1. Employment of Orthopaedic Surgeons: Understanding the trend
Health Care Systems Committee
Alexandra (Alexe) Page, M.D.

2. Disclosures
Vice-Chair of the AAOS Health Care System Committee Partner in Southern California Permanente Medical Group I have no other conflicts of interest to disclose
Health Care Systems Committee

3. Is Employment the future of Orthopaedics?
MEDICINE?
Health Care Systems Committee 3

4. “THE DECLINE OF SOLO AND SMALL MEDICAL PRACTICES”
UNITED STATES HOUSE OF REPRESENTATIVES
COMMITTEE ON SMALL BUSINESS
SUBCOMMITTEE ON INVESTIGATIONS, OVERSIGHT AND REGULATIONS
Testimony of:
Mark Smith, President Merritt Hawkins
July 19, 2012
63% of searches in for employed positions, up from 56% , and 11% from
Only 2% of searches to start or join solo practice
2011 survey of final yr residents, only 1% interested in solo practice
Identified five primary reasons why this transformation is occurring
Flat or declining reimbursement
Growing regulatory and administrative paperwork
Malpractice insurance costs
The implementation of information technology
The effects of health reform
Salaries have almost completely replaced income guarantees as compensation models

5. Employment in Ortho: Understanding the Trend
Review the models of “employment”
Explore factors that are driving the trend
Present data from a 2010 AAOS Health Care Systems Committee survey on surgeon practice patterns
Suggest responses to the employment trend
1. Reese SM. Physician-hospital employment: gaining ground, but what’s beyond
the bend? Medscape Business of Medicine; 2010.
2. Berenson RA, Ginsburg PB, May JH. Hospital-physicians relations: cooperation,
competition, or separation? Health Aff (Millwood). 2007;26:w31-43.
3. Casalino L, Robinson JC. Alternative models of hospital-physician affiliation as the
United Statesmoves away from tight managed care.Milbank Q. 2003;81:331-51,
4. Page A. Collaborating on care, changing the culture. AAOS Now. 2010;4:36.
5. Merritt Hawkins & Associates review of physician and CRNA recruiting
incentives. MHA; p 1-15.
6. Pham HH, Ginsburg PB, Lake TK,MaxfieldMM. Episode-based payments: charting a
course for health care payment reform. National Institute for Health Care Reform; 2010.
7. Eisenberg SA. The boomerang effect: hospital employment of physicians coming
back around.
of-physicians-coming-back-around. Accessed 2009 Feb 14.
8. Healy WL, Iorio R, Ko J, Appleby D, Lemos DW. Impact of cost reduction programs
on short-term patient outcome and hospital cost of total knee arthroplasty. J Bone
Joint Surg Am. 2002;84:
9. Beckman D. New twist in employing physicians. Hospitals and Health Networks;
2005.
10. Hamilton J. Hospital employment of physicians: what works and doesn’t work is
very clear. Becker’s Hospital Review; 2009.
11. Lowes R. New market forces mean job openings for physicians. But do your
homework before you sign that contract. Medical Economics; 2006.
12. American Academy of Orthopaedic Surgeons. Hospital employment of orthopaedic
surgeons. A primer for orthopaedic surgeons. Rosemont, Illinois: American
Academy of Orthopaedic Surgeons; 2010.
13. White JA. Putting a dollar on a doctor’s worth to a hospital Mar 17.
blogs.wsj.com/health/2010/03/17/putting-a dollar-figure-on-a-doctors-worth-toa-
hospital/. Accessed April 2010.
14. Ziran BH, Barrette-Grischow MK, Marucci K. Economic value of orthopaedic
trauma: the (second to) bottom line. J Orthop Trauma. 2008;22:
15. Hauser M. The ups and downs of managing employed physicians. Physician
Exec. 1995;21:9-12.
16. Budetti PP, Shortell SM, Waters TM, Alexander JA, Burns LR, Gillies RR,
Zuckerman H. Physician and health system integration. Health Aff (Millwood).
2002;21:
17. Casalino LP, November EA, Berenson RA, Pham HH. Hospital-physician relations:
two tracks and the decline of the voluntary medical staff model. Health Aff
(Millwood). 2008;27:
18. Warren BJ. Employed specialists: is it the right service line strategy? Accelero
Health Partners; 2009.
19. Fabrizio NA, Bohlmann RC. Integrated delivery systems ensuring successful
physician-hospital partnerships. Medican Group Management Association Publication;
2010. p
20. Gillies RR, Zuckerman HS, Burns LR, Shortell SM, Alexander JA, Budetti PP,
Waters TM. Physician-system relationships: stumbling blocks and promising practices.
Med Care. 2001;39(7 Suppl 1):I
21. Larson JG. Defense vs. offense: hospital employment of physicians. Health-
Leaders; 2008.
22. Agnew SA, Vallier H. Career and practice management issues in orthopaedic
trauma. In: Schmidt AH, Teague DC, editors. Orthopaedic Knowledge Update:
Trauma 4. Rosemont, Illinois: American Academy of Orthopaedic Surgeons; 2010. p
23. United States Department of Labor Bureau of Labor Statistics. Occupational
outlook handbook, edition.
Accessed 2010 May.
24. Buschmann JR, Bozic KJ. Hospital-physician alignment: passing trend or a new
paradigm? AAOS Now; 2009.
25. Medical Group Management Association (MGMA). Medical practice managers
struggle most with managing costs, finances, EHR adoption.
com/press/default.aspx?id= Accessed 2010 Jul.
26. Medical Group Management Association (MGMA). Medical practice managers
struggle most with managing costs, finances, EHR adoption. ACMPE Press
Room. Accessed 2010 Jul.
27. Bader BS. Developing a hospital-physician alignment strategy: employment is
not the only answer. Great Boards. 2008;7.
28. Health Leaders Magazine. Ties that bind: developing hospital-physician alignment.
2008 Jan 1.
Ties-That-Bind-Developing-HospitalPhysician-Alignment.html##. Accessed 2010
July.
29. Accelero Health Partners. Musculoskeletal service line.
com/musculoskeletal. Accessed 2010 July.

