Relationship Transformation: Top 10 Considerations for Successful Physician-Hospital Integration

physician-hospital integrationWhile the tide continues to shift toward physician practice and health system integration, many organizations struggle with alignment of culture, goals, and operations.  This leads to a cycle of frustration on both sides and strained or irrevocably damaged relationships.  When both sides take care to define the path to integration at the outset, success is more easily achieved.

The hospital-affiliated physician model endures, in part, because many physicians remain overwhelmed by the costs and pressures of private practice; they seek employment as a refuge.  Further, growth in physician-hospital integration is driven by greater clinical and data integration and new payment models that include bundled payments, as well as financial incentives for providers to coordinate care to achieve better outcomes at lower costs.  Many new physicians favor health system employment over private practice due to the perceived lower risks and increased work-life balance.  Therefore, it is difficult for private practices to recruit for adequate succession.  As physician-hospital integration advances, there are many important factors physician practices should examine to determine if hospital integration would be a long-term, successful fit.   Practices should consider the following areas when evaluating a hospital affiliation:

  • Compensation – Many independent physicians consider hospital employment an opportunity to attain more consistent, and perhaps higher, compensation levels. While this has historically been a reality for some, many hospitals are scaling back on the proportion of physician compensation that is guaranteed or tied to productivity measures.  In fact, compensation plans are shifting to include components (in the form of base requirements, incentives, or performance withholds) for care coordination, clinical transformation, and quality improvement.  Therefore, underperforming physicians, or those reluctant to transition from a volume-based mindset, may not see employment benefits in the form of compensation.  It will be important to understand and assess proposed compensation models in advance of the transaction.  Additionally, using current performance to evaluate compensation under the proposed model will help minimize surprises.
  • Governance/Leadership – A key differentiator between private practice and hospital employment is governance structure. Often, physicians in private practice are autonomous and have difficulty transitioning to an environment where they have much less input on the operations and direction of the practice.  Therefore, understanding and evaluating the governance of the physician enterprise is important.  Physicians should seek relationships with hospitals that have physician leadership roles on the boards of directors and in departments such as quality management, information technology, patient safety, and finance.  Additionally, incoming physician groups should seek joint accountability in strategy, operations, and finance.  Committees should include strong representation of physicians and encourage physician leadership and participation.  When physicians become involved in key areas, they are afforded the opportunity to provide feedback in strategy and decision-making that impacts both current and future operations.  It also strengthens the integration bonds between the practice and the hospital system, significantly increasing the opportunity for success.
  • Culture – When transitioning from independent practice to a hospital affiliation, evaluation of hospital culture is critical to long-term success. Cultural discord ranks in the top five reasons for turnover among employed physicians.  Careful consideration of culture will help ensure that both parties share a similar mission, vision, and values–building a foundation for a long-term relationship.   Most successful integrated networks tend to share certain values, such as collegiality, transparency, and a belief that employed physicians are an integral part of the larger health system.   The practice should meet with hospital leadership and other physicians affiliated with the hospital to assess culture.  Ultimately, the group will need to determine if the current culture is consistent with overall physician values and goals.
  • Compliance Support – Increasing compliance risks and the burden of mitigating them are key reasons physicians consider hospital integration. The most onerous is the risk associated with improper billing combined with ever-changing coding and documentation rules and guidelines.   Many independent practices lack the staff and management support to properly monitor billing and coding compliance, placing the practice at risk for an audit or exposure by a whistleblower.  Similarly, HIPAA compliance and proper oversight pose a significant risk to many private practices.  While they may be fulfilling the basic mandates, such as providing a Notice of Privacy Practices or executing a Business Associates Agreement, many practices are ineffective at addressing all HIPAA security components, including HIPAA Security Risk Assessments and other IT-related requirements.  Adding the burden of OSHA, Department of Labor, and IRS regulations, a practice can be consumed with compliance obligations in addition to patient care.   Therefore, it is critical to ensure the hospital maintains well-established, defined processes and practices to reduce compliance concerns in these areas.   Practices should understand the levels of oversight and management within the hospital and be open to discussing areas of concern with appropriate parties.  Practices should also gain an understanding of how the system “operationalizes” these programs in the day-to-day activities of providers and staff to grasp the impact on their daily work lives.
