Hospitals Pushing Physician Employment

 Exploring Job Opportunities

 Texas Medicine Logo  

 Tex Med. 2012;108(4):49-52.

 By Ken Ortolon 
 Senior Editor

 In January, Tennessee-based Community Health Systems (CHS), already owners of Longview Regional Medical Center, announced plans to acquire Diagnostic Clinic of Longview, one of the largest multispecialty physician groups in East Texas.

 Under the acquisition plan, the clinic's 100 physicians, 30 midlevel practitioners, and 500 other employees will become employees of a separate entity affiliated with the hospital system, most likely a not-for-profit health care corporation, often called a 501(a) corporation.

 The acquisition is part of a trend of hospitals and hospital systems seeking to integrate their operations with physician practices to meet the growing demand for accountability, quality improvement, and cost control in health care. In fact, the American Hospital Association (AHA) recently said physician employment by hospitals nationwide grew by more than 32 percent over the past decade.

 From a strictly business standpoint, hospitals also see hiring physicians as a way to consolidate their market share and capture the payment stream from physician services. In many cases, the same physician services are paid at a higher rate if they are provided in the hospital or in its outpatient facilities.

 While direct hospital employment of physicians in Texas lags behind other states – primarily due to legal restrictions related to the long-standing ban on the corporate practice of medicine – experts say economic pressures on hospitals in Texas are no different than those hospitals in other states face. Direct employment or employment through 501(a) corporations is likely to rise in Texas as more hospitals seek to keep pace with a changing health care delivery system, those experts say.

 Texas Medical Association officials, however, say increasing physician employment by hospitals raises serious concerns about employed physicians' ability to maintain their clinical autonomy, exercise independent medical judgment, and protect the patient-physician relationship.

  "We are very concerned about what this could do to the physician's ability to advocate for the best interest of his or her patient and the sanctity of that patient-physician relationship," said Fort Worth pediatrician Gary Floyd, MD, chair of TMA's Council on Legislation.

To protect the patient-physician relationship, TMA strongly supported Senate Bill 1661 by Sen. Robert Duncan (R-Lubbock), which protects the thousands of physicians employed by hospital-run, not-for-profit health care corporations, commonly referred to as 501(a) corporations. The legislation that passed provides significant protections and makes the physician board of directors responsible for all clinical matters within these organizations. 

TMA believes it is the first legislation passed in any state specifically designed to protect physicians' independent medical judgment and clinical autonomy in these employment arrangements. Other state medical associations have shown an interest in pursuing the same statutory protections.

 Crunching the Numbers

 According to AHA Hospital Statistics, 2012 Edition, the number of physicians and dentists employed by hospitals across the country grew from 157,421 in 1998 to 212,418 in 2010. That amounts to roughly 20 percent of the practicing physician workforce, AHA says, but it is not clear that its percentage calculation is accurate.

 AHA officials say they don't separate physicians from dentists in their survey of hospital employment, so it is impossible to know how many of those employees actually are physicians.

 The AHA numbers stand in contrast to recent numbers from the U.S. Bureau of Labor Statistics (BLS) that show hospitals currently employ only 132,050 physicians. The BLS data break down physician employment by specialty, including 4,700 anesthesiologists, 17,800 family physicians and general practitioners, 8,560 general internists, 2,760 obstetrician-gynecologists, 4,780 general pediatricians, 7,630 psychiatrists, 6,310 surgeons, and 79,510 physicians from all other specialties.

 BLS data also list only about 1,700 dentists as being employed by hospitals. Officials at both AHA and BLS say their figures include interns, residents, and faculty physicians employed at teaching hospitals.

 According to AHA, the rate of employment across the country ranges from as high as 56 percent of New England physicians to as low as 29 percent in the West South Central Region, which includes Texas. Caroline Steinberg, AHA vice president of trends and analysis, says that low percentage likely relates directly to Texas' ban on the corporate practice of medicine, which prohibits direct physician employment by hospitals or other nonphysicians.

 In fact, Texas Department of State Health Services (DSHS) data show only 2,656 physicians employed full or part time by a hospital in 2010. That data comes from an annual survey conducted jointly by DSHS, AHA, and the Texas Hospital Association.

 The 2010 survey showed 27 Texas hospitals employed physicians. Among them were numerous teaching hospitals, urban county hospital districts, and state psychiatric hospitals.

 The Employment Drivers

 Regardless whether the AHA or BLS statistics are correct, experts say physician employment by hospitals is rising. Travis Singleton, senior vice president for the physician recruitment and consulting firm Merritt Hawkins, says 56 percent of the company's physician searches last year were for prospective hospital employers. That's up 45 percent since 2004, Mr. Singleton says.

 "And 56 percent even sounds low to some people," he added. "We do a good chunk of business in California and Texas, where employment isn't an option. If those two states could employ, it could be as high as 75 percent to 80 percent."

 Merritt Hawkins officials say the specialties most frequently sought by hospital employers are family practice, internal medicine, hospitalists, general surgery, orthopedic surgery, psychiatry, emergency medicine, and obstetrics-gynecology.

 Both Mr. Singleton and Ms. Steinberg say increased physician employment is directly related to the push for greater integration in the health care delivery system.

