The Back Page | Market forces point toward practice-hospital alignments

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A current review of the news shows that hospital-physician alignment has captured the headlines and cardiology is leading the charge as the No. 1 specialty to have discussions with hospital and health systems. Driving this trend are myriad market forces.

These forces include decreasing physician supply, reimbursement challenges, increased regulations, pay-for-performance initiatives and a rise in uninsured patients. While these negative trends are uncontrollable, they result in varying pressures to physicians and hospitals.

Many physicians are pressured to maintain their work/life balance, income levels, recruiting abilities and ever increasing practice overhead costs. Hospitals face several resulting pressures including decreasing revenues, competitive challenges from physicians and for-profit enterprises, and increasing overhead costs of state-of-the-art equipment, human resources and IT infrastructure.

While the strength of these pressures varies by market and organization, it is clear they will continue to challenge the healthcare delivery system. The federal government will most likely continue increasing regulations; third-party payors will keep challenging reimbursement; competition will remain intense; and patients will demand low-cost improved access to quality healthcare.

Healthcare reform also will begin to blur the future vision of how hospitals and physicians work together. The writing on the wall is fairly clear, as the push for increased quality and bundling of payments will continue to force the closer integration of hospitals and physicians.

Cardiologists have not been immune to these market forces. Over the past 20 to 25 years, cardiology groups have had to look for ways to become more efficient, capitalize on economies of scale, offer in-office ancillary testing and begin to partner more closely with their respective hospital institutions.

Mega practices

As an early result of these market forces, many of the smaller groups began forming mega practices and even began to further integrate with hospitals by creating joint venture cath labs in the 1980s. This model, which allowed the physician practice to remain independent, has been a good model for hospitals by providing a new service in a community-hospital setting and getting more physician input into overall operational processes that generally resulted in increased quality even for existing cath lab services.

For the physicians, this allowed them to keep their autonomy and to supplement their income as reimbursements declined and practice costs lowered their overall income. These business relationships began to create closer alliances with their hospital partners. In some markets across the country, however, intense competition erupted, resulting in some physicians and entrepreneurs creating physician-owned heart hospitals. Many of these organizations are still in existence today, however, some have sold a majority interest and, in some cases, the entire facility to a hospital partner.

The current regulatory environment will make it difficult for newly created physician-owned entities. Additionally, those organizations currently in existence may be limited to future growth and expansion.

With the exception of evaluation and management services, nearly all services that cardiologists perform will see cuts ranging from 10 percent to more than 40 percent, phased in over four years, according to the 2010 Medicare Physician Fee Schedule final rule released in October. These reductions in payments and other forces are creating an environment for cardiology groups to begin to find a way to formally integrate with a hospital partner. These relationships typically can reduce the overhead burden and stabilize income for a period of time.

Hospitals also have much to gain by aligning with their respective cardiology groups. Increased operational decision making by physicians in cardiology service operations can reduce supply costs, reduce lengths of stay and solidify a core group of cardiologists to service the hospital.

Jim Yanci is a senior manager with Charis Healthcare in Hudson, Ohio, and can be contacted at: jim.yanci@charishealthcare.com.