Kate Lovrien
Luke Peterson

Hospitals should develop physician alignment around clinical activity, economics, and purpose.

At a Glance

CFOs can take four steps to help their organizations align successfully and cost-effectively with physicians:

  • Understand the type of alignment required for the organization   
  • Determine the right strategies for strengthening the organization's alignment gaps  
  • Execute successfully  
  • Monitor consistently and systematically  

Strengthening physician-hospital alignment continues to be one of the top issues facing hospital senior executives today. As payment pressures on hospitals and physician practices increase and new care models are proposed at the local, state, and federal levels, hospitals and physicians need to work more closely together. Effective partnerships between hospitals and physicians are required to optimize the delivery system and ensure effective coordination of care while maintaining appropriate financial returns for the hospital.

To create this effective partnership, three types of physician alignment are needed:

  • Clinical activity-defined as the correlation of the patient care approach, expectations of quality and service, and consolidation of activity in the diagnosis, treatment, and rehabilitation of patients
  • Economic-defined as the correlation of physician and hospital financial returns
  • Alignment of purpose-defined as the correlation of vision, values, and energies and a common culture

Recent market changes have significantly stressed the economic relationship between hospitals and physicians. Successful relationships require all three types of alignment, and a hospital's ability to achieve each one can greatly affect the financial value that a relationship creates for the organization.

Healthcare finance executives can provide important insights into the financial implications of each alignment strategy to ensure that alignment is achieved successfully and cost-effectively. To this end, they also can take four steps to build successful alignment with physicians:

  • Understand the type of alignment required for the organization
  • Determine the right strategies for strengthening the organization's alignment gaps
  • Execute successfully
  • Monitor consistently and systematically

Understand the Type of Alignment Required

Much of the focus in the past 12 months has been on clinical activity and economics, but not alignment of purpose, which is often the glue that holds hospitals and physicians together as they weather industry changes.

Unfortunately, many organizations do not understand, nor do they have the tools to accurately judge, their physician relationships. It is not enough for the hospital to say-"It feels like we have good relationships," or "We have a certain number of physicians under contract,"-such statements indicate only the hospital's perspective. Often, organizations spend enormous amounts of money on contracts and physician services without understanding the goals for doing so. Without a clear understanding of where the relationship stands, it is hard to determine the correct strategy to move forward.

To fill this gap, hospital leaders can use an analytical tool that uses measurable data from both sides of the physician-hospital relationship to more definitively determine the extent of the relationship. Leaders answer a series of questions correlated with each area of alignment-clinical activity, economics, and purpose. Based on their answers, leaders receive an alignment assessment to better understand their strengths and weaknesses in each alignment area. Research suggests economic alignment is the area of greatest variation, as shown in the exhibit below. Some hospitals pursue multiple economic models with most of their active medical staff, while other hospitals avoid economic ventures.

Organizations can use data such as these to determine the appropriate models to strengthen their alignment gaps, creating better patient care and financial returns.

Exhibit 1


Determine the Appropriate Strategies

The research points to four groupings of strategies that facilitate strong physician-hospital alignment: business services, structured communications, contracts, and employment. The groupings of physician alignment strategies are not uniformly suited to drive alignment in each area (economic, clinical activity, and purpose). Instead, within each component of alignment, some tool categories are likely more effective than others at driving alignment.

Exhibit 2


Organizations wanting to improve their physician alignment in a particular area should consider deploying categories of tools, as shown in the exhibit above.  

Execute Successfully 

Execution of these strategies is as critical as determining the appropriate strategies. One wrong turn only reinforces distrust between hospitals and physicians and can cause long-lasting harm (think 1990s). Each of the four categories-business services, structured communications, contracts, and employment-has its own benefits and risks.

Business Services

Designed to make the physician practice more sustainable from a business perspective, business services include everything from leasing and real estate strategies to information infrastructure to a clinically integrated physician group. Instead of taking over the business functions for the physician groups, the hospital deploys strategies to help the individual groups make better decisions through increased scale, a common platform for making business decisions, and a common method for interacting with the community, other providers, and payers.

