Grand Rounds-Hospital Employment or Private Practice Part I: Hospital Employment and Contract Negoti

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- Hello, ladies and gentlemen, and thank you for joining us. We're very happy to have with us, Jim Bean, today as one of our speakers. He is from Neurosurgical Associates at Central Baptist from Lexington, Kentucky. We also have as one of our guests, Rich Wohns, from South Sound Neurosurgery from Washington. Jim Bean has been the President of the WNS, and has a great perspective regarding hospital employment. And Rich Wohns, who is a JD, MBA, MD, will talk to us about advantages of private practice. With recent changes in healthcare reform, I think there has been a migration of neurosurgeons toward hospital employment with unknown advantages and disadvantages. I think both of the individuals invited today have great perspectives and are very well-informed, and also do not have any disclosures interfering with this activity. Gentlemen, Jim, please take it away.

- Thank you, Aaron. I appreciate a chance to be here and talk about this today. Rich.

- Likewise, Aaron. And thank you very much. Great opportunity to discuss a very important subject.

- I'm gonna start out talking about hospital employment and to give you a perspective on why, after being in practice for 30 years in Lexington, in a group of four or five individuals at different times, we had our practice acquired by Central Baptist Hospital in January. So I've had to look at it from both perspectives and I will tell you someone about our experience this past year, this past eight months, and be able to compare it somewhat to a private practice. I think when an individual first begins to look at a practice, you have to look at all the different opportunities now, perhaps more than we did 20, 30 years ago. You've got the opportunity for a local hospital, and in that respect, you have individuals with whom you might have closer contact than you would with a regional hospital. Although a regional hospital may have a greater negotiating capability and... power, and fees and other items that would negotiate with insurers. Now, a multi-specialty clinic is another opportunity and that has the advantage of having ready made referrals from others within the clinic. Having been in an independent practice, not solo, but a small specialty group, I can say no of distinct advantages within that framework of practice. But these are the types of practice arrangements now among which one has to choose when going into practice. The thing that's happened in the last eight or 10 years is something that hasn't been seen in neurosurgery before, what I call flight to the hospital. And this is not just other specialties, although other specialties have been forced to look at it more than neurosurgery. Cardiology, for instances, seen many of its outpatient reimbursable services fall, whereas through a hospital employment, those services can be paid at a higher rate. So you might've seen many cardiology practices moved to a hospital. But we've seen neurosurgery practices too. And one of the reasons perhaps, is that there's been a falling off of professional reimbursement, which is our fees for service from private in private practice. These are contractual write-offs. And that simply means the amount that a private insurer pays or that Medicare pays is less and less in amount compared to what your billing is. So that's a contractual write-off. And in our practice, we watched this steadily, gradually fall over years. This was an important consideration in deciding... why to begin affiliation with a hospital. Now, the fee decline may be able to be stabilized by the negotiation potential of the hospital, it may not. Other factors, rising overhead. The overhead expenses continually grow up. The introduction of a electronic medical record. It's going to be an ongoing expense with continual updates, equipment, leases, personnel costs continue to rise. One of the means of making up for the fall in professional fees has been ancillary income. And I know, Rich, your practice has been very successful at making that substitution for falling revenues. Perhaps you could mention how.

- Thank you, Jim. I think that's one of the crux points that I'll, of course, addressing in my talk that without ancillary income, as you've very nicely stated, it's very difficult to see how a private practice pencils in this area of diminishing professional fees, increasing overhead, et cetera. So, my formula has been ancillary income, wherever possible should be added to a practice for survival.

