CEO Roundtable: Practice–Hospital Relations

Leading an independent radiology practice has never been more challenging. Congress has escalated the timetable for reductions to the outpatient-imaging technical component to help pay for health-care reform. Health systems have embarked on a medical-practice–buying spree across specialties and primary care, leading to some very well publicized meltdowns for radiology practices, and teleradiology providers are competing on a national level for hospital contracts. The CEOs of three leading radiology practices agreed to participate in an electronic roundtable discussion about the challenges of hospital–practice relations.Wayne K. Baldwin is CEO of Pueblo Radiology Medical Group, a 23-radiologist group based in Santa Barbara, California. The group provides professional services for five hospitals and operates two wholly owned imaging centers, and employs a staff of more than 100. Prior to assuming this position, Baldwin served as president of MD Services, and as general counsel and chief development officer of Comprehensive Medical Imaging. Dennis Carter is CEO of TRA Medical Imaging, a 52-radiologist group based in Tacoma, Washington. The group provides professional services for six hospitals, and it operates five wholly owned OICs and three OIC joint ventures with a combined clinical, office, and support staff of 307 employees. Prior to holding his current position, Carter served as the executive director of Gainesville Radiology Group in Georgia and as CFO of X-Ray Associates of New Mexico in Albuquerque.Keith Radecic has been CEO of Radiology Alliance, PC, a 45-radiologist group based in Nashville, Tennessee, for seven years. The group provides services for seven hospitals and operates one wholly owned imaging center. Prior to serving in his current position, Radecic was national director of billing services for a national medical billing company, where he was responsible for six management services organization locations across the United States.RBJ: Leading an independent radiology practice has never been more challenging. What are the key external threats to the viability of the practice?Radecic: Many external forces can become perceived threats to an organization, including both local and national competition with other radiology groups. For example, how do you balance the use of a night-coverage service while ensuring no impedance of competition from that group on your practice, since the service’s physicians are already credentialed at your hospitals? PACS has been a great asset to a radiology group, but it also enables other competitive groups to supply the service remotely and quickly. In a phrase: Commoditization of services is a threat.

“Hospitals do seem more willing to negotiate on other factors in the contracts, such as contractually agreed times of in-house coverage and how call will be covered, but it may come at a price related to exclusivity exceptions.”

—Keith Radecic, CEO,
Radiology Alliance, Nashville, TN

Other threats we see are payors’ impact on lowering professional reimbursements to the radiologists, governmental intervention through increased regulations, and general health-care reform and its impact on the industry. Another concern is other subspecialty physicians who generate potential service creep for almost all imaging modalities.Carter: For TRA Medical Imaging, hospital acquisition of the referring-physician community, declining government and commercial reimbursements, a growing disproportionate percentage of after-hours work, and erosion of interpretations (turf battles) are a few of the bigger challenges.Baldwin: An ongoing threat is the continued targeting of radiology reimbursement by government, with an ever-increasing burden of compliance with new regulations. Government has told us, in effect, “Radiology will get paid less, but we expect you to adopt and adapt to new technology, provide better service, and see more patients.” Another issue is that of taking action to demonstrate (and provide) value and service to our customers in a way that overcomes the trend toward the commoditization of radiology. A manifestation of commoditization is the greater role of radiology benefit management companies. Managed-care entities will only deal with you if they need you. If not, their primary focus is on sending patients to the lowest-cost provider. There are numerous recent examples of unilateral fee-schedule reductions by Anthem Blue Cross, CIGNA, Aetna, and HealthNet. Unless you have leverage, you are faced with lower fees.RBJ: How is the contract-negotiations climate between health systems and practices different today from what it was five years ago, and what are the factors driving that change? Carter: Five years ago, the radiology group had a greater level of control in the relationship, as there were few options. Today, hospitals have greater choices in obtaining the services that the local radiology group has not been previously willing or able to provide. Those choices include teleradiology (for both night and day coverage), nonradiologists (including cardiologists, vascular surgeons, and others) providing radiology services, and the hospital’s ability to attract and hire a hospital-based radiology staff.Baldwin: Compared with five years ago, hospitals want more control, more radiology-based profit contribution, more radiology support for reduced expenses, and more of a sense that radiology groups have the best interests of the hospital at heart. They want to be treated more like important customers. Subspecialty expertise is more of an issue than it was five years ago, and one of our hospitals asked that we add more neurology reading capacity.

“One perceived danger is the fear of what would happen if the employment arrangement didn’t work. You have given up your independence and may be left with nothing to show for it.”