The following tips can help hospitals develop physician alignment that will enhance business services.

Tip 1: Understand how physician practices work and are paid for their services. Hospitals often focus on their own delivery of services and do not fully understand the practice viability of their independent physician partners. Before hospitals can offer management services, leasing, or other business services to physicians, they need to understand the business drivers of the clinic practice-operations, finances, staffing, and compensation models.

Tip 2: Ensure that the hospital's management offerings are effective. Buy if you cannot build. The backlash from owning physician practices in the 1990s is still alive today. Many physicians remember that hospitals could not effectively run physician clinics then. Today, hospitals have to ensure that their ability to run physician practices-bill, negotiate, and contract-is better than the individual practice's ability to do so. Hospitals should investigate whether they should buy or build the service. Regardless, practice management needs to work.

Tip 3: Focus on activities that build long-term value. Many physicians want the independence and autonomy of a private practice but cannot be viable without a strong partner for care. Most physicians struggle to achieve goals that are essential to future succes -a common information platform, a common set of practice guidelines and communication across the continuum. Hospitals that can consistently help make progress toward these goals will make physicians reluctant to leave the coordinated network.

Business Services Caution   

Organizations lose more goodwill when they are ineffective in physician practice management. Don't embark on running practices unless you have success in doing so.


Hospital executives sometimes are challenged to keep the lines of communication open with the busy physicians at their hospital, but maintaining that relationship is important for running a successful business.

The following tips can help hospitals ensure that their communications further their physician alignment goals.

Tip 1: Solicit physician feedback and act on it. Successful hospital executives have several ways to solicit feedback from physicians. Beyond general physician surveys, hospital executives should connect with physicians one-on-one to communicate about ways to make the hospital work better and gather feedback about new endeavors. Executives also should seriously consider implementing the physicians' suggestions, if possible.

Tip 2: Incorporate physicians into decision-making and leadership roles. The hospital should designate physicians to form a leadership council that advises the CEO on strategic issues. Hospital leaders strengthen physician relationships by working with these physician leaders to solve the hospital's challenges. This requires open dialogue and a willingness to bring physicians into the decision-making process around a specific topic or issue.

Tip 3: Distribute a hospital newsletter. Hospitals can distribute a newsletter to update physicians and other staff members about hospital news. Historically, the newsletters have been distributed through a print source, but more hospitals are creating hospital blogs to replace their print publication. Because a newsletter or blog is often a one-way communication tool, it should be coupled with additional methods of communication to promote a two-way discussion.

Tip 4: Use social media. For brief announcements or back-and-forth updates, hospital executives and physicians can interact using social media forums. In the past, this method of communication has been used between hospitals and patients, but now it is often used between executives and physicians, especially the younger ones. These correspondences can be beneficial because they encourage back-and-forth discussion, but they shouldn't be used to replace strategic discussions.

Structured Communications Caution   

As you put physicians in leadership roles, understand that they are new to administrative activities and often will think with their clinical hat. Be patient and mentor these physician leaders because they are critical to the organization's future success. 


Organizations seeking to improve their alignment with physicians may want to consider making changes to the physician contracts, thus improving their clinical activity and economic alignment. Contractual relationships for specific physician clinical, managerial, or investment services are typically targeted toward a combination of improving clinical quality, operational efficiency, and programmatic development.

These agreements are generally less intrusive than other economic-type alignment tools, allowing organizations to make changes more easily. Moreover, the tools typically do not require an entirely new structure to manage. As such, these tools are the most prevalent in hospitals today and, as a result, need to be evaluated to ensure that they are appropriately positioned to advance the organization's goals.

The following tips can help hospitals strengthen their physician contracts strategy.

Tip 1: Revise terms in medical directorships. These positions, which include stipends to oversee specific programs, services, and departments and achieve certain metrics, will help incentivize improvements to clinical quality. Making a substantial portion "at risk" is important to provide incentive to achieve the desired outcomes.

