Hospitals' Hiring Frenzy Now in Remission

After racing to add doctors as employees, hospitals have begun to find an equilibrium.
After racing to add doctors as employees, hospitals have begun to find an equilibrium.
(Karen E. Segrave)
(Karen E. Segrave)

After a years-long spree of hospitals eagerly hiring doctors and snapping up medical practices, the fever has broken, but the aftereffects are striking.

Patients in some parts of Arkansas now have a 50-50 chance that their doctor works for a hospital or a hospital-owned practice, and the nationwide average is about one in three. That’s a far cry from the 20th-century norm, when most hospitals employed few doctors.

The hiring-and-acquisition race, paused or not, has left a significantly smaller percentage of doctors working for themselves in an era of generational shifts and rising regulations.

An American Medical Association study from May found that just 47.1 percent of U.S. doctors owned any part of their practice, making 2016 the first year when less than half of patient-care physicians had an ownership stake.

“Hospital employment is now just another option physicians can choose in deciding how to practice medicine,” said David Wroten, executive vice president of the Arkansas Medical Society.

CHI St. Vincent in Arkansas, for example, now employs 280 physicians, compared with about a tenth of that number in 2012. Baptist Health, the state’s third-largest private employer with 9,000 workers, employs 207 physicians in its Arkansas Health Group, plus 117 nurse practitioners and physician assistants.

Overall national numbers have stabilized, with the percentage of hospital-employed physicians remaining the same in 2016 as it was in 2014, 32.8 percent, according to studies by the AMA. Anecdotal evidence also suggests that Arkansas hospitals may be reaching a similar equilibrium.

“In some communities, well over 50 percent of the doctors are now employed by hospitals,” Wroten told Arkansas Business. “I think we’ve reached sort of a critical mass of independent physicians who have sold their practices.”

Excluding employment at the state’s academic medical center, the University of Arkansas for Medical Sciences, “where there are 600 doctors and they’re all employees,” Wroten estimated that more than 30 percent of the state’s doctors now work for hospitals or hospital-owned groups.

Dr. David Foster, president of CHI St. Vincent Medical Group, sized it up this way: “In growth mode, you acquire contracts with physicians and buy practices. As your portfolio stabilizes, you look at it as you would your stock portfolio, and you seek balance.”

Examining potential acquisitions these days, he often concludes that practices should remain independent. And in alliances “where integration hasn’t gone as well as we thought it would,” he looks for remedies but has severed ties in a handful of cases.

Entrepreneurial-minded doctors can still do well for themselves, and that fact has also stemmed the flood. “The perception today is more about lifestyle and less about owning your own business,” Foster said. “But when physicians ask me to evaluate their practices, I tell many that they won’t do as well working with us. There’s a phrase that’s a figurative truth if not literal: We can’t afford you.”

Carol K. Kane, an economist for the American Medical Association, found that the percentage of doctors employed by hospitals or affiliated practices peaked in 2014 and has stayed the same since. In the May 2017 report, she quoted consultants who concluded that hospitals may have “as many practices as they can handle.”

Still, from a historical perspective, the shift toward physician employment has been striking. CHI currently employs about 280 physicians and about 60 advanced practice clinicians — mostly physician assistants and advanced-practice registered nurses, Foster said.

“So 340 is the total number. When I got here in May 2013, that number was 75, and the year before that it was 35,” he said.

The recent surge does have precedents, including a 1990s run in which hospital groups rushed to add primary care doctors. Hospitals eventually ended up selling many of the practices, partly because of costs. Compensation expenses “are significant on a line-item P&L basis,” Foster said. Still, many health systems began trying again in the 2010s as more doctors emerged from training seeking hospital employment.

“Doctors entering the job market today are more comfortable with an employment scenario, so we need to have that option available,” Doug Weeks, executive vice president and COO at Baptist Health, told Arkansas Business. “We don’t necessarily have a preference whether they’re in independent practice or an employment model, but if that’s what they’re interested in, we want to have an option available.”

Regulatory ‘Headaches’
Foster and Weeks both used the word “headaches” to explain why doctors leave private practice, chief among them being government rules. “Doctors decide to say, ‘I can’t take any more regulation; I’ll let somebody else deal with it,’” Foster said.

Hospitals do just that, handling compliance, tracking patient outcomes, buying supplies in bulk and negotiating powerfully with payers. “We’re a bigger book of business, and we have more give and take at the negotiating table,” Foster said. “That means we can generally improve revenues and cut costs,” allowing better pay for “most physicians in the middle of the bell curve.”

Hospitals offer secure salaries, steadier hours and freedom from bookkeeping, corporate taxes and compliance with electronic health records laws. Uncertainty about efforts to replace the Affordable Care Act also worries physicians.

“Regulations were meant to make practices more efficient and physicians more productive,” Wroten said. “But instead, doctors spend more time in front of a screen than in front of patients. Electronic records requirements have cost practices billions of dollars nationwide while interfering with caring for patients. All these things reduce the satisfaction level.”

In a related area, Medicare has begun to shift its compensation model to correspond primarily with patient outcomes. “Something like 80 percent of its spending is going to eventually be pay for performance,” Foster said.

CHI St. Vincent “will have a million visits this year, and I have software to tell you what our overall outcomes are, and individual scores by clinic, by provider, by patient or by population. Most independent practices just don’t have that capacity,” he said.

Demographic, Other Changes
Wroten also mentioned generational changes and demographics, noting that half of today’s medical students are women. “Private practice doctors might work 60, 80 or 90 hours a week, opening the clinic and working until everybody was gone,” he said. “Years ago, they weren’t thinking about kindergarten soccer and T-ball games.”

Along with the newcomers, older physicians are also looking to simplify their jobs, Weeks said. “As they near retirement they start looking toward an employment model. Regardless of what situation they’re in, we want to have resources available to help doctors out.”

Weeks added that the specialties associated with hospital employment have also shifted. “We have a large number of family practice physicians employed. But all of our anaesthesiology services are under Arkansas Health Group, and all of our cardiovascular surgeons and neurosurgeons on staff are employed by Baptist Health.” Many hospitalists are also employees.

Wroten also said specialty hospitals tend to hire doctors: “Arkansas Heart Hospital in Little Rock is a perfect example.”

Bo Ryall, president and CEO of the Arkansas Hospital Association, said that beyond keeping doctors happy, health systems with physician employees are “able to offer a complete system of care for patients, and capitalize on an integrated, seamless management.”

The challenges for hospitals include handling a workforce of independent thinkers. “That’s the way physicians are trained,” Foster said. “I always looked at my class ranking as my measure of success for the 11 years I was in training. It’s hard to get away from individualism.

“Instead of 340 independent thinkers, we need 340 thinkers working together and coordinating with the system to take better care of the patients. Only the most recent medical graduates have had any exposure to that kind of system-level thinking.”