- Ancillary income, in many instances is a investment. It may be in an MRI or CT Scanner. Investment in outpatient surgery centers is commonplace, and that substitutes your share of the facility revenue that you get as an investor. Other sources of ancillary revenue actually come from a hospital. If you're paid per call, that's an ancillary source of income. If you're a director for a hospital service line, that's another source of ancillary income. All these things add up to substitution of 10% up to 50% or more of what would have been professional fees in the past. So, a private practice now to be successful, has to be able to garner a number of different lines of ancillary income to substitute for what used to be simply professional fees a number of decades ago. We found in our practice over the last several years that recruiting now is in competition with hospitals, not just other practices. And hospitals will often offer a recruit a higher level of starting salary than we have been able to offer in the past. So we, in our competition with hospitals now, we found that it was much more difficult to recruit and pay the same amount a recruit could get from a hospital. Rising malpractice costs. We were actually underinsured with our malpractice and found that with a hospital, it was easier to get a higher level of coverage through hospital payment for it. One of the reasons to look at hospital employment has been the prospect of what's called Accountable Care Organizations or ACOs, or basically bundled payment of some sort. And this is a bundled payment that comes to a hospital. If you're in a private practice, you're gonna have to contract with the hospital to get your share and hope you get this, the amount that you think you deserve. So will all the other participants, if they're independent practitioners. If you are an employee of the hospital, there's no negotiation. You're simply paid your salary for those patients, which are paid either on a per episode basis or on a per month or per unit time basis. Hospital consolidations is going on, bargaining power in hospitals is going up. So, there were reasons to think about hospital employment. I'm gonna give you a perspective of one who came from a private practice into a hospital employment. But even those entering their first employment contract with a hospital have to look at these factors. First, the most glaring difference is the lack of autonomy. You no longer are in charge of making independent practice and management decisions. You're now substitute, you and your partners in practice or a what I call maddening bureaucracy. Where I could formally make a decision, tell my office manager and have it done that day. It may take weeks now to get the same simple administrative process done. You're never quite sure if you could trust the hospital administration to have your interest at heart, first, because they are dealing with either multiple practices or at least many departments within a hospital, which may take precedence over your interest. You don't know if a hospital is going to be able to manage a practice as efficiently as you can on your own. And in fact, I can tell you it's very, very difficult to do so. Simply, because the decision-making process, this is so much more complicated. You get an original salary agreement, but that agreement is only good as long as the length of the contract. If your productivity is lower than expected, your salary may be reduced. Now, this the same would be true in your own private practice. It's your own effort that keeps your salary up. If hospital revenue, on the other hand, from other business falls, they may not be able to continue the same level of support they agreed with you in the first place to provide and maybe cut for that reason. So, the drawbacks are that you're not in charge of the staff anymore. Whereas in a private practice, you look at your financial reports. You look at your balance sheet and income, and decide what you want to do. You have no contact with the finances of the practice anymore. That's done in a finance department. The hardest transition is you no longer are in charge of governance. You don't work together with your partners, make decisions about your practice, you work with the hospital. Strategic planning, that somebody else. Management decisions are made by somebody else. I must say that coming out of residency or fellowship, if you haven't been in a private practice, you've been in a corporate structure where decisions are made for you. And being employed by a hospital is no different from that experience. So, it's not perhaps as hard to make the adjustment. So, difference between a hospital and a private group. In a private group, you manage yourself. In a hospitals, bureaucratic management. In a private group, ancillary service income is something you have to work at constantly to build and maintain, to substitute for falling professional fee revenue. At a hospital, it's all included in the salary. And all you have is a single negotiation. When you're going to add new services or new equipment in a private practice, it's usually debt financing. Because in a private practice, you don't have a capital reserve. The reason is, if you hold a capital reserve