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Reimbursement changes prompt specialists to join hospital payrolls

May 11, 2009
Amid the aroma of its lobby coffee shop and soothing tones of its player piano, the Indiana Heart Hospital sits at the center of significant changes in how Indianapolis' hospitals and doctors do business.

The 56-bed facility in Castleton was launched in 2003 as a for-profit venture between Community Health Network and its cardiovascular physicians. Like other local for-profit hospitals started earlier this decade, the Heart Hospital wooed patients with hotel-like pampering, with high-tech and with high-quality medicine.

But at the end of 2008, Community bought out all the physician investors and made 31 of the physicians employees of a new subsidiary, Community Heart and Vascular. The unit even includes all staff and most of the cardiac physicians and surgeons at Community's four other hospitals.

Specialists, who have traditionally been fiercely independent, are more and more coming on as employees of hospitals. Community is the biggest example in central Indiana, but the trend is accelerating across the country.

"This phenomenon of employing specialist physicians is very much alive and well across the United States," said Mickey Bilbrey, senior managing partner and a veteran of physician-hospital relations at Phase 2 Consulting in Salt Lake City, Utah. He added, "The surgical specialists appear to be the ones that are having the most focus at this time."

All of Indianapolis' hospitals employ primary care physicians—the family doctors patients see most regularly—as do 83 percent of hospitals nationally, according to the American Medical Association.

But specialists have mostly practiced on their own. In fact, when specialists started setting up their own outpatient surgery centers in the 1990s, hospitals scrambled to do joint ventures with physicians so they didn't lose their patients. That eventually led to a string of specialty, for-profit hospitals at least partly owned by physicians.

But now, various factors are leaning hospitals and specialists away from joint ventures toward hospital employment of physicians.

Community, in particular, said it can improve quality and coordination of care, which it hopes cuts costs, too. But what might really force other hospitals and physicians to join forces are changes on the horizon at the federal Medicare program—the biggest single buyer of health care services in the country.

Medicare has been experimenting with "bundled" payments, which, instead of paying doctors and hospitals separately for say, a heart surgery, would make one payment. Then the hospitals and doctors would have to fight over their respective cut of the money.

President Obama's budget outline calls for turning this "bundled" payment experiment into permanent Medicare policy. It would give hospitals and doctors one payment to treat a patient in the hospital and for 30 days after release.

Last summer, Community Health CEO Bill Corley said he thought Medicare would make bundled payments commonplace, which would move more hospitals to employ physicians. By that time, Community was already a year into discussions to form Community Heart and Vascular.

But Corley's point man on physician relations—who is now his heir-apparent, too—emphasized that changes to Medicare payments alone are not enough to make such an integration work.

"It's important that the reason for doing it is to deliver better care. If that's the purpose, this'll work," said Bryan Mills, who will replace Corley later this year. "If it's some other economic reason, or some external reason, that might provide some short-term satisfaction. But only if we're doing things with a common vision and purpose will it sustain."

Market forces

Not everyone agrees that bundled payments will force hospitals and specialists together. But no one questions that the employment trend is well under way.

Already, 62 percent of U.S. hospitals employ specialist physicians, according to the American Medical Association, and that number has been rising.

Look for it to rise in Indianapolis, too, said David Charles and Mike Heaton, co-directors of the health care practice at Indianapolis accounting firm Katz Sapper & Miller.

"There's a lot of exploring in the marketplace," Heaton said.

Charles added, "Physicians by and large are pretty independent, but market forces are causing them to be a little more collective."

For both specialist physicians and hospitals, reimbursement rates from public and private health insurance plans have been coming down. Now that the recession has hit, the percentages of uninsured patients and patients unable to pay their full bill have been rising.

Hospitals also have employed specialists to help them recruit new doctors, or as the only way to lure a physician to a new or rural market that has unproven patient demand.

In spite of declining payments, hospitals and doctors know they need access to capital, particularly to install or improve electronic medical record systems. Obama's stimulus bill could pay out more than $30 billion to help them do that, but that probably won't cover all the costs.

As part of forming Community Heart and Vascular, the heart doctors opted to join the electronic medical record system used by the 200 primary care physicians already employed by Community. The heart doctors abandoned their plans to buy their own electronic medical system.

"Maybe they're not getting what they were getting five or six years ago," said Suzie Desai, a hospital analyst at Standard and Poor's in Chicago who follows Community Health. She added that doctors and hospitals can meet their financial challenges if they combine their profits and their costs.

The upside for physicians to become employees is that they reduce financial risks and get more financial security, said Bilbrey, the health care consultant in Utah.

Dr. Scott Sharp, an interventional cardiologist who was an investor in the Indiana Heart Hospital, said he expects he'll earn the same if not more under the Community Heart and Vascular arrangement as he did when part of a large physician practice.

He acknowledged he had some concerns about the arrangement, but said its positives far outweigh any negatives.

"There is that fear of loss of autonomy, but there are so many other potential benefits here," said Sharp, 48, emphasizing that the merger with Community has freed him up to spend more time on improving care than worrying about keeping overhead costs down.

"There's just so many more pressures anymore, from just running the business to being a doctor," Sharp added. "They're both more than full-time jobs."

Younger physicians, especially, no longer want to work two full-time jobs, Bilbrey said. Their desire for a better lifestyle also is driving specialists' mergers with hospitals.

Improving care

The mergers also help with coordination of care. Since 70 percent of health care spending goes to treat chronic diseases, which require multiple doctors in multiple locations to treat each patient, that coordination is key to improving quality and reducing costs.

Medicare and private health insurers are even providing bonus payments for higher-quality care.

"Quality does pay," said Dr. Ramarao Yeleti, president of Community Heart and Vascular. "But to do that, it has to be integrated." In an e-mail, he said Community has already seen quality improvements and cost reductions, but did not specify how much.

In Community's case, the physicians also took leadership positions in Community Heart and Vascular. Yeleti holds the No. 2 position of the new unit, which includes more than 600 employees.

Also, physicians hold seven of 12 seats on the Community Heart and Vascular board of managers.

"It's not us and them anymore," Yeleti said. "We're all together."

Well, not all. Two practices of cardiovascular surgeons opted not to join Community's integration. One, Heart Partners of Indiana, caused controversy when it instead sold 51 percent of its practice to the Clarian Health hospital system, also based in Indianapolis.

Relations have calmed and Community leaders stress that their employment of some specialists does not mean they don't want non-employee physicians to practice in their facilities.

"A lot of this is trust," said Tom Malasto, CEO of Community Heart and Vascular. A lack of trust likely will prevent other hospitals from easily replicating what Community has done.

"I think a lot will try," he said, emphasizing the word "try."
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