AAOS Bulletin - February, 2005

Ancillary services can attract physician educators

Academic medical centers must explore new ways to recruit physicians

By B. Sonny Bal, MD, and Mark Adams, MD

As reimbursements for surgical and nonsurgical patient care have dropped, incomes for both academic orthopaedists and their private practice colleagues have diminished accordingly.

Decreased revenues have a particular impact in academic medical centers where physicians must deal with the additional pressures of teaching and conducting and publishing research.

The lure of higher incomes in the private sector and, increasingly, the possibility that investing in ancillary services can offset diminished practice revenues are obviously attractive to new surgeons making a career decision. Partly because of this reality, many academic centers have been unable to fill their faculty ranks.

Recruiting quality physicians to academic medical centers that continue to rely on traditional and increasingly obsolete models to practice health care and compensate physicians is difficult. In a competitive labor market for specialty physicians such as orthopaedic surgeons, anesthesiologists and others, academic centers must either offer increasingly higher incomes that may not reflect the realities of diminished revenue collections, or explore other revenue models to attract physician talent.

Other challenges

Specialty or “niche” hospitals also present a competitive challenge to academic medical centers. The “safe harbor” regulations in the Stark legislation allow physicians to invest in certain services such as imaging, outpatient surgery centers, laboratory facilities and even specialty hospitals. In states without certificate of need (CON) laws, specialty facilities targeting the orthopaedic consumer have grown in size and number. States with CON laws are debating whether such regulations restrain competition or are in the best interest of consumers. CON laws may be ripe for constitutional challenge in many states, or more enlightened federal law may preempt such regulations in the near future.

Supporters of physician-owned outpatient surgery centers, hospitals and imaging resources claim that increased competition will improve the quality of services, while (in theory) driving down prices. Outpatient surgery centers generally do have better service turnaround times, and can tailor processes to suit patient convenience and needs. Physician stakeholders with a direct investment in such facilities make decisions quickly and ensure that management dollars are spent efficiently and wisely.

In many instances, physician/investor-owned facilities provide physicians with a much-needed incremental source of revenue to offset the drop in practice-generated dollars. However, the increased scope of practice and management responsibilities presents its own challenges. In addition, if there are no barriers to entering the market, new facilities opened by competing groups in a given location can lead to over-capacity, diminished revenues and fierce competition for patients.

Another perspective

Established hospitals claim that physician-owned facilities target only healthy, profitable patients, leaving the community hospital to care for the indigent and those with complex cases. Consequently, the hospital industry supports restrictive laws limiting physician-owned hospitals and additional regulations to balance the playing field, such as requiring physician-owned hospitals and outpatient centers to provide 24-hour emergency coverage for patients, or to pay a tax to cover the cost of indigent care in the community.

Yet another perspective comes from employers who must ultimately pay for health care. They may view physician-owned centers as contributing to over-consumption of health care, and may see investor physicians as promoting additional services to ensure profitability of their investment. In some large cities, major employers have successfully opposed the opening of new hospitals by arguing that they will drive up the volume and consumption of health care services—and the resultant costs—independent of need.

Given these realities, how can academic medical centers remain competitive?

Becoming partners

The fact remains that ancillary services are profit drivers, and therefore attractive to all doctors, academic or otherwise. However, it may be more difficult for academic doctors to take ownership in an ancillary health care facility that competes with their university employer. As employees, academic orthopaedic surgeons generally may not invest in facilities that compete directly with the interests of their employer. One solution for academic doctors is to partner with the university employer in such ancillary service facilities.

Awakening a large institutional bureaucracy to the idea of investing in an ancillary care facility with its employee-doctors can be challenging. One motivating factor is the wake-up call of competitive pressures.

In our community of Columbia, Mo., for example, the expiration of CON laws led to a sudden interest in creating outpatient surgery centers by outside investors keen to partner with local physicians. To prevent such centers from drawing away university and private surgeons, the University of Missouri School of Medicine took the creative approach of syndicating its existing outpatient facility and offering ownership to private and university physicians, subject to the Stark regulations.

This model proved to be both durable and very successful. Although the university reduced its share of ownership in the enterprise and shifted management responsibility to a professional organization specializing in outpatient surgery centers, it saw overall revenues from the facility increase by more than 300 percent in the first year following the reorganization. Bringing non-academic surgeons to work alongside academic physicians helped create new business. With a larger pie to divide, all the stakeholders came out ahead.

Such a project requires cooperation between university and private physicians, as well as an institutional leadership group willing to entertain novel ideas and take risks. The result was a different model to deliver value in ways that had not been anticipated before.

Similar models could be applied to other ancillary services, including imaging and orthopaedic surgery. Rather than lose academic physician/radiologists interested in investing in a stand-alone imaging facility, university-based centers can create new outpatient facilities, offer their physician-employees an ownership stake and defer management responsibilities to specialty companies with knowledge and experience in such niche centers. Similar collaborations are possible with orthopaedic surgery departments, in terms of imaging revenues, outpatient surgery revenues and ownership of inpatient facilities.

The bottom line

State and federal funding of academic medicine is no longer adequate to provide competitive compensation packages for hiring and retaining quality physicians to train and teach the next generation of orthopaedic surgeons. Academic medical centers that persist in adhering to past models of health care delivery and profitability will be severely tested as traditional compensation models corrode under increasing competitive pressures. Academic centers must develop the business acumen necessary to investigate new collaborative models with their employee-physicians that would have been unforeseeable just a few years ago.

Cooperative competition among university medical centers, their physician employees, private sector physicians and specialty care facility management companies can lead to collaborative models that create novel sources of revenue and value for all the stakeholders. Joint investment in ancillary services is one avenue worthy of serious exploration.

B. Sonny Bal, MD, is assistant professor of orthopaedic surgery at the University of Missouri School of Medicine and a member of the AAOS Academic Business and Practice Management Committee. He can be reached at balb@health.missouri.edu

Mark Adams, MD, is president of the Columbia Orthopaedic Group, Columbia, Mo. He can be reached at tigersdoc@aol.com

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