over year by year, you have to pay corporate tax on it. If you distributed it out by the end of the year, you don't get taxed as a corporation, and taxed as an individual. Hospital, on the other hand, usually is going to have a capital reserve to finance any new equipment and new programs, new personnel, and so on. Recruitment is different with a hospital. In recruiting in a private practice, it's commonplace to pay someone at a lower level than that individual received when the practice has been fully developed and raise the level of salary as the productivity increases. With the hospital, the hospital may pay that difference from the first, with the hope and the expectation that you're going to increase production to pay it all. Control of time off is easier in a private practice. When you get into employment with the hospital, there is a negotiation process. That may not be a familiar process to most, but it's something you have to grasp quickly to get your first contract done and something that you won't long regret. Make sure that you review your employment contract carefully. And if you're not experienced, whether you need an experienced attorney to tell you what usually is in there, what's not in there, why some of these things are included, what you can negotiate and help you with the negotiation. But anybody who's negotiating a contract, as to remember, without the ability to just say no and walk away, you're not negotiating, you're taking conditions. Look at the benefits. Know whether the productivity that's expected of you is what you expect to do. Now, that may be measured in RVU's now. And a certain level of RVU expectation can be based on surveys of practices to know what can be expected for a given salary level. If you're expectation of work production or RVU production is half what the hospital expects, that won't be long before there's a renegotiated contract. When you're looking at a hospital, try to verify what their experiences with managing a medical practice, because there's a big difference between managing a hospital operation and manage a practice operation. And if this is their first, go at it, you may be disappointed. I think it's very important when you're looking at a practice, to meet and talk with those who will be your new colleagues, not just those in the practice, but those others with whom you may work. And if at all possible, those who are competitors in the community, because you're gonna be working with them already. And you may find out things about the practice that you are unable to find out, through simply talking to the hospital or practice members themselves. Things you may want to know. I think that's important whether it's a hospital or a private practice that you are negotiating with. When you first begin to reach agreement on a contract, your ability to get agreement to capital commitment or things you will need such as in the OR or other service, not lines, will never be greater than that point before you'd signed your contract. Get commitment for capital outlays that you need for programs that you want to do. Equipment that the hospital doesn't have before you sign your agreement. Otherwise you just get in line with everybody else in the hospital or the annual budget requests. And if you're lucky, you get what you want. In a hospital, you need to meet with certain key people and get to know them. And not just meet them, but develop an ongoing relationship. The CEO of the hospital needs to know who you are, what you think, and you need to be able to call and be recognized and talk to them. Or meet the practice manager,. The practice and medical director of both the hospital and the medical practice. There's gonna be a medical director, need to know it personally. You'll probably will do it in negotiation, that's a little bit with. Will get to know him well and get to know the OR director. If you want to have a designated service line, that's emphasized and funded, with new equipment and personnel, make sure you find out and get agreement on that ahead of time. Don't hope it's going to happen after you get there. So, you wanna know about your salary and productivity. What basis of any bonus you will have? Professional expenses. What's gonna be paid for? How much? 5,000? 10,000? 15,000 a year? What are they gonna pay for? Meetings? Journals? They're gonna pay auto travel? They're gonna pay to get you a computer unit that you use in your practice? Find out what those professional expenses are gonna be and how much you're gonna be allocated each year. These other things are important to look at. Health benefits and other benefits, PTOs, paid time off, and that means both vacation and time that you take off for sick time. And it often is combined into one. How much time are you gonna get? Four weeks? Six weeks? Eight weeks? It's an important part of negotiation. What about the malpractice coverage? What's your maximum coverage? 1 million? 3 million? 5 million? 10 million? You got to know. And it's going to be important with a hospital because if you are sued, the hospital's gonna be included and you may have, and I think, Rich, may talk about this later. You may have different perspectives on the defense and settlement. Correct, Richard?

