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The Governance Institute interviewed leaders of health systems at various stages of aligning with physicians, resulting in eight case studies that provide lessons learned for current or future integrations.
Photo by Corey T. Burns

By Vincent Lynn, account executive, Health System Relations

Note: This is the fourth post in a series about integrated delivery systems (IDSs). Previously, we outlined four post-merger health system challenges and how to solve them.

Since the 1990s, physicians whose medical practices have integrated with hospitals have established a delicate social compact based on a shared, genuine interest in the quality and continuous improvement of patient care. But that environment has unfortunately changed into a "What's in it for me?" battle.

A misalignment of financial incentives is straining this interdependent physician-hospital relationship: Physicians rely on hospitals to provide inpatient and outpatient facilities, and a referral and coverage network; in return, physicians have helped hospitals meet accreditation, legal and community service obligations.

According to the authors of Aligning Hospitals and Physicians: Formulating Strategy in a Changing Environment, a white paper published last fall by The Governance Institute, and to which MGMA contributed, despite both parties' mutual interest in providing quality patient care the two are at odds due to separate revenue streams. Health insurers and the government pay both parties separately, meaning that cost-cutting or revenue enhancement usually benefits one at the expense of the other. For example:

  • Physicians are rewarded when they own or co-own outpatient centers and specialty hospitals and perform lucrative procedures in their offices, while hospitals lose these revenues.
  • Hospitals need physician collaboration to control costs, but federal law limits hospitals sharing in the financial gains of these efforts.
  • Hospitals are recruiting physicians to meet hospital and community needs, but independent practitioners see this as unfair competition that will reduce their own revenues.

Looking for alignment

Fortunately, both physicians and hospitals are looking for ways to better align their interests. And today's alignment doesn't necessarily mean employment of physicians by the hospital or a hospital-owned medical group. According to the white paper authors, "Behavior, rather than structure, defines whether a hospital or health system and a physician or physician group are aligned."

Alignment, whether with an employed, contracted or independent physician, should have these characteristics:  

  • Physicians and the hospital adhere to common values and visions, and avoid conduct that damages one another.
  • Physicians engage in leadership roles in organization-wide strategic planning and participate in programs to increase hospital efficiency.
  • Physician compensation is based on their productivity and achievement of shared hospital/physician economic and quality goals.
  • Physicians and the hospital help each other comply with quality and safety standards and implement best practices.
  • Patient management occurs seamlessly across the continuum from physicians' offices to the hospital.
  • Physicians keep patient referrals within the system as much as possible.

As part of its research, The Governance Institute interviewed leaders of health systems at various stages of alignment with physicians, resulting in eight case studies that provide lessons learned for current or future integrations. If hospitals and physicians are to move toward greater alignment, concluded the authors, they will need to alter hospital-centric thinking; draw lessons from failed hospital efforts to employ physicians; and stop thinking about alignment as a one-size-fits-all program.


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