Commentary: Practice-hospital alignments spawned by cost, payment changes

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Myriad national healthcare market forces are impacting hospitals, physicians and patients across the country. These forces include decreasing physician supply, reimbursement challenges, an increase in governmental regulations, pay-for-performance initiatives and a rise in the amount of uninsured patients. While these forces are uncontrollable, they result in varying pressures to physicians and hospitals as both seek to provide increased quality of patient care.

Many physicians are pressured to maintain their work/life balance, income levels, recruiting abilities and ever increasing practice overhead costs. Typically, physicians are working harder to maintain status quo income and, in some cases, are seeing decreasing salaries.

Hospitals face several resulting pressures including decreasing revenues, significant competitive challenges from physicians and for-profit enterprises, and increasing overhead costs of state-of-the-art equipment, human resources and IT infrastructure.

In the crosshairs from the effects of these market forces are the patients, who continue to seek improved service, quality and technology at a price they can afford within a timely fashion.

While the strength of these forces varies by market and organization, it is clear that 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.

Another example of cost reduction was introduced in the Balanced Budget Act in 1995. As an early result of the market forces described above, 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 very 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 increase of quality even for existing cath lab services.

For the physicians, this allowed them to keep their autonomy and to supplement their income as reimbursement 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.

Recently projected professional fee reimbursement cuts expected in the -20 percent range and continued reimbursement declines for in-office imaging reimbursements will likely continue to erode physician income. These forces are creating an environment for cardiology groups to begin to find a way to formally integrate with a hospital partner. The 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. In some competitive markets, hospital alignment strategies have become both offensive and defensive in nature in an effort to secure the leading quality cardiology group in the