6. ARS: “EMPLOYMENT” in the BOC/BOS
DO YOU CONSIDER YOURSELF EMPLOYED?
YES NO
Health Care Systems Committee

7. “Employment”: More options than a paycheck
Staff Model / Foundation model
Hospitalist
Academic Center
Health Care Systems Committee

8. Staff Model Classic employment Salary, salary + incentive Staff Model:
e.g. Geisinger, Mayo, some academic programs
Health Care Systems Committee

9. Foundation Model “Ban on the corporate practice of medicine” (CA, TX)
Medical group has exclusive contract with a hospital
e.g. Cedars-Sinai, Sutter, Scripps, Rady Children’s, Kaiser
The Foundation Model may be utilized in states with corporate practice of medicine laws
that prohibit direct employment (e.g., California and Texas). In the Foundation Model, a
hospital creates, but does not own, a nonprofit medical foundation, which owns and
operates the physician clinics. Typically, the hospital controls the medical foundation’s
governing board and obtains tax-exempt status for the medical foundation under
Internal Revenue Code (IRC) § 501(c)(3). The clinics arrange for physician services
with one or more physician practices through professional services agreements (which
are independent contractor arrangements). The physician practices, rather than the
clinic, foundation, or hospital, employ the physicians.
Health Care Systems Committee

10. Hospitalist Follows the internal medicine hospitalist model
Delphi established an early model
locum tenems
Filled void for hospitals which could not provide ER coverage
Health Care Systems Committee

11. ARS: “EMPLOYMENT” in the BOC/BOS
Do you receive a paycheck for ANY component of your professional services?
YES NO
Health Care Systems Committee

12. “Employment”: More options than a paycheck
Service line co-management,
Joint ventures
Medical directorship
Physician Enterprise Model
Affiliated Professional Entity
Physician Enterprise Model- designed to address physicians’ concerns about selling and relinquishing control over day-to-day operations of their practices. In the Physician Enterprise Model, a hospital employs physicians through a separate, but affiliated, legal entity that is formed as a “group practice” for the Stark Law and other regulatory purposes (Physician Enterprise). The physicians are bona fide employees of the Physician Enterprise for the purposes of IRS, the Stark Law and AKS requirements.
The principal element of the compensation plan is usually payment of compensation based on the individual allocation of the Physician Enterprise’s excess revenue over its expenses. The goal is to have the compensation model look and feel like a private physician practice, with incentives to grow revenue and control expenses. This differentiates it from direct hospital employment with guaranteed salaries. The hospital does not buy the physicians’ practice assets. Instead, the physicians retain ownership and manage the Physician Enterprise, providing administrative services, non-physician support staff, facilities, equipment, furnishings, etc., to the Physician Enterprise under a management services agreement that complies with the Stark Law, AKS, and state physician self-referral laws. The Physician Enterprise, although a hospital subsidiary, may or may not seek tax-exempt status depending on the level of physician governance in the entity
Affiliated Professional Entity The hospital private practice group model (or Affiliated Subsidiary Model) is a variation of the Physician Enterprise Model and may be used by
a hospital to establish separate group practices for different service lines. Under this model, the hospital usually establishes a new nonprofit, taxable corporation (due to the
expanded physician governance rights discussed below) as a wholly-owned subsidiary of the hospital or its health system entity.
Health Care Systems Committee 12

