Growing those service lines involves another key strategy that the hospital shares with its new partner, physician employment. He says Prince William has known for a few years now about the shift in priorities for younger physicians, who largely want to go with the employed physician model, but hasn't previously had the financial wherewithal to pursue that strategy.
"We don't have the infrastructure to do that," he says. "It's easy to lose your shirt doing this if you don't have the infrastructure or experience. So that's one of the criteria we looked at in finding that expertise in a merger partner. Novant has that—they have 1,060 employed doctors."
He's a big believer in the practice of making physicians employees, for a variety of reasons.
"The poor state of the economy actually at best will encourage this, because docs are tired of the hassles of the multi-insurer system," Schwartz says. "They're tired of the business of medicine—they just want to practice medicine. No one's sure what's going to happen with health payment reform, but they want to spend less time hassled by bureaucracy."
Even in California
California has one of the most strict laws among the states on hospital employment of physicians—it's not legal. However, many in the state are trying desperately to overturn that ban, saying it prohibits hospitals in low-income areas from attracting the doctors they need to service patients. Many hospitals can effectively get around the statute, however, by helping to form a medical group that then gets into a contractual relationship with the hospital's foundation. The composition of the groups is somewhat of an operational impediment—qualified physician groups must have 40 or more physicians in 10 or more specialties—but legally, the physician group, not the hospital, employs the physicians.
"We'll continue to put these medical groups together and have professional services agreements between medical groups and the foundation that lays out metrics for cost and quality," says Cal James, CEO of Valley Medical Development, a nonprofit limited liability company that operates El Camino Hospital and The Community Hospital of Los Gatos in California's Bay Area. "We can write those contracts so they are in charge of their own clinical outcomes."
Despite the legal hoops, James says the model works as an important fully integrated option for the hospital's clinical physician partners, but that independent physicians also have practice needs and he's working on strategies that will help them survive what was a difficult operational environment for small practices even before the recession hit.
Essential to survival
James says an employment model with the right clinical safeguards is probably essential to the future healthcare organization as more attention and revenue is focused on outcomes instead of procedures—and inpatient revenue continues to grow slower than ancillary services.
For his part, Schwartz can't see much of a future for hospitals that aren't able to employ their docs. "A lot of the private physicians are taking services from the hospital—profits from which we use to plow back into services and salaries."
The betting crowd says physicians won't do that if they're employees. It's a strategy that until the Novant deal goes through sometime in August or September, Prince William won't be able to afford. "It's so expensive to start the infrastructure, and we didn't have the $15 million in cash to start it," he says.
"If you want to continue to be a hospital going forward, you're going to have this employed physician model," he says. "Regardless of how long the current situation continues, we won't stay in this recession forever."