As pressure mounts on physician practices to cope with the economic crisis, all options are being put on the table. One option for practices to maximize the present value of their practice as well as their ongoing career is to sell their practice to a larger group such as IPC where the resources to whether the financial storm are already in place. But some practices, perhaps not understanding the range of better alternatives, have exhibited an interest in selling or even giving away their practice to a hospital. A recent survey from the American Hospital Association titled “Report on the Economic Crisis: Initial Impact on Hospitals” corroborates a small but discernable trend in this direction. Recent data from The Advisory Board Company also indicates that the number of physicians willing to consider hospital employment seems to be on the upswing. This trend is more pronounced in the surgical specialties but it is reasonable to assume that the trend involves hospitalists to some extent.  

Acting on impulse to seek refuge from the economic crisis by turning to hospital employment will not be a panacea for what ails some hospitalist practices, for several reasons. First, a hospital’s decision to employ physicians may be viewed in itself as a short-term expediency. With but a few exceptions, hospitals have neither the funding nor the organizational structure needed to sustain and nurture the development of a hospitalist practice over the long term. Second, for a hospital to fund a practice group from the inside requires a level of subsidization even greater that what is required to contract with most groups in private practice. Hospitals may be willing to accept lower levels of productivity from employed physicians as the short-term price they pay for securing additional coverage and control, but here again, the economics of this arrangement do not work in the hospital’s favor over the long term. Third and perhaps most important, the successful practice of hospital medicine require a degree of autonomy that many hospitals in the role of employer find difficult to accommodate. This in turn leads to conflicts of interest and misalignment of goals that sooner or later always seem to surface.

My experience tells me that physicians perform best for their hospital and their patients when they are working for other physicians. In challenging times it is especially important to take the long view. Over many years the private practice group has stood the test of time, and it has proven itself to be the most enduring organization for practicing medicine through strong and weak economic conditions.

 

Look at the two Chinese symbols above. The symbol on the left is the symbol for danger. The symbol on the right is the symbol for opportunity. Taken together, they form the Chinese symbol for crisis. Leave it to 5,000 years of Chinese wisdom to perfectly describe the credit crisis now facing hospitals and how it will impact hospitalists.

If you need a little rousting from that warm blanket of security you feel walking down the hospital hallways, then take a look at some recent headlines. On October 15, 2008 The New York Times ran a story titled “Disappearing Credit Forces Hospitals to Delay Improvements.”

On October 27, 2008, Healthleaders magazine, a publication for hospital and healthcare executives, ran a story titled “Dealing with the Credit Conundrum.”

Still comfortable? Here are a few more data points: Universal Health Services’ interest payments alone represent over a fifth of their net income in the last quarter reported. Their Standard and Poors credit rating is BBB- which is just above junk bond status. And they’re the ones doing well. Tenet Healthcare reported a 2nd quarter loss of $13 million and spent $98 million on interest alone. Their credit rating is B, which is well within the junk bond category. Health Management Associates this week announced a drop of 79% in their 3rd quarter profits. Credit rating B+, also junk bond status.

The credit crisis has already arrived for the hospitals. Does that pose a danger for hospitalists? According to the SHM’s 2008 survey, hospitalists are subsidized by their hospitals by an average of $97,000. SHM does not break down this figure by employment type although I would think this would be useful. My guess would be that the subsidy figures for hospital-employed hospitalist subsidies are even higher. The danger is that today’s credit crisis for hospitals will become tomorrow’s subsidy crisis for hospitalists.

Herein lays the opportunity for hospitalist groups of all types to seize this moment and reevaluate their business models with the goal of reducing their dependency on hospital subsidy dollars to sustain their practices. There are some situations where obtaining hospital stipends are totally appropriate, such as providing on-site night coverage or caring for a disproportionate share of indigent patients, but these situations are more the exception than the rule. Focus on finding opportunities and staffing models for your practice that will generate enough profit so that your practice is self-sustaining. Better to view your hospital subsidy as a luxury that your practice could live without if you had to, rather than as a necessity that you need in order to survive. It can be done.

 

The world economy and US credit markets have clearly entered into a period of serious disruption. You may be asking yourself a series of questions: “How does this affect hospital medicine? More importantly, what are the implications for my hospital, my practice group, my career?” 

For the vast majority of companies and consumers, the ability to maintain financial strength and stability has become increasingly difficult. This is no less true for the hundreds of hospitalist practice groups that depend on bank lines of credit to maintain the cash flow needed to operate their business.  

Many practice groups will increasingly experience difficulty obtaining credit. As a result, many groups will find it a challenge to sustain their operations and even more of a challenge to grow their business. In purely financial terms this means that many practices cannot truly afford to pay the costs of recruiting, training and on boarding new doctors, because that takes credit. Then the practice has to wait for new doctors to generate enough cash to pay for their salary and overhead. That takes more credit. As the saying goes, it takes money to make money.  

It used to be a general rule that smaller companies had more difficulty obtaining credit than larger ones. But as we have seen, even giant companies can fall victim to the financial crisis. If you are a hospitalist employee – whether employed by a private practice or employed by a hospital - how do you know whether your employer can actually afford to keep you on staff?  The answer is, you don’t — unless your group is part of a publicly-held company such as IPC. Few practice groups volunteer to make their financial statements known to their staff. In the midst of a financial crisis, however, the culture of secrecy that shrouds the books of so many practice groups may finally have to give way. More transparency is required to provide hospitalists the comfort they need to feel secure in their jobs.

 

If I could offer one piece of advice to the new hospitalists it is this: be a team player  in your practice group from Day 1.  With a team oriented approach all good things can follow. Without that, it won’t really matter where you work because without being a team player your career can have only limited consequence.  Think team.

 

I don’t pretend to know any more about the details of the reportedly pending layoffs of hospitalists than what is reported here. However, I did check the websites of these acute care facilities to learn that they have approximately 330 beds combined. 

The article quotes a Cape Cod Hospital spokesperson who states that “There are 33 hospitalists employed at Cape Cod and Falmouth Hospitals”. So perhaps it will come as no surprise that there may be a few less hospitalists at their next company clam bake. 

Hospitalists rightly spend a lot of time fretting about physician burnout and working at a pace that is not sustainable. We spend less time looking at the near side of the productivity bell curve. But there seem to be some facilities that indeed are looking – and carefully. The laws of economics may not always work as quickly or reliably as the laws of physics, but eventually they do kick in.