13. Factors Driving Physicians to Employment Models
HOSPITALS
Health Care Systems Committee

14. How has employment evolved?
Physician acquisition defensive strategy against reimbursement change
No physician involvement
Compensation on past performance
New physicians interested in private practice
Now
Acquisition as tool for care coordination, preparation for reimbursement change
Physicians in hospital leadership
Compensation incentive-based
Emerging physicians more interested in employment models
HCFM 2011

15. Flat or declining reimbursement
UNITED STATES HOUSE OF REPRESENTATIVES SUBCOMMITTEE Testimony Mark Smith, President Merritt Hawkins July 19, 2012
Flat or declining reimbursement
Growing regulatory and administrative paperwork
Malpractice insurance costs
The implementation of information technology
The effects of health reform
Identified five primary reasons why this transformation is occurring
Flat or declining reimbursement
Growing regulatory and administrative paperwork
Malpractice insurance costs
The implementation of information technology
The effects of health reform

16. Factors Driving Physicians to Employment Models
Healthcare reform:
Move to integrated care systems (e.g. ACOs, PCMH)
Value-based reimbursement
Reporting requirements (PQRS)
Health Care Systems Committee

17. Factors Driving NEW Physicians to Employment Models
Increasing burden of educational debt
Cultural change among graduating physicians
Health Care Systems Committee

18. Hospital Factors Driving Employment Models
Challenges with ER coverage
Potential for improvements in quality/cost control in era of value-based purchasing
Hospital desire to control service lines
Market domination
Health Care Systems Committee 18

19. Hospital Factors Driving Employment Models
From March 2012 MedPac
Hospitals often choose to employ physicians to ensure a stable stream of tests, admissions, and referrals to specialists who perform their services at the hospital.
PPACA creates a Medicare shared savings program for accountable care organizations (ACOs), which are integrated health care systems composed of physicians and health care facilities that take responsibility for controlling spending and increasing quality. ACOs could be established by hospitals or by groups of physicians working together. Hospitals may be acquiring physician practices to position themselves to establish ACOs.
Physicians and hospitals can benefit financially from hospital employment of physicians. Large hospital systems can use their market power to obtain higher rates for physician services from private insurers in some markets (Ginsburg 2010). In addition, for most services that can be provided in a physician office or OPD, total Medicare payments (program payments and cost sharing) are substantially higher if the service is provided in an OPD rather than in a physician office. The combination of higher private insurance payments and higher Medicare payments may allow hospitals to offer physicians comparable incomes as employees, even if the hospital has higher overhead than freestanding practices.
Health Care Systems Committee

20. ARS: In your community, how do employment contracts compare to net income in private practice?
Above anticipated private practice income
About equal
Below anticipate private practice income
Don’t know.
Health Care Systems Committee 20

21. Hospital Factors Driving Employment Models
Services provided in
hospital-based entity
Free-standing physician practice
Physician Facility rate
Outpatient PPS rate
TOTAL HOSPITAL-BASED RATE
Program Payment
$55.18
$39.42
$60.10
$99.52
Beneficiary Cost Sharing
+13.79
+9.85
+15.03
+24.88
TOTAL PAYMENT
$68.97
$48.27
$75.13
$124.40
From March 2012 MedPac
As more physicians become employed by hospitals, billing of services is likely to shift from freestanding physician practices to OPDs. Because most services have higher payment rates under the OPPS than under Medicare’s physician fee schedule (PFS), the result of such a shift is higher program spending and beneficiary cost sharing. 21

22. AAOS Health Care Systems Committee (HCSC)
2010 Study of
Hospital-Physician Alignment
Comment on “alignment” and “employment”
Health Care Systems Committee

23. AAOS HCSC 2010 Primer: Hospital Employment
Health Care Systems Committee 23

24. 2010 HCSC Study on Hospital-Physician Alignment
Electronic survey to 3500 random AAOS Fellows January 2010
119 s returned, total 3381 “true” surveys distributed
772 responded
Response rate 23%
Survey represents 772 AAOS fellows, (22.8% response rate) The survey allowed choices among 9 different practice patterns.
Health Care Systems Committee