  • Operational Management Support – Practices face increasing administrative burden related to oversight and management of operations. Monthly monitoring of key metrics has become essential to the identification of potential issues and timely resolution.  Additionally, constant changes in the healthcare industry have made it difficult for physicians to be aware of, and keep up with, all potential areas of impact.  For these reasons, having strong management support is attractive to many independent practices.  However, groups should ensure the physician enterprise for the prospective hospital has a seasoned, successful leadership team in place for provision of this support.   This team is often led by a director of operations for the employed physician enterprise and supported by operations managers or coordinators.  Understanding the levels of support available and reporting transparency will be important in the practice’s decision-making process.  Because these individuals may not be involved in the negotiating process, it is worthwhile to meet those who would be working with the practice to ensure the potential for a solid working relationship exists.
  • Hospital Financial Standing – Financial strain will impact the viability of any relationship. It may increase pressure on the physician to produce, and it may also lead to reduced compensation, benefits, and resources.  Ultimately, it may result in a change of hospital ownership.  When hospitals are sold, employed physicians may face changes in workflow processes, compensation, culture, and much more.   Therefore, physicians should thoroughly investigate the current financial condition of any hospital with which they are contemplating employment.
  • IT Infrastructure/Support – Enhanced IT infrastructure is one of the driving forces in consideration of hospital integration. Physicians seek opportunities to improve practice management and EHR systems and reporting capabilities.  However, many hospitals are trending toward utilization of a single or limited number of system platform(s) to capture increased efficiency, financial economies of scale, and improved clinical performance through streamlined communication and coordination with other providers.  (These efficiencies directly impact quality and operational performance.)  This may be a difficult transition for physicians who have a strong preference for, or aversion toward, certain systems, especially electronic medical records.  Physicians should inquire about the required or preferred system options and ensure they can adapt.
  • Clinical Quality Performance – With the transition from volume to value, clinical quality is more important than ever. While physicians are working to continually improve individual quality performance, alignment with a system with similar goals is crucial to optimal performance.  Many private practices do not have the resources and expertise to properly capture, analyze, and monitor clinical quality data.  Although physicians may avoid direct financial penalties associated with bundled payments and value-based reimbursement through hospital affiliation, as discussed previously, many hospitals are restructuring physician compensation plans to include penalties or incentives for quality performance.  Therefore, it is important for practices to evaluate hospital-controlled areas that impact physician quality and cost scores.  For example, a hospital with excessive readmission rates, will directly impact the physician’s quality and cost scores, and ultimately the physician’s public reporting on the Centers for Medicare & Medicaid Services (CMS) and carrier websites—hospital performance rating information may be found on the CMS Hospital Compare website.   This should also be a point of discussion with leadership.
  • Community/Patient Experience – As healthcare becomes more consumer-focused, it is important for physicians seeking employment to choose hospitals with high quality ratings and a good community reputation. Brand loyalty can help newly employed physicians build and maintain a solid patient volume.  Conversely, practice volume may decrease through affiliation with a hospital with which patients have had negative experiences.  Physicians should research hospital-patient satisfaction scores and discuss planned or implemented improvements with hospital leadership.
  • Overhead Costs – While hospital integration may afford practices additional support, improved IT infrastructure, and resources, these may come at a significant cost. Physicians should inquire about management fees and any additional costs attributed to the practice post-integration.  Although the practice may no longer directly be responsible for certain overhead expenses, they will be charged back to the practice financial statement and compared to revenue.  If the practice experiences significant losses on a consistent basis due to overhead costs exceeding revenue, the affiliation may not survive long-term.

While there are practical reasons for continued integration, both parties should undertake proper due diligence before making this significant transition.  Alignment requires significant time and resources; therefore, it is in the interest of all to ensure the integration is successful long-term.  Consideration of the previously outlined areas will provide a solid basis for evaluation, discussion, and transparency, building a foundation for continued communications and collaboration post-integration.  With appropriate initial investments of time, research, and consideration, the partnership will have a greater chance to prosper.

If you have questions about physician-hospital integration, or would like to request a speaker on this topic for your organization or event, contact one of our PYA executives below at (800) 270-9629.

Allison Wilson

Allison Wilson


Graham Fox

Graham Fox

Senior Manager

Lori Foley

Lori Foley


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