Becker's Hospital Review

Clinical Integration & Physician Issues 27 FEature Aggregate, Assimilate and Integrate Successfully Building an Employed Physician Group By Kate Lovrien and Luke Peterson, Principals, Health System Advisors  T he rapid decline of private practice physician groups has dramatic implications for health systems employing physicians in large numbers. As employment has surged, health systems are faced with creating a new operating model to manage the physician relationship and unlock the promise of clinical integration upon which many employment deals rest. Success in building a cohesive employed physician group, however, is elusive for most health systems. Instead of building an integrated employed physician group, many systems are stuck at the initial stage of development: aggregating physicians into a single organization. The systems that are successfully integrating employed physicians are doing so by recognizing the three major development phases, each part of the same process. The three phases are: aggregate, assimilate, integrate Aggregate Assimilate Integrate Phase 1: Aggregate The first phase is all about growing the scale of the employed group of physicians. In some cases this is an offensive strategy to move into a new market or to garner new referrals going to competitors. In other cases it is a defensive strategy, to ensure specialists are not acquired by competitors.  The rapidly aggregation of physician practices over the last decade has been in a response to several factors: • Uncertainty of health reform • Deteriorating private practice financial models • Lifestyle expectations Uncertainty caused by the vague nature of health reform has caused skepticism within the physician community; according to the Physicians Foundation 2012 survey, 77 percent of physicians are pessimistic about the future of medicine.1 Physician groups often view employment as more stable due to the scale a health system provides. Deteriorating financial models have made private practice less rewarding. Administrative costs are increasing much faster than reimbursement. For instance, practice operating costs per FTE physician increased 63 percent from 1998 to 2008.2  Moreover, new reimbursement models, such as bundled payments and accountable care organizations, require physicians to look at new partners to be relevant in coordinating care for the populations they serve. Employment becomes an easier solution than direct negotiation with every party. The generation of physicians as entrepreneurs has shifted. Increasingly, younger physicians are less interested in managing the business of a private practice. Almost twice as many physicians under 40 years old (46 percent) are looking for employment compared with their peers age 55 years and older (25 percent).3 The result is staggering. In 2012, $18.8 billion was spent on physician medical group activity, with the largest deal between HealthCare Partners and DaVita for $4.2 billion.4 Today, more than fifty percent of physicians are hospital employed, up from twenty percent in 2003.5 Aggregation strategic pitfalls Within the aggregation phase, some systems are successful while others are cementing failure. Two strategic pitfalls exist in the aggregation phase: • mploying physicians simply to create scale without a plan to move E to the next phases • uilding scale for the wrong reasons B Employing physicians to create scale without a plan to move to the next phases is a failure to focus on the end goal of integration. If left to the physician recruiters and deal makers, employment models will be customized to each specific situation with promises of no change to operations, practice patterns or staffing. This makes it difficult to assimilate the individual practices into a single "group." Building scale for the wrong reasons is a failure to understand why the employment tool should be used and when. If the organization is hospitalcentric, physician employment models focus on the specialists who admit the highest revenue cases to the hospital rather than what the organization needs to capture and serve a specific market area.

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