25. 2010 HCSC Study on Hospital-Physician Alignment
Employment trend recognized when collected in 2010
Provides powerful comparison to data generated by 2012 study commissioned by the BOC SOS committee, presented next
Health Care Systems Committee

26. 2010 HCSC Study Mean age of population invited: 51.25
Mean age of respondents:
Gender:

27. Response by practice type 2010 HCSC Survey
These practice patterns can be aggregated into 4 main groups:
“private practice”: includes solo, orthopaedic group, or multi-specialty group private practice %
“academic”: includes both salary from private practice and salary from institution-12.3%
“hospital salary & HMO”: includes salary received directly from hospital or HMO-13.61%
“military/public”: military service or non-military government entity-2.62%

28. Shift in Practice Type through Career 2010 HCSC Survey
Practice pattern distribution:
The 2010 data revealed a trend of orthopaedists toward employed positions, from career start (6%) to current practice (14%).
Overall, 26% of respondents in 2010 would consider employment in their future
Health Care Systes Committee

29. 2010 HCSC Survey Results
Trend of increase in employed positions from career start to time of survey
Vast majority (79%) still considering private practice for future
72% had practiced in private setting at some point
Health Care Systems Committee

30. Which setting are you considering for the future?
In 2010, most respondents (total 76%) anticipated private single-specialty or solo practice

31. ARS: Are you considering an employment setting?
STRONGLY NO NO
UNDECIDED
YES
STRONGLY YES
Health Care Systems Committee

32. Reasons for considering hospital employment 2010 HCSC Survey
Many of the reasons given in 2010 for considering employment are still germane.

33. “I became a hospital employee by. .“ (n=142)

34. Problems encountered with Shift to Employment Model
Factors leading AAOS fellows to leave a hospital employment setting:
• Loss of control over staff, finances, contract negotiations, etc. (37%)
• Change in terms after initial contract term (33%)
• Lower compensation (28%)
• Loss of autonomy (28%)
Health Care Systems Committee

35. What Does this Mean?
2010 data indicate transition from private practice to employment was increasing
Numbers were still low
To summarize:
Health Care Systems Committee

36. Transition to employed setting and Employment directly from training
What Does this Mean?
Current trends:
Transition to employed setting
and
Employment directly from training
These data in 2010 demonstrated a trend which will be more powerfully seen in the BOC’s 2012 report.
Even more importantly, it is not just the transition of practicing physicians to employed setting but as the background information demonstrates the real change will happen in the emerging physicians going directly to employment from training
Health Care Systems Committee

37. Is this the future of Orthopaedics?
Possible shift to the dominant model as health care reform rolls out
I anticipate & hope there will always remain a role for private practice
A few trends that may slow the rapid acquisition of practices by hospitals. . .
Health Care Systems Committee 37

38. Concerns with Rising Employment
August, 2011: Rising Hospital Employment of Physicians: Better quality, higher costs?
A recent report address the employement issue. While recognizing some of the potential quality gains with collaborative care,
To date, hospitals’ primary motivation for employing physicians has been to gain market share, typically through lucrative service-line strategies encouraged by a fee-for-service payment system that rewards volume. More recently, hospitals view physician employment as a way to prepare for payment reforms that shift from fee for service to methods that make providers more accountable for the cost and quality of patient care.
Health Care Systems Committee

39. Is this the future of Orthopaedics?
Hospitals may find acquiring physician practices & ASC’s less appealing:
MedPac recommendations to decrease E&M reimbursement
OIG 2013 plan to review payment disparity between ASC and HOPD rates
Recall the MedPac report noted the shell game for higher E&M reimbursement
Similarly, the OIG is noticing the trend of ASC’s being acquired
Health Care Systems Committee 39

