American College of Physicians: Internal Medicine — Doctors for Adults ®

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Do you really want to be your own boss?

Small hospitalist groups have independence, financial struggles

By Susan FitzGerald

From the October ACP Hospitalist, copyright © 2008 by the American College of Physicians

Do you really want to be your own boss?Kenneth Friar, MD, doesn’t mince words when he talks about his last job.”They were a bad employer and we were really, really bad employees,” said Dr. Friar, a hospitalist in Traverse City, Michigan.

“They gave us mandates that we didn’t believe in. We wanted to do stuff they didn’t want us to do. But they held all the purse strings so there was a lot of battling back and forth.”

His rocky relationship with Munson Medical Center didn’t stop there. The hospital was losing about a million dollars a year on its employed hospitalists, Dr. Friar said. “We decided it was better we split up, and in the end, they in fact fired us.”

But wait, could there possibly be a happy ending?

“After they fired us, everyone came to realize what really was the case—that they need us and we need them,” Dr. Friar said. “So instead of becoming employees again we became partners with the hospital in taking care of patients, and more importantly, we became partners in taking care of the hospital.”

Dr. Friar is now part of a self-owned group of 28 (17 hospitalists and 11 nonphysician providers) who are under contract with Munson, a 373-bed hospital in northern Michigan. His story illustrates many of the issues hospitalists face as they decide whether to start up or join a local hospitalist group, become part of a large group or management company, or be a hospital employee.

Going it alone

In Dr. Friar’s case, the decision to split from the hospital as employees and begin anew under a contract arrangement seems to have worked well for all concerned.

“Our conversations are different now,” said David S. McGreaham, ACP Member, Munson’s vice president of medical affairs. “Our conversations used to revolve around things like productivity and work and the monetary value of that. Now we say, ‘Here’s the money, provide the services and let’s get to the conversation about quality.’”

Dr. McGreaham sees psychological as well as financial advantages to the arrangement. “Philosophically, I believe most physicians are happier not being employed by an entity,” he said.

According to the Society of Hospital Medicine (SHM), only 14.5% of hospitalist groups are locally owned compared with the 40% employed by a hospital or hospital corporation and 18% in academic centers. Thirteen percent of hospitalist groups are part of a multi-state group or management company and the remaining 14.5% are in multi-specialty or primary care medical groups.

According to Joseph A. Miller, SHM’s executive advisor to the CEO, it is difficult for local hospitalist groups to succeed. “One reason there are not a lot of these types of programs is that they require a lot of financial support,” Mr. Miller said.

In SHM’s 2007-2008 survey, 91% of hospital medicine groups received some form of financial support, primarily from the hospital where the doctors provide services. On average, hospital medicine groups receive approximately $97,000 in financial support per full-time physician, the SHM survey found.

Lancer G. Gates, ACP Member, a hospitalist in Kansas City, Mo., began a local hospitalist group in 2002 after working as a general internist in the area. He said his six-member group receives no financial support from the two hospitals where they provide care, North Kansas City Hospital and Liberty Hospital.

The physicians make their money by billing for the inpatient services they provide to the patients of 100 outpatient doctors.

“It’s very difficult,” Dr. Gates said. “The volume is high and beyond that, you have to keep an eye on the payer mix.”

Dr. Gates said his group has asked the two hospitals to subsidize the physician care of unassigned patients who come to the ER, but with no success. “If you have a cow and you’re getting the milk for free, why would you pay for it?”

However, the primary care docs find it appealing that the hospitalist group is local, and they know each other, professionally and personally, Dr. Gates noted. “You develop your relationship with the family doctor one patient at a time, and the level of care you provide helps strengthen that relationship,” he said.

Advantages of scale

Mitchell Wilson, MD, who went from starting and directing local hospitalist groups in North Carolina and Texas, to corporate medical director for a multi-state hospitalist management company, said he is now realizing the benefits that come with working for a larger operation.

“In our approach, we are like a local outfit when we go to each site and develop a program,” said Dr. Wilson, who works for Eagle Hospital Physicians, an Atlanta company that oversees 27 practice sites in 10 states. “But we can reduce the overhead for each site because there is an economy of scale that comes with using our expertise in program start-up, ongoing management and technology.”

Ronald Newman, MD, of Beverly, Mass., has worked both as a hospital employee and a member of a local hospitalist group, and he’s seen the pros and cons of both arrangements. He started as a general internist, transitioned into being a solo hospitalist and then became part of a hospitalist group working under contract for Beverly Hospital and Addison Gilbert Hospital, two hospitals that are part of Northeast Health System.

“It was a good relationship early on,” he said, until friction developed in three areas: “Money, our group’s inability to guarantee complete staffing due to recruitment difficulties, and our group’s inability to meet the hospitals’ goals for patient satisfaction.”

Money was a contentious issue, he said, because “they were concerned we weren’t billing and collecting optimally. They were also concerned we were paying our physicians too generously.”

Ultimately, the hospitalist group was given six months’ notice and its contract was canceled. Dr. Newman is now back at Beverly Hospital, working as a per diem hospitalist.

Despite his experience, Dr. Newman thinks local hospitalist groups can succeed.”

There has to be mutual trust and cooperation between the hospital administration and the private practice,” Dr. Newman said. “There also has to be transparency so there’s a sense of fairness in the relationship. I don’t know whether it was our particular situation, or a combination of our particular personalities that led to the breakdown.”

Making it work

Dr. Friar said his local hospitalist group is successful, in part, because 14 of the 17 doctors are owners, which means they have a reason to push both productivity and quality. He said his group is better at billing than the hospital was. The group (which is now also providing care at affiliate Mercy Hospital Cadillac), also collects a per diem rate from the hospital for emergency room and night coverage and administrative work.

David A. Friar, ACP Member, Kenneth’s brother and president of the group, said being independent of the hospital gives the group more flexibility in adjusting staffing needs.

“If we realize we’re short, we don’t have to ask the vice president and wait in line for someone else to do the hiring,” he said. The brothers say independence also allows them to try new ways of doing things without having to go through layers of committees, though that doesn’t mean the physicians set themselves apart from the workings of the hospital. The hospitalists serve on committees, are involved with decision-making and consider themselves partners with the hospital in all aspects of patient care. They believe their efforts played a key role in Munson recently winning the 2008 American Hospital Association-McKesson Quest for Quality Prize.

“Because we are so passionate about what we do and because we act as partners with the hospital, it drives the quality of care,” Dr. Kenneth Friar said. “Because we’re members of the community, we take everything personally. We want excellent patient care because these are our neighbors and family.”

Susan FitzGerald is a freelance writer based in Philadelphia.

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