This week, a health system CFO referenced the thoughts we shared last week about many hospitals rethinking physician employment models, and looking to pull back on employing more doctors, given current financial challenges. He said, “We’ve employed more and more doctors in the hope that we’re building a group that will allow us to pivot to total cost management.
But we can’t get risk, so we’ve justified the ‘losses’ on physician practices by thinking we’re making it up with the downstream volume the medical group delivers.
But the reality now is that we’re losing money on most of that downstream business. If we just keep adding doctors that refer us services that don’t make a margin, it’s not helping us.”
While his comment has myriad implications for the physician organization, it also highlights a broader challenge we’ve heard from many health system executives: a smaller and smaller portion of the business is responsible for the overall system margin.
While the services that comprise the still-profitable book vary by organization (NICU, cardiac procedures, some cancer management, complex orthopedics, and neurosurgery are often noted), executives have been surprised how quickly some highly profitable service lines have shifted. One executive shared, “Orthopedics used to be our most profitable service line. But with rising labor costs and most of the commercial surgeries shifting outpatient, we’re losing money on at least half of it.”
These conversations highlight the flaws in the current cross-subsidy based business model. Rising costs, new competitors, and a challenging contracting environment have accelerated the need to find new and sustainable models to deliver care, plan for growth and footprint—and find a way to get paid that aligns with that future vision.
Less than 15 percent of board members overseeing the nation’s top hospitals have a professional background in healthcare, while more than half have a background in finance or business services, according to a study published Feb. 8 in the Journal of General Internal Medicine.
The study’s authors represent Harvard Medical School and Brigham and Women’s Hospital in Boston and the University of Alabama at Birmingham. They wrote that they sought to understand which professions are represented most among hospital boards because they may influence the organization’s goals and overall strategy — there also had been little research done around the topic previously.
The study began in July by examining the 20 top-rated hospitals by US News & World Report in 2022, which are all nonprofit academic medical centers in urban areas.
Only 15 of the 20 facilities publish board information online, and IRS filings for the remaining were incomplete or outdated.
For the 15 hospitals that provide information on their board members, the authors sorted their professional backgrounds across 11 industry sectors using the North American Industry Classification System, which is the federal standard. For board members with healthcare backgrounds, they were further categorized as trained physicians, nurses, or other workers.
Four key takeaways:
1. At the 15 examined hospitals, there were 567 board members. The study was able to sort 529 into professional categories.
2. Among the 529 board members, 44 percent had a background in finance. Among them, more than 80 percent led private equity funds, wealth management firms, or multinational banks. The remainder were in real estate (14.7 percent) or insurance (5.2 percent).
3. The second and third most common sectors were health services (16.4 percent) and professional and business services (12.6 percent).
4. Across the 15 hospitals, 14.6 percent of board members were healthcare professionals — primarily physicians (13.3 percent) and followed by nurses (0.9 percent).
The study noted that its findings may not represent all hospitals because it only studied the highest-ranked, and some of those hospitals do not publicly report information on their board members. The study also did not examine “the community ties of board members to gauge local accountability of board decisions.”
The authors also noted that they did not examine the racial and gender makeup of boards, which they said merits further review — in 2018, 42 percent of U.S. hospital boards had all-white members and 70 percent of members were male.
Writing for Forbes, Sachin Jain, president and CEO of SCAN Group and Health Plan, argues that “toxic positivity,” or the idea that one should only focus on what’s going right rather than identifying and working on the underlying causes of a problem, is rampant throughout the healthcare industry and offers a few ideas on how to fix it.
Toxic positivity in healthcare
Jain writes that toxic positivity is a “somewhat understandable reaction to seemingly insurmountable obstacles, which perhaps explains toxic positivity’s ascendancy in the healthcare industry.” But now, toxic positivity is “bleeding into situations involving challenging but fully solvable problems.”
For example, Jain writes that nearly every company in the healthcare industry eventually pays a marketing agency to craft “glorious-sounding mission statements” that are then used by leaders whenever they are confronted with their shortcomings.
“Your health system just christened a new billion-dollar hospital, but is unleashing bill collectors on the indigent? Our mission is clear: Patients first!” Jain writes. “Your startup appears to be serving only the wealthiest and healthiest retirees, while pulling no cost from the healthcare system? We’re proudly committed to doing right by seniors by offering value-based care!”
