relied on the physician volunteering services to hospitals. Physician compensation is necessary because the issues faced by modern hospitals are more and more complex and require more and more of the physician’s most precious commodity—time. Most physicians simply cannot afford to give up hours and hours each month gratis to see that their hospital stays licensed and makes money.

    With all that being said, times have changed since my 1993 article and we have all evolved. We must develop models of collaborative care, such as you describe. Indeed, the Patient-Physician Alliance is working on such a demonstration project right now, trying to bring together physicians, hospitals, SNFS, ancillaries, home health and the most important missing ingredient–patients. This requires, however, that every economic incentive of every provider be reversed or modified (meaning that the project can only succeed on a comprehensive gain-sharing basis that incentivizes all participants.) It is a fascinating exercise in guerilla economics and the development of a community of care. It will be interesting to see if we can pull it off, and we would heartily welcome any and all support for this effort.

    Thanks again for a solidly reasoned and well articulated post.

    Cheers,
    Charlie Bond

  23. Charlie Bond says:

    Hi John,

    Great post. Probably could have written much the same thing. In fact I did—in 1993. (See, An Alternative to a Hospital-Dominated Future, first published by the California Medical Assn., copy posted at PhysiciansAdvocates.com)

    This article was in response to the first wave of hospital acquisition of physicians’ practices. That first wave did not go so well for the hospital industry. Because of my advocacy for the independence of the medical profession I was labeled anti-hospital. I am not. In doing health care policy work for the last 3 ½ decades I have been staunchly and unshakably pro-patient.

    In being pro-patient, I also happen to believe that the sine qua non of great health care, the most indispensible element in that care, and the foundation of the patients’ trust in that care is the physician’s freedom to exercise of his or her independent medical judgment. As patients, we all rely on our doctors being able to use their medical training and skill to diagnose our problems, then be free to prescribe the same course of treatment for us that they would prescribe for their own mother, spouse, child or loved one. We depend on this ultimate exercise of informed compassion by our physicians and it is the basis of the excellence in our system and any good health care system.

    To protect and preserve the independence of medical judgment (which assures the bond between patient and physician), I authored what are now known as “The Bond Clauses” to be inserted in every contract a doctor makes. These clauses simply assure that the physician may exercise his or her medical judgment independently without fear of retaliation and the he or she may vote his or her conscience in medical staff affairs. These clauses are endorsed by AMA policy, and every physician—and every patient— should unite behind their universal adoption.

    Many hospitals are reluctant to do so because of a longstanding culture of top-down management. Administrators (supported by their legal advisors) want control. They come by this culture of top-down control naturally. When the Hill-Burton Act was first passed at the end of WWII, it was a back-to-work public works project for returning vets to build hospitals in every community nationwide. But who would run them? The returning pool of leadership was comprised of military officers. So if you check the post-war records, the early administrators of most of these community hospitals, were majors, colonels, captains, etc. To the extent these early administrators received management training, they got it from institutions that taught people how to run factories. This combination of military and manufacturing mentality created the seeds of a top-down environment that persists today in hospital administration. And that does not work real well if you are trying to manage a bunch of doctors, Nowhere in current health care policy is there capital or even contemplation of coping with this considerable culture clash going forward.

    This cultural dissonance is enhanced by the increasing economic disparity between even the best-paid physicians on the medical staff and the hospital administrators. In most hospitals across the country, the CEO’s are bonuses based on net revenue (the term used for profit in a non-profit organization), resulting in a surprising number of 7-figure compensation packages—even in relatively small towns. And this does not count outside compensation the administrator might receive as a “consultant” to health plans, medical supply companies, etc. This emphasis on the bottom line can contribute to a climate that promotes care of profits over care of patients in some hospitals. Fortunately, there are conscientious administrations and boards, but the financial trends are disturbing.

    In the meantime, doctors are struggling economically. With regards to stipends paid to doctors, federal regulations very strictly prohibit the buying of “loyalty.” I routinely negotiate contracts for physicians with their hospitals across the country. These contracts pay for time the physicians are on call and for time they spend doing administrative and consultative work for hospitals (attending meetings and otherwise lending their expertise to the running of the hospital). Such contracts are not, as you characterize them, just to buy a referral pattern. That is legally prohibited, and the amount of compensation that is paid to the physician must be fair market value as established comparatively. Such contracts are replacing the traditional model that relied on the physician volunteering services to hospitals. Physician compensation is necessary because the issues faced by modern hospitals are more and more complex and require more and more of the physician’s most precious commodity—time. Most physicians simply cannot afford to give up hours and hours each month gratis to see that their hospital stays licensed and makes money.

    With all that being said, times have changed since my 1993 article and we have all evolved. We must develop models of collaborative care, such as you describe. Indeed, the Patient-Physician Alliance is working on such a demonstration project right now, trying to bring together physicians, hospitals, SNFS, ancillaries, home health and the most important missing ingredient–patients. This requires, however, that every economic incentive of every provider be reversed or modified (meaning that the project can only succeed on a comprehensive gain-sharing basis that incentivizes all participants.) It is a fascinating exercise in guerilla economics and the development of a community of care. It will be interesting to see if we can pull it off, and we would heartily welcome any and all support for this effort.

    Thanks again for a solidly reasoned and well articulated post.

    Cheers,
    Charlie Bond

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