40. MedPac Recommendation
The Congress should direct the Secretary of Health and Human Services to reduce payment rates for evaluation and management office visits provided in hospital outpatient departments so that total payment rates for these visits are the same whether the service is provided in an outpatient department or a physician office.
COMMISSIONER VOTES: YES 14 • NO 2 • NOT VOTING 1 • ABSENT 0
If you recall the differential of the facility fee that results in reimbursement rates 80% higher for hospital-owned practices, if the OIG follows up on the MedPac recommendation, which they estimate would save CMS $2 billion, may affect rate of employment.
R A T I O N A L E 3 - 2
Hospitals have been acquiring physician practices and employing physicians at an increasing rate. As more physicians become employed by hospitals, E&M office visits will shift from being billed as physician office services to being billed as OPD services. When hospitals bill for E&M office visits as OPD services, there are negative consequences for the Medicare program, beneficiaries, and the efficiency of the health care system:
• Medicare currently pays higher rates for care in existing OPD clinics. If the movement toward OPD billing continues, spending would increase by an additional $2 billion annually by 2020 if the OPD share of E&M visits grows at its current rate.
• Beneficiary cost sharing is substantially higher when E&M office visits are billed as OPD visits, and beneficiaries’ Part B premiums increase as services shift to OPDs due to higher OPD rates. In addition, beneficiaries can be confused when they receive two coinsurance bills for a single E&M office visit.
• When hospitals convert physician office buildings to OPD status, they spend money to comply with the life safety codes and take on the cost of generating additional bills for the hospital’s facility payment. For E&M office visits, these additional expenditures result in higher Medicare payments but fail to create clear benefits for patients. To improve the efficiency of the health care system, Medicare should be discouraging, not encouraging, expenditures by health care providers that do not benefit patients.
Setting the payment rates for E&M office visits provided in OPDs equal to the difference between the nonfacility practice expense rate and the facility practice expense in the PFS would result in payment rates that are equal whether an E&M office visit is provided in an OPD or in a freestanding practice. This practice would reduce the negative effects on the Medicare program, beneficiaries, and the health care system’s efficiency.
Reducing OPPS rates for E&M office visits would reduce overall and outpatient Medicare revenue for most hospitals. If this recommendation were fully implemented, we estimate that hospital overall Medicare revenue would be 0.6 percent lower under this policy than it otherwise would be, and outpatient revenue would be 2.8 percent lower (Table 3-11, p. 77). However, it is prudent to allow time for hospitals to adjust to the lower rates for E&M

41. Office Inspector General 2013 Plan
Hospitals—Acquisitions of Ambulatory Surgical Centers: Impact on Medicare Spending
“We will determine the extent to which hospitals acquire ASCs and convert them to hospital outpatient departments also determine the effect of such acquisitions on Medicare payments and beneficiary cost sharing.“
While the E&M reimbursement is still in the ether, the OIG has on the docket for 2013 investigating the hospital practice of acquiring ASC’s to obtain the immediate differential increase for an HOPD. This may also impact the trend of employment as hospitals acquire practices to acquire an ASC.
We will determine the extent to which hospitals acquire ASCs and convert them to hospital outpatient
departments. We will also determine the effect of such acquisitions on Medicare payments and
beneficiary cost sharing. Medicare reimburses outpatient surgical services performed in hospital
outpatient departments at a higher rate than similar services performed in ASCs. Hospitals may be
acquiring ASCs and providing outpatient surgical services in that setting. (OEI; ; expected
issue date: FY 2014; work in progress)

42. How do we respond to the trend?
Changing definition of what it means to be an orthopaedic surgeon, or even a physician
Health Care Systems Committee

43. Employment Challenges: Culture
Issue for all hospital-physician alignment models
Changes in culture for both physicians and hospital
Generational culture changes
HCFM
“culture can perhaps best be defined simply as “the way things get done.” It includes factors such as:
How pts, referring physicians, and employees are treated
The level, speed, and process of decision making
The level of formality and controls
Performance rewards
Risk tolerance
Quality and cost orientation
Health Care Systems Committee

44. Where do we go? AAOS, STATE SOCIETIES
Understand and embrace the employed surgeon sector as part of the AAOS
Address the particular practice needs and leadership training for the employed surgeon
For example, what to do when the employment contract changes drastically or isn’t renewed when the hospital finds they aren’t making money off the practice
Health Care Systems Committee

45. Where do we go? AAOS, STATE SOCIETIES
Recognize lifestyle expectations of the next generation may require changing the structure of small practices to attract new partners
Health Care Systems Committee

46. Where do we go? STATE SOCIETIES
Recognize & communicate: Legislation on patient issues affects all practice patterns, directly or indirectly
Health Care Systems Committee

47. Why does an orthopaedic surgeon receiving a salary care about the preservation of private practice?
What happens when there are no more boats? May be a mixed metaphor, but I think we all realize that transition to complete employment could give decision-making to hospital administrators, strangling the physicians ability to advocate for his patient

48. Education of residents:
Where do we go?
Education of residents:
Different practice options
Understanding pros/cons
Personal factors which can influence compatibility with practice types
Relevance of advocacy to all practice types
Start early with education about what it takes to maintain orthopaedics and medicine as a profession, not a job.
e.g. COA trying
Health Care Systems Committee

49. Is Employment the future of Orthopaedics?
Employment will likely increase but not eliminate private practice
Health reform will change all practices. Just don’t miss the boat. . .
Health Care Systems Committee 49

50. Health Care Systems Committee