How Hospital Employment Will Affect ASC Physicians in 2012: Thoughts From Smithfield Surgical Partners' Dr. Greg Horner

When asked about their primary concern for the ASC industry in 2012, Greg Horner, MD, managing partner of Smithfield Surgical Partners doesn’t miss a beat: "The hospital integration process," he says. "You are probably aware that free-standing medical groups are vanishing over time, and as they integrate, they're either integrating as hospital employees or large multi-specialty medical groups." In California, where Smithfield is based, the integration process does not take the form of employment because the law prohibits the corporate practice of medicine. Instead, physicians have started to form "medical foundations" that integrate with large health systems — a method of partnership that allows hospital-physician integration without direct employment.

Dr. Horner says the increasing trend of hospital employment and integration puts specialists in an awkward position. If they choose to become employed by or integrated with a hospital, they may be precluded from participating in an ASC through hospital non-competes. If they opt to stay with the surgery center over choosing hospital partnership, they may lose a significant percentage of their referral base, as referring physicians are often the first ones to become employed. "The second step after employing primary care doctors is to ask those specialists — particularly orthopedic surgeons, ophthalmologists, pain management and spine — to follow that gravy train," Dr. Horner says. "They end up joining up as well to protect their referral sources."

While physician employment and integration may seem like a death knell for the surgery center industry, Dr. Horner says Smithfield has discovered "it isn't such a bad thing." Here he explains how physician employment may affect the ASC industry in the coming year.

1. Management companies and ASC physicians may actually benefit from employment. While individual surgery centers may be feeling the recruitment pinch as hospitals employ more and more physicians, surgery center management companies are in a good position to take advantage of the trend, Dr. Horner says. Hospitals that integrate heavily with physicians often own surgery centers to give their providers options. Management companies are well-suited to managing hospital-owned surgery centers because hospital control does not always improve the efficiency and profitability of the surgery center. "We have three current deals with hospitals where the hospitals have significant control over the physicians in the market, but they're not finding they're getting a great deal of efficiency out of their surgery centers," Dr. Horner says.

When the hospitals hire Smithfield to take over management of the surgery center, their first recommendation is that the hospitals syndicate to the physicians and give up a certain amount of management responsibility. "A couple of the centers were almost defunct and about to close until the hospitals systems started to get it and syndicated to the physicians and outsourced the management," he says. "That improves their relationship with the specialists." Management companies can profit from running the operational side of the surgery center, and physicians can reap the benefits of hospital integration while still exercising control over decisions that affect the ASC.

2. Hospitals will seek efficiency once they own physicians. Hospitals employ and integrate with physicians to gain a level of control over their own networks and the surrounding catchment area, Dr. Horner says. At the same time, he says hospitals are quickly realizing that when they gain control of specialists, they must employ some sort of gain-sharing relationship in order to achieve maximum efficiency. If physicians are dependent on the same yearly salary without ownership, they are less likely to work on cutting costs, decreasing wait times and preventing delays.

"I don't think it's that hospitals are inefficient at running surgery centers — I just don't think it's possible to achieve the same profitability that can be achieved when the surgeons have an ownership interest and skin in the game," Dr. Horner says. He says hospitals are more likely to incentivize physicians to improve surgery center efficiency once they realize that significant cost savings can be achieved when physicians care about the financial health of the facility. He says in many cases, the "control" hospitals seek over their surgery centers is somewhat of a formality. "The hospital wants to be able to have a first refusal on the sale of the center, or they want some level of control over governance," he says. "Even if the control is not exercised, they like to know that they have it."

3. Large multi-specialty groups can gain market share in the same manner as hospitals. If physicians choose not to integrate with or become employed by hospitals, they can still maintain profitability and control over the market through a large multi-specialty group. "Specialists — particularly large, orthopedic groups — are uniquely positioned to form multispecialty groups and achieve more control over the market," Dr. Horner says. "Once an orthopedic surgery group gains a significant scale, they routinely branch into other entrepreneurial directions such as imaging, physical therapy and surgery centers." This is the template for a multispecialty group.

He says this helps the physicians build an "economy of their own" that does not depend on referrals from hospital-employed or primary care physicians. "Orthopedic surgeons are a little more independent than other specialists," he says. "People come in off the street with lumps and bumps, and we are often the first touch point for patients in the healthcare system." He says orthopedic surgeons in several markets have begun leveraging their "economies" to launch powerful multispecialty or single specialty groups. "We are involved with similar projects in the market areas near our centers," he says.

Dr. Horner believes that ultimately, small, independent medical groups are going to consolidate. "Whatever structure replaces them is not as important as the efficiency they can achieve," he says "Cost effectiveness and quality are the drivers of this change. For this reason, ambulatory surgery centers will play an important role in the consolidation movement for the foreseeable future."

Related Articles on Physician Employment:
Physician Recruitment by ASC Physicians: Q&A With Blayne Rush of Ambulatory Alliances
10 Top Concerns for Surgery Center Physicians in 2012
Where ASCs Fit in the Current Healthcare Market

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