- That's absolutely correct, Jim.

- I think you'll get to that in yours. Make sure that you know what your call schedule is going to be. If you have a large group, if you have five or more, having covering every day is not a problem. If there are only two of you and you're expected to cover every other night, there are private practices that do that. But in a hospital practice, you may want to designate days that you will have to cover and then days that you won't. And what will happen on those days that aren't covered? It's difficult to continue a single coverage or dual coverage with every other day, coverage year in and year out. And that's the difficulty with a small private practice, but something that can be negotiated with the hospital. You wanna know when you get into a private practice or a hospital, where are your referrals gonna come from? You can't just get an office, sit in it, and wait for them to arrive. You are gonna have to go out, build a practice, whether you're in a hospital employment or in a private practice, it's going to be on your shoulders to build that practice. You can't just rely on the reputation of the hospital to ensure your future. You wanna know if you're employed by a hospital, are you gonna have privileges at other hospitals? Are you going to be permitted to do surgery at other hospitals if that's a source of additional referrals for you to build your practice? You wanna know how much time you're gonna have to be in the clinic, which is where your referrals come from and your follow ups and how much time you're going to be in surgery? And how much flexibility there is? You wanna know what kind of help you're gonna have? Are you gonna have your own secretary or is there a pool secretary? How much of the administrative work are you gonna have to do yourself? In our practice, everybody has a PA assigned, and that is something that we've done over the past eight years. Are you gonna have your own physician extender help? Are you going to have to share? How much of that clinical work do you have to do yourself or how much help are you going to have to do in developing efficiency in getting things done? And each physician extender and each other administrative personnel is an added expense to the hospital. That's gonna have to be made up somehow in added practice. Keep that in mind. There are other ancillary income terms that you may have to clarify in your original contract and may not be something you'll think about when you first go into practice, but expert witness income, industry consultant income, patent and royalty income, at your very enterprise. How long is your practice? How long is your contract going to last? Your contract duration is really only as long as your out, which is 60, 90, 120 days, usually it can be that. What's the length of a termination without cause? That's the true length of the contract. If you signed a contract for a year or two, either one of these parties in that contract can terminate it without cause in its specified period and see what the contract says. But it'll say one or two years and the purpose here is to look at what your productivity is. What your salary is going to be? And realize it may go up or down, depending upon how much you do. Contract termination with cause may be very quick. Of course, if you lose your Medicare coverage, if you lose your licensure, you can't practice, and the contract's going to terminate. Without cause, however, remember, in the contract, there's going to be some defined period of time. Two months, three months, four months, the longer it is, the more their protection is for you in finding a new practice location, but on the other hand, the more tied you are to an unhappy position. So, there's a trade-off in having a longer termination period. It's common to have a restrictive covenant. And if you've been in practice in a community and join a hospital, they may or may not enforce this. If you've had no practice, come into a community, either by a hospital, they help build your practice. They're not gonna want to let you take it next door or to another hospital. So there's gonna be likely a restrictive covenant, often for a year. Make sure you know what your duties and responsibilities are in the contract. So, those are basic considerations. I think whether you are with a hospital or without, but I've tried to give you some perspective on the difference between a private practice and a hospital. Some of your core, key decisional factors early on. Do you wanna be in an academic practice or private practice? That's a clear fork in the road. You go one way or the other. Oftentimes, you'll decide based on geography that you like, family proximity or your spouse preference. And these are extremely important in being able to locate and stay somewhere that you like. Often, those who have trained in a location will set up practice nearby and often with friends that you've trained with or that you want to practice with because you're compatible. Those are my basic thoughts about getting into practice. I think a hospital is an opportunity now that is being considered perhaps by at least 50% of finishing residents or fellows. One of the reasons, big reasons being it, is a position that's easy to step into. You don't have to do any particular financing to get started. When you start up in a private practice, there's financing to pay you for those first few months before your production ever produces that money to pay you. So that's easier for a hospital to do than a private practice. Well, Rich, let me ask you to talk about your perspective, both of hospital practice, some of the legal issues, and private practice in comparison.

- Thank you, Jim. We'll have Aaron put my slides up here and then we'll start into my presentation. I greatly enjoyed your talk and you have some extremely good points. You've experienced it yourself. You know what private practice is all about. You are now in a hospital-based practice. And what I'm going to do is talk about the advantages of the private practice, a small private practice, but I'm also going to talk about, as you did, the things to think about and look at and be aware of, if one is considering a hospital practice, because these points that you brought up are so important. The contract points, the legal issues, the malpractice questions, governance, and all of that. I'll go through that in my presentation. So, Aaron, if you're there, if you can get my slides up. We'll start.

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