Tip 2: Consider joint or full management over employment. Clinical comanagement and professional service agreements can allow closer partnerships without the legal ramifications of employment. Trusted physician partners can manage a service line or even the entire hospital. This relationship improves quality, operations, and program development because these metrics are stressed in the initial agreement and physicians are a part of that discussion.

Tip 3: Invest in business ventures with physicians. These joint ventures take the form of legal partnerships designed to share risk or expertise around specific healthcare functions or services, such as ambulatory surgery. An organization can benefit from physicians' expertise in these new areas, and may find innovation more attractive if the risk is shared with another party.

Tip 4: Nurture the partnership. Regardless of type of contracts, physician partnerships need consistent nurturing and cultivation. It is important for administrators to constantly evaluate the direction and success of any agreement and partnership and to discuss changes needed through open communication.

Contracts Caution   

Contracts are the easiest strategy for competitors to emulate. Without consistent monitoring, physicians can easily shop for the better deal, and your organization can lose a lot of money and momentum in the process.


Many hospitals are seriously considering employment strategies because of the recent elimination of many of the previously permitted economic alignment tools, a desire by physicians to alleviate the administrative burdens and ongoing capital investment associated with running a professional practice, and increasing uncertainty of future payment.

The following tips can help hospitals develop a sound physician employment strategy.

Tip 1: Focus on the relationship. Physician employment is more than a business contract. At its best, employment offers a new opportunity for physicians and hospitals to create a stronger relationship built on common incentives.

Tip 2: Structure the agreements to advance the vision, not just the income. Setting similar expectations and cultural norms for all employed physicians is important. The incentives within a contract can vary depending on desires and vision; the incentives can include payments for quality outcomes, serving selected markets, or providing management services.

Tip 3: Develop separate, yet linked, organizational structures. Managing and directing employed physicians requires quite a different organizational structure than is typically encountered in hospitals and health systems. A separate, but tightly coordinated and linked, structure is usually needed. The goal is to create the right structures for physicians rather than force physicians to adapt to the hospital's existing structures.

Tip 4: Develop the physician group culture. Beyond the employment agreement, the development of a multispecialty group culture is the goal of most hospitals when employing physician practices. The long history of working together creates the relationship and trust needed to form a permanent team.

 Employment Caution   

Expect backlash to the employment wave within a few years. Payment and changes in delivery models will prevent physicians from maintaining their current salaries.

Monitor Consistently and Systematically

Striking the right balance of strategies for aligning with physicians requires constant monitoring of both the relationship and the landscape the hospital operates. It is too easy to just view alignment simply as the next deal-that through agreement terms, the physicians and hospital now are aligned in interest, purpose, finances, and activity.

The following tips can help to ensure the greatest value in alignment.

Tip 1: Define the organization's rationale for aligning with physicians. What is the organization trying to achieve: advancing the mission, serving the community, improving the quality of care, organizing the care continuum for its community, or integrating clinically and financially?

Tip 2: Be selective in the investments. Investments for alignment vary. Organizations need to determine which physician partners allow them to best advance the vision and understand the limitations in resources and financing.

Tip 3: Stick to a consistent plan. Many hospitals have become reactive to the alignment as their competitors have advanced quickly on securing physicians in their networks. It is better to be deliberate and consistent, identifying the strategies that will serve the hospital best 12 to 24 months in the future as opposed to today. Then the organization can also appropriately understand the operational and financial returns generated from these alignments.

Tip 4: Involve the entire senior executive team. Clearly, the hospital CEO champions the physician relationships. However, all members of the executive team offer different insights in managing physician relationships. The CFO's role is not just to monitor the financial returns and expenditures of each alignment strategy, but also to help educate physician partners on the financial realities of payment and running a hospital.

Taking the steps to ensure lasting physician-hospital alignment may seem like a lot of work, but the results are well worth it. Strong alignment directly improves finances, quality, and operations while creating stronger community advocates.

Kate Lovrien is a senior manager, Kurt Salmon, Minneapolis (kate.lovrien@kurtsalmon.com).

Luke Peterson is national director, strategy practice, Kurt Salmon, Minneapolis (luke.peterson@kurtsalmon.com).


Publication Date: Thursday, December 01, 2011

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