Jain clarifies that he doesn’t believe all healthcare executives are cynically trying to avoid hard issues. Rather, they are “often too far removed from the front lines of the system, and even their own companies’ patient-facing operations, to witness the flaws.”
Often executives don’t notice the flaws in their health systems until a loved one needs help, Jain writes. “Only then do the industry’s leaders confront the reality that, at a person’s most vulnerable point in life, healthcare companies often treat you like a consumer … instead of just taking care of you.”
Without that reality check, it’s easy for executives to rely on their lofty mission statements and value propositions, and to “see their companies as distinct from, rather than intrinsically connected to, the industry’s biggest issues,” Jain writes.
How to fix toxic positivity
One simple intervention won’t fix toxic positivity in the healthcare industry, Jain writes, but companies can start by talking about their flaws.
“In a perfect world, the healthcare industry would commit to a culture of relentless interrogation of its flaws as a means of driving to better results,” Jain writes. Healthcare leaders need to “stop hiding behind company mission statements and ‘just-so stories’ about their impact and start speaking publicly about the steep challenges we each face as we fall short of fulfilling our specific corporate mission,” Jain adds. That means publicly addressing issues at events and discussing strategies for addressing them.
Private behavior within a company can also help reverse toxic positivity, Jain writes. Leaders should continue celebrating the accomplishments of frontline healthcare providers, but they should also “bring a critical eye to their operations and demand — not just encourage — that their colleagues help them uncover ways they can individually and collectively do better.”
That means asking questions like, “If our organization disappeared tomorrow and people were forced to find their healthcare insurance or services or devices elsewhere, would anyone be truly worse off and why?” Jain writes. If your company doesn’t have an answer for that, then you should work harder to increase your replacement value and drive competitive differentiation.
Addressing toxic positivity also means addressing the flaws in value-based care and having “honest, authentic conversations about what works and what doesn’t and why,” Jain writes. “About whether companies that proclaim to improve care are merely benefitting from arbitrage opportunities in reimbursement systems or are actually, meaningfully improving service to patients.”
Executives need to stop treating the healthcare industry like all other industries and “call BS on the idea that it’s somehow okay to be financially successful without making an actual difference in anyone’s lives,” Jain writes.
The healthcare industry needs to welcome thoughtful, critical, and reflective voices to every table, Jain writes. “Because nothing — absolutely nothing — will actually get better without them.”
Given the economic situation most hospitals face today, it was only a matter of time before we started to hear comments like we heard recently from a system CEO.
“We’ve got to pump the brakes on physician employment this year,” she said. “This arms race with Optum and PE firms has gotten out of control, and we’re looking at almost $300K per year of loss per employed doc.”
Of course, that system (like most) has been calling that loss a “subsidy” or an “investment” for the past several years, justified by the ability to pursue an integrated model of care and to grow the overall system book of business.
But with non-hospital competitors unfettered by the requirement to pay “fair market value” for physicians, the bidding war for doctors has become unsustainable for many hospitals. Around half of physicians are now employed by hospitals, with many more employed in other corporate settings.
There’s a growing sense that the pendulum has swung too far in the direction of employment, and now the phrase “stopping the bleed”—commonplace in the post-PhyCor days of the early 2000s—has begun to ring out again.
One challenge: finding ways to talk openly about “pumping the brakes” with the board, given that most systems have key physician stakeholders as part of their governance structure. Twice in the last month we’ve had CEOs ask us about reconfiguring their boards so that there are fewer doctors involved in governance—a sharp about-face from the “integration” narrative of just a few years ago.
It’s a tricky balance to strike. We recently heard a fascinating statistic that we’re working to verify: a third of all hospital CEO turnover in the last year was driven by votes of no-confidence by the medical staff. True or not, there’s no doubt that running afoul of physicians can be a career-limiting move for hospital executives, so if we’re about to enter an era of dialing back physician employment strategies, it’ll be fascinating to see how the conversations unfold. We’ll continue to keep an eye on this shift in direction and would love to know what you’re hearing as well, and to discuss how we might be of assistance in navigating what are sure to be a series of difficult choices.
HENRY KOTULA 