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Relations between MDs and health systems

By Howard L. Peterson

At best, physician and hospital (health system) relationships have a tumultuous history. Though there are excellent examples of physicians and system leadership working in a cooperative fashion toward common goals, the history of many of these relationships is one of conflict. The conflict has occurred despite the numerous advantages to working together, creating adversarial relations not dissimilar to those found between feuding family members.

The historical conflict has arisen from four main areas: competition with each other, different economic incentives, disagreement over clinical care policy and operating performance issues.

The pre-Stark era of the early 80’s was exemplified by fragmentation of the patient care delivery system often driven by the financial motives of each party. The establishment of free standing, physician controlled ancillary and treatment services was a point of contention in the relationship between hospitals and physicians. The physicians saw these new facilities as natural extensions of their practice and a financial opportunity in a declining period of reimbursement. The hospital saw these same actions as skimming the cream off the top of what they believed were legitimate hospital-based activities.

Third party payors have historically maintained reimbursement policies which incented hospitals and physicians in contradictory fashion. Under the prevalent practice of per case reimbursement, hospitals were compelled to empty beds. Physicians were incented to fill those same beds as fee for service payments continued.

Similarly, utilization management and, more recently, “medical management” initiatives by health systems have pitted the economic interests of both parties against each other over clinical policy and practices. The continuance of physician fee-based reimbursement fuels this conflict.

Poor performance of health system managed services (e.g., admissions, nursing, scheduling, billing and collection) often has implications for the physician practice experience, and again, the economic interest of the practitioner. For example, the surgeon operating in an operating room with slow case turnover is unable to achieve desired productivity levels, generating less revenue per hour. The management of the OR schedule may keep the physician away from other revenue producing activities.

The history outlined above is a matter of record. It is not easily expunged from the psyche of the physician or health system executive. However, the changing circumstances faced by both health systems and physicians today creates a climate in which there is a “confluence of interest” between hospitals and physicians. By trial and error these historical combatants are learning, perhaps accepting, that they will function in organizations where there is an integration of the economic interests. Both are concerned about the leverage that is essential to preserve access to payor contracts and patient “lives”. Under risk contract arrangements, both are concerned about the financial performance and cost associated with the care of subscriber populations. Under increasing public scrutiny, both are concerned about publicly available information on cost and quality.

These compelling motives have led a substantial proportion of physicians and health systems to define formal arrangements through which they can pursue common interests. These arrangements exist today in the form of contractual relationships and new corporate structures. Uncomfortable as these new working relationships may be, these formal arrangements necessitate the sharing of power, an open flow of information and strategic thought and concerns which consider both the physician and the system. These organizations require a dialogue that is businesslike and conclusive, unlike many of the political and posturing discussions of the past.

This “confluence of interest” is not theoretical. It has given rise to physicians and health systems working together on matters of operational performance in every aspect of patient care delivery, examining the economics of the shared organizations and responding together to the concern for public and payor policy.

Though this transition from a history of conflict to a confluence of interest is incomplete, it appears to be on an intractable course. It appears compelling that the physicians and health system leadership find common ground to work together.

In fact, as all provider components of the health care industry struggle to maintain economic viability and retain reasonable control over the patient care process, one ingredient appears to be consistent in organizations which have demonstrated the ability to be successful under prevailing conditions. These organizations have found a productive means through which physicians and hospital leadership can identify and resolve problems, achieve the greatest level of organizational performance and share equitably in their success.

Howard L. Peterson is principal-in-charge of Health Care Services, East Region, of Larson, Allen, Weishair & Co., in Philadelphia.

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