Barbe is now the president of a 450-physician group employed by the St. John’s Health System, and he continues to practice medicine in the new clinic arrangement the hospital created. He says he’s happy with the set-up and no longer has to worry about the administrative hassles he’d face if he were running his own practice.

The foundation model which has become popular in recent years is an example of a captive group arrangement. Under foundation arrangements, all hospitals belong to the foundation, and the foundation “owns” the patients, which means patients can be moved from doctor to doctor—or

hospital to hospital—and stay within the same health-care system. The foundation model has been around for a while and includes examples like the Cleveland Clinic, the Mayo Clinic, and Kaiser Permanente. In California, where hospitals are forbidden by law to employ physicians directly, the foundation model has become hugely popular.

Finally, there is the service agreement model which allows physicians to remain independent practitioners who enter into contracts with hospitals to provide services.

Rick Oken, MD, is an example of a physician who works under the service agreement model. Oken belongs to a nine-member group practice, East Bay Pediatrics, headquartered in Berkeley, California. East Bay would be struggling today to compete for risk-bearing contracts if not for one thing. The practice joined the Alta Bates Medical Group, an independent practice association composed of 600 independent physicians. With that kind of strength behind them, East Bay Pediatrics can leverage enough power to stay in business independently. “It’s the only way physicians today can take capitated risks,” says Oken. “You can’t survive otherwise.”

Medicine’s future

Given the fact that employment paradigms have become so prevalent in today’s health-care system, it’s interesting to imagine what the future of medicine might be, and whether these paradigms will continue.

The consensus seems to be that medicine will continue to evolve but will stay within three forms: direct employment, large groups, and entrepreneurships.

First, as Bracken points out, it’s likely that more and more physicians will be employed—either directly, which seems to be the case for the next generation of physicians who value lifestyle as much as career, or in captive group models, especially the foundation models, which are finding new homes across the country.

Barbe sees integration as the way of the future. “I think more physicians will be involved in integrated systems,” he says, ticking off the reasons why: “It’s a way for physicians to deal with all the complexities in medicine today. It also gives physicians financial stability and a way to decrease the costs of malpractice insurance. The relationships between hospitals and physicians are also becoming more stable,” he says, which he says means more physicians are willing to give integrated models a try.

Second, if physicians like Oken continue to resist employment models, then they, too, will find their way to larger and larger groups or independent practice associations.

Maynard sees small group practices as unsustainable in the face of integration. “Today’s small group practices are like mom-and-pop stores competing against Wal-Mart,” he says. It takes a lot to compete against a hospital’s captive-group or foundation model or even the large group practices like Maynard’s Springfield Clinic. By banding together, large group practices can lower malpractice rates, purchase major technologies like MRI machines, and have the leverage to compete for contracts.

Smiles says the days of physicians leaving medical school and hanging out their shingles are long gone. Today’s medical school graduates are looking either for direct employment or large groups to join and are walking past solo and small group practices. That’s what drove Palakodeti to sell his practice. When he needed four partners—fast—he was faced with a hospital that was also actively recruiting primary-care physicians and offering them much more than he could afford. “I didn’t want to compete with the hospital,” he says, “so I joined them.”

Whether large single-specialty groups will eventually merge into large multi-specialty groups is still open for debate, but Maynard says multi-specialty groups will become more prevalent as mergers become more common and medicine becomes more concentrated. “Single-specialty groups are already having some problems leveraging contracts,” he says.

Still, some specialty groups are doing fine. While most hospitals are no longer interested in buying primary care practices, says Bracken, they are interested in specialty groups—like neurosurgery and orthopedics—where there may be a shortage of hospital-employed physicians and they are looking for specialists to cover calls.

Regardless, group sizes are certain to grow if physicians are going to remain independent and remain part of a service-agreement model, say industry insiders. “Health care is becoming expensive,” says Maynard. Large groups can handle it. Small groups struggle to do so.

Entrepreneurial spirit lives

Still, it would be wrong to underestimate the independent, entrepreneurial nature of physicians, which represents the third option in medicine’s future.

“One positive thing that came from hospitals hiring physicians in the ‘90s is that doctors became part of hospital boards and committees,” says Peck. These doctors received behind-the-scene glimpses into how hospitals made their money. “Most of us never had this information before, and some of us looked at it and said, ‘We can do this,’” says Peck.

In Northfield, New Jersey, anesthesiologist Scott Hernberg, DO, is one of those physicians. For years he chaired various hospital departments and served as the vice president of clinical programs for his hospital. Lately, however, he has decided to leave the world of hospitals behind and has opened Tomorrow’s Wellness Center, a holistic health center that treats patients with a blend of Eastern and Western medicine. “Wellness is the direction medicine is headed,” says Hernberg, and as far as he’s concerned, he’s on the ground floor of the movement. At the same time, he knows he’s also on the periphery of today’s health-care system. After all, services at his center are not currently covered by insurance and bringing patients through his door means educating them that it’s less costly to pay him now than it will be to pay for hospital care later on.

Bracken agrees that physician-entrepreneurs can be competitive with hospitals. “If they can take out a service and do it on their own, they can usually do so cheaper,” he says. It’s possible, of course, for a hospital to create an outpatient center that provides the same services in the same area and crush the competition, “but that’s a fantasy of hospital CEOs,” says Bracken. It generally doesn’t happen because most independent facilities can pick their patients, opting for those with insurance or who can pay out of pocket. Hospitals treat everyone regardless of financial situation.

Spratt says physicians who have practiced for a while may become more entrepreneurial in the future—especially in urban areas. “In rural areas, physicians are more inclined to partner with their local hospitals,” he says. But in urban areas, hospitals and physician groups may develop virtual strategic partnerships and more sophisticated arrangements.

Barbe, too, says he is beginning to see more entrepreneurial physicians expanding into boutique practices, concierge medicine, and centers like Hernberg’s. “Employment models tend to rub older doctors the wrong way,” says Barbe. It’s creating some polarization between the generations, he says.

“There is no one perfect model for physicians,” says Maynard. They will have to decide for themselves whether employment, a large group practice, or entrepreneurship will work best for them.

Just don’t give up easily on today’s employment paradigms, says Maynard. “Remember in any marriage, some things will frustrate both parties. You work those things through. If properly designed, a good relationship will meet both parties’ needs.” END

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Karen Edwards, an Ohio-based freelance writer, is a regular contributor to Unique Opportunities.