Kevin C. (Casey) Nolan
Managing Director, Navigant Consulting Inc.
I am not a big fan of horror flicks, but there is one from a number of years ago in which a particular scene has stuck in my mind, and which has become a bit of a cultural icon. In this scene, a cute little blonde girl who is probably 5 or 6 years old is sitting in front of her television screen and as the television screen starts doing strange things, she announces to her family: “They’re back!” By “they,” of course, she means the evil spirits that inhabit and subsequently terrorize the typical suburban family home. I have recently noticed the return of another entity that several years ago ran amok through the healthcare landscape, spreading terror and causing destruction and chaos and resulting in the disappearance of many millions of dollars, and subsequently, numerous healthcare executives who ventured too close to the television! In this case, it is not evil spirits infiltrating through the television (there is enough bad stuff flowing out of those boxes as it is!), but rather the re-emergence of hospital-sponsored physician groups—both primary care and multi-specialty.
As we all recall, about a decade ago, many healthcare organizations embarked on a path to employ physicians in anticipation of the coming tsunami of capitation. When the anticipated tidal wave didn’t materialize, many organizations found themselves saddled with practices for which they overpaid, in which the physicians were not incentivized to be productive, and which the purchasing organizations didn’t possess the expertise to manage effectively. So after a few years of horrific financial losses (there was enough red ink on the balance sheets to cause even Wes Craven to become queasy!), many healthcare systems divested the physician practices. A few hardy (or as most pundits at the time thought—foolhardy) organizations, however, did not. They kept them, worked at changing the compensation model to a productivity-based model, learned how to manage them more effectively, developed the ability to track downstream referrals, and quietly went about their business.
Today, due to a convergence of forces, those organizations that kept their physician enterprises intact find themselves in possession of a tremendous competitive asset, while those that never built physician networks or who dismantled them now find themselves scrambling to create something they thought was dead and buried. This time around, however, the driving forces are not the potential of something (capitation), but rather the actual arrival of several factors, including:
- The changing demographic composition of the medical community (more women and gen Xers) with their desire for better lifestyles, fewer hours, and better benefits (and hence an openness toward and interest in employment).
- The growing realization among physicians that the traditional solo/small group business model is not sustainable from an economic standpoint (their revenues are flat to declining in spite of longer hours, their expenses are escalating, they are faced with spending $30,000+ per physician on EMR, and because they are “onesies” and “twosies,” they find themselves having no clout in managed care rate negotiations—they are “price takers,” not “price makers”).
- The continued consolidation among insurance companies and provider organizations, which further reduces the influence of an individual physician or small group to carry any sway with those increasingly gargantuan organizations.
Given that these three trends are already occurring and not likely to disappear, the reality is that the delivery model of the future is one in which the majority of physicians will be members of a hospital-sponsored group or an employee in a physician-owned mega-group. And while this may cause more nightmares among healthcare executives than the worst horror flick, I believe that it is fair to say that not only are they back, I am pretty sure they are here to stay!