 "I think there has been an increased focus on accountability and an increased emphasis on improving quality and reducing cost across the entire continuum," Ms. Steinberg said. "So, in order to do that, hospitals are feeling that they really need to partner a lot more closely with physicians, in particular to address issues like value-based purchasing, efforts to reduce readmissions, and efforts to manage cost either in a bundled or capitated payment."

 Mr. Singleton says the difference between the current trends and the 1990s -- the last time hospitals aggressively sought to buy up physician practices -- is that physicians are more inclined to actively seek these employment arrangements. An analysis of Merritt Hawkins' trend numbers shows hospital employment searches are up by 15 percent since 2006, but the change in search composition is driven more by a large decrease in employment searches by physician practices, which are down 40 percent over the same time period.

 "The difference this go-around has as much to do with the economic environment that physicians are in as it does anything else," he said. "For the first time in several decades, we're hearing from both sides that you have physicians who are actively seeking hospital support, financial stability, somewhat of a safety net. You have hospitals that are getting regulations, more compliance issues, more pressure to put on quality improvement and control their payment mechanisms. So they're looking to control that, which is their providers."

 He adds that the pressures are coming both from health system reform and from private payers as they push value-based purchasing, accountable care organizations, medical homes, and other changes in the delivery system.

 The Texas Dilemma

 While most hospitals in Texas cannot legally employ physicians directly, there is mounting pressure for increased hospital employment in some form.

 For a number of years hospitals here have been allowed to employ physicians through 501(a) corporations. They can hire doctors, but they must be controlled by a physician board of directors. That ensures that the people responsible for overseeing clinical decision making are subject to disciplinary action by the Texas Medical Board (TMB), which a hospital administrator or board would not be.

 In 2011, TMA worked closely with a coalition of rural hospitals to craft legislation to allow critical access and solo community hospitals in counties of fewer than 50,000 residents to directly employ physicians. That legislation included first-in-the nation protections for the employed physicians' clinical autonomy. Under Senate Bill 894, hospitals seeking to employ doctors must designate a chief medical officer (CMO) from among its medical staff and that CMO must report to TMB that the hospital is employing physicians under the law.

 As of late February, only one such hospital -- Richards Memorial Hospital in Rockdale -- reported doing so, TMB officials say.

 "In many respects, the intent of this legislation was meant to level up the smaller communities and allow them to compete more effectively to attract the physicians they need without the administrative burdens of forming a 501(a)," said Dan Finch, TMA's director of legislative affairs. "However, by requiring the small hospital's medical staff to be responsible for clinical decision making, by requiring them to designate a chief medical officer, and creating a responsibility to report administrative interference to the Texas Medical Board, we believe we have protected both the physician's independent medical judgment and the patient-physician relationship."

 The 501(a) corporation is much more widely used. In fact, there are some 300 to 400 501(a) corporations in Texas, Mr. Finch says.

 "Most hospitals in urban and suburban areas and hospital systems in the state have organized a 501(a) for the purpose of hiring doctors," Mr. Finch said.

 He does not expect the number of 501(a) corporations to increase significantly, but he does expect them to hire more physicians as hospitals continue to buy up physician practices.

 "We expect employment to increase," Mr. Finch said. "That reflects differing attitudes among physicians toward employment, it reflects the economic uncertainty with the flat or declining payment rates, and it reflects the increased administrative burden on practices. But the passage of Senate Bill 1661 is a great start in recognizing these trends and protecting patients and physicians."

 The purchase of Diagnostic Clinic of Longview is just one of several such purchases in Texas over the past few years. Michael Darrouzet, executive director of the Dallas County Medical Society, says Texas Health Resources in Dallas made the single largest purchase of a group practice in the state when it bought Medical Edge, which employs more than 500 physicians and physician assistants. Other hospital systems in the Dallas area also bought smaller practices over the past two years, he adds.

 Harris County Medical Society officials say Memorial Herman Hospital System, Texas Children's Hospital, and Methodist Hospital have been active in purchasing physician practices there. And, Bexar County Medical Society officials say they also have heard of major hospital systems in San Antonio purchasing numerous physician practices in the past few years.

 Dr. Floyd is not convinced physician employment is the best answer to current market pressures for either physicians or the hospitals.

 "There are some inherent problems," said Dr. Floyd, chief medical officer at the JPS Health Network in Fort Worth. "For one, hiring inpatient doctors is easier for hospitals than hiring outpatient doctors because they know how to bill for inpatient care. They don't really know how to bill for outpatient care."

 Dr. Floyd adds that the experience in the 1990s showed that hospitals were somewhat inept at running medical practices, with many of the practices they purchased going out of business. He says he would not be surprised if that happened again this time.

 Regardless, he says TMA's focus will remain on defending clinical autonomy of physicians who do become employees, as well as protecting the patient-physician relationship.

 "Our whole goal has been to protect the physician's clinical autonomy and independent medical judgment and ultimately to protect the doctor-patient relationship. And we will continue to focus on minimizing the administrative or corporate influence on the practice of medicine to ensure that it is physicians making the medical decisions."

 Ken Ortolon can be reached by telephone at (800) 880-1300, ext. 1392, or (512) 370-1392; by fax at (512) 370-1629; or by email at

April 2012 Texas Medicine Contents
Texas Medicine Main Page