Changing the physician-hospital relationship: hospitalists are the levers.

The relationships between hospitals and their medical staffs have been deteriorating for years and have degenerated into warfare in some places.

Physicians in private practice have steadily diminished their involvement with hospitals and some have opened competing facilities. Nonetheless, there is a rapidly increasing group of physicians-hospitalists who are willing to dedicate themselves fully to hospitals but find themselves frustrated by poor relations with hospital administrators.

The Society of Hospital Medicine estimates that there are more than 10,000 hospitalists practicing today, and that the number will grow to more than 30,000, which is comparable to the number of cardiologists in practice. Few hospitalists can generate an adequate income from billings alone, which is why primary care doctors are fleeing hospital work.

The hospitalist needs support from general hospital revenues. Negotiating this support is a difficult process, based on my discussions with hospitalists across the country. A successful outcome to these discussions is crucial to hospital survival and will become one of the main challenges for physician executives in hospitals.

Hospitals have traditionally valued physicians in terms of the patients that they refer for services. Hospitalists have no patients to refer. The level of support they require from the hospital is upwards of $50,000 per physician. Why should American hospitals spend more than one billion dollars annually on seemingly worthless physicians?

The answer lies in understanding the full value that hospitalists provide to hospitals. Hospitalists keep primary care doctors connected to hospitals and help maintain the revenue stream from those practices. Surgical co-management is a growing trend and allows surgeons to increase their patient volume, also increasing hospital revenue.

Hospitalists are in the forefront of efforts to improve clinical outcomes, promote patient safety and reduce costs. Caring for unassigned patients, participating on hospital committees and improving throughput are some of the other ways that hospitalists support hospitals.

Searching for support

With all the services that hospitalists provide to hospitals, why are they having trouble getting support?

A good part of the problem lies in the precarious financial condition of many hospitals and concern for adding to deficits if the promised benefits fail to materialize. Another problem is poor understanding of the Stark rules and related laws governing payments from hospitals to physicians. These laws were enacted to keep hospitals from buying referrals and are basically irrelevant to hospitalists.

If you keep in mind the principles of fair market value and divorcing incentives from the volume or value of referrals, it is not difficult to structure a hospitalist contract that allows for adequate support. Gain sharing is still a problematic issue, but incentives based on quality and safety are legally permitted. Hospitalists can also be paid an hourly rate for services other than direct patient care; this can be pegged at the average rate for emergency physicians in the community.

Yet another problem lies in the failure of administrators to understand why they must pay for services that were provided free in the past. It is true that private physicians participated in hospital affairs to a greater extent in the past than they do now. It should also be noted that these activities were focused on developing new services to patients, with little attention given to improving quality of care or controlling costs.

We need a new model for structuring relations between physicians and hospitals. The existing model is based on doctors' providing patients, while the hospital provides access to medical technologies that are beyond the means of individual practitioners. Each party keeps the other at arm's length.

Now that physicians have found ways to secure those technologies on their own and with the help of outside investors, the model no longer works. A new model needs to be based on partnership between physicians and hospitals. Physicians, and not just hospitalists, are being crushed between rising practice costs and constrained revenues. Hospitals are caught in a similar vise.

Doctors and hospital administrators can work together to provide better outcomes and lower costs if each side realizes that it cannot succeed without the other. Hospitalists recognize their need for a successful hospital more than any other group of physicians. Administrators working with their hospitalists can develop the skills and techniques they will need to form high-performance partnerships with other members of the medical staff.

High-performance partnership needed

How does a high-performance business partnership work? The best models were developed in Japanese industry, where companies like Toyota work so closely with their suppliers that they appear to be subsidiaries of the larger company, yet they remain independent.

The first step is for each side to understand its reasons for seeking a partnership. The hospital needs a steady flow of patients, and it needs to have them treated as expeditiously as possible and with the best achievable outcomes. Hospitals also need doctors to assume responsibility for patients without a private physician, and to help with assessment of utilization and outcomes.

[ILLUSTRATION OMITTED]

Physicians need information technology to track patient progress efficiently, and they need help in controlling their practice expenses (i.e. malpractice insurance). Hospitalists have an additional need for extra revenue to compensate for low fees. After the drivers of the relationship are understood, the partners must look for factors that will facilitate interaction.

Since hospitalists spend all of their time in the hospital, interaction is easy. Planning processes need to occur jointly and with a focus on fostering the relationship.

Measurements of performance need to look at how the parties work together. Communication needs to flow freely in both directions. The parties must each be prepared to accept a short-term personal loss if it will contribute to mutual profit in the longer term. Fairness must be judged not on each individual issue, but over the life of the relationship.

A special issue that arises for hospitalists partnering with a hospital is determining whether to become hospital employees or to maintain a separate corporate identity. Employment status simplifies the process of payment for non-patient care services provided to the hospital and allows the hospitalist to participate in benefit programs that are difficult for small businesses to obtain.

Physicians fear the level of control implied in an employment relationship. Hospital administrators often prefer not to undertake the obligations of employment, but may have difficulty obtaining the necessary level of cooperation from an independent contractor.

The Internal Revenue Service has a set of guidelines for evaluating independent contractor status, which consider such issues as the level of control over the work, provision of equipment and supplies and the ability of the contractor to profit from the work.

Most hospitalists working in a single hospital on a long-term basis would be considered employees under the IRS guidelines. It makes little sense to try keeping them at arm's length. If the parties develop a partnership that meets IRS guidelines, employment status becomes largely irrelevant and the parties can decide between the options based on legal and operational convenience.

The physician executive should occupy a central role in the formation and maintenance of physician-hospital partnerships. Vice presidents of medical affairs have often felt that their functions were peripheral to the main business of running the hospital and that they are not included in major decisions.

Now that managing physician behavior is crucial to hospital success, the chief medical officer should be able to integrate his or her understanding of physician culture and patient care processes with business operations and occupy a key role in managing the hospital.

The place to start is by taking charge of the relationship with the hospitalists, as they understand their place in the hospital and are ready to deal.

Richard Rohr, MD, MMM, is director of hospitalist service at Milford Hospital in Milford, Conn. He can be reached at 203-876-4000 or [e-mail]

[ILLUSTRATION OMITTED]

By Richard Rohr, MD, MMM