—Wayne K. Baldwin, CEO,
Pueblo Radiology Medical Group, Santa Barbara, CA

All that being said, radiology is still a relationship-based environment, and if you deal with a health system, you need to have a good and open communication line and to be responsive to their legitimate needs and requests. Many hospitals now feel radiology can be commoditized or provided remotely. If they have an outpatient component, they also know it takes real work to compete for the outpatient population, and that takes radiology buy-in from a group that does not have conflicts of interest.Radecic: In our local market, the environment is still collegial overall. Hospitals are under greater pressure to recruit top-quality specialists to support the hospital’s service lines or to create new ones to generate revenues for the facility. Due to this mission set forth by the hospitals, facilities are under pressure to provide these physicians with access to the tools to be able to provide ancillary procedures, so the potential to extract them from the current radiology service offerings becomes more prevalent. The once well-defined exclusive contract is now becoming more blurred, with hospitals requesting more and more exceptions to exclusive agreements. Hospitals do seem more willing to negotiate on other factors in the contracts, such as contractually agreed times of in-house coverage and how call will be covered, but it may come at a price related to exclusivity exceptions.RBJ: What, in general, are hospitals looking for with respect to service, and does that sync with practice service missions?Carter: Increasingly, hospitals find themselves in a position to demand (versus request) certain levels of service. Those services include a local presence, subspecialized interpretations, voice recognition (including self-editing), timely/accurate turnaround of reports, and access to new lines of services (such as neurointerventional procedures), and all of this is to be delivered 24/7. In addition, hospitals expect a far greater level of participation on numerous internal committees.Radecic: Hospitals expect radiology groups to supply the standard 24/7 coverage needed to support their facilities. In recent years, local hospitals have worked with our group to match the practice missions and hospital missions, allowing such things as centralized reading of subspecialty imaging across jointly owned hospitals, use of night-coverage services, and other items that allow groups to become more efficient and supply the best services to their hospital facilities. The hospitals also want as many subspecialty radiologists supplying services to their facility as possible, so they can compete against the current direct outpatient private-office competition. The radiology groups, of course, need to ensure that interpretation-turnaround times continue to be maintained at a minimal level to be competitive in the market area to support the service supplied by the hospitals.Baldwin: Our hospitals want 24/7, high-quality diagnostic interpretations and interventional-radiology services, provided in a timely manner, by a radiologist who does not cause problems. They are getting more concerned with subspecialty readings in some areas, but we have the expertise to accommodate those concerns. Problems are broadly defined as anything they don’t like, but in our experience, what they want and what we want to deliver are pretty much the same. More than anything, our hospitals want the assurance that they can rely on us to be there and to get a high-quality job done.RBJ: Integrated-care initiatives are leading hospitals to go on a practice-buying spree across specialties and primary care. What benefits do captive medical practices offer to health systems? What are the potential drawbacks for the health system? Radecic: The major benefit to the health system is control. The intent of the captive medical practice is to ensure loyalty to the health system through an employer–employee relationship. Typically, an independent contractor determines how a job is to be performed best. An employer can specify how, where, and when an employee works for that employer. The employer has an obligation to provide a complete employee benefits offering to the employee and to pay state and federal payroll taxes on the employee’s behalf. There are additional legal obligations to the hospital facility in an employer–employee relationship that are not required when dealing with an independent-contractor relationship. In the integrated delivery model, there continues to be ongoing demand by hospital administrators to push radiologists to provide expanded hours of onsite coverage, to ensure that appropriate numbers of radiologists are on-site (as defined by the hospital), and to make available a variety of subspecialty expertise. From the perspective of the hospital, these demands reflect the hospital’s desire to optimize patient care and facilitate diagnostic and therapeutic evaluations. The hospitals define it all as better patient care. Carter: I think the largest benefit derived by the hospital comes from keeping the patient contained within the hospital. The hospital-based physician is now encouraged to refer the patient to other physicians (specialists) within the health system, thus providing those physicians with a steady flow of patients. The hospital wins, as it provides all the ancillary services (such as imaging, pathology, surgery, and much more).

“ Try to develop ancillary sources of revenue outside the competitive market of your hospital; proactively approach your hospital with joint-venture opportunities. ”

—Dennis Carter, CEO,
TRA Medical Imaging, Tacoma, WA

Baldwin: I don’t think it is a fad. You sometimes hear radiologists talking about the old days, when things were different. The world has changed, and the integrated delivery system is a manifestation of that change. Much of this is driven by laws and regulations governing reimbursement relationships. When the pendulum swings in favor of hospitals, it should be no huge surprise that more services are consolidated under the hospital umbrella. What we are seeing now is driven, in large part, by the fairly extreme radiology reimbursement cuts either threatened or already enacted. RBJ: Are there circumstances under which the employed model makes sense for a radiology practice? What are its dangers?Baldwin: Economic factors are largely driving the employment model. The biggest issue for a group always seems to be independence. For some groups, it will make sense, depending on a number of factors; these include the group’s stability, income levels, the terms of employment, whether the group can get guaranteed income with no real downside, whether it has any options, the group’s desire for independence, the group’s internal leadership and governance capacity, the demographics of the group, the relationships of both parties, and so on.  One perceived danger is the fear of what would happen if the employment arrangement didn’t work. You have given up your independence and may be left with nothing to show for it. The truth of this fear really depends on the situation, but it certainly is an issue that must be addressed.Carter: In some markets, there may not be enough exam volume to generate the revenue required to support the number of radiologists needed to provide comprehensive service/care. Other circumstances might be the group’s adversity to risk, or its lack of desire to operate the business side of a practice. Every group balances time off, quality of the day, and income. Generally, the more a group trends toward giving income the most prominence among these variables, the more likely it is to be independent. A couple of the possible dangers could be decreased innovation and loss of control. Employed models usually do not provide incentives that might stimulate creativity: Creativity usually leads to innovation, and innovation should generate improvements to the bottom line. As an employee, one’s ability to create change is limited and subject to a greater level of bureaucracy. This can lead to frustration (and, eventually, to apathy).Radecic: There are certain instances, in smaller markets, where hospitals force the radiologists to participate with all third-party carriers, eliminating the ability to negotiate in the best interests of the group. In that situation, a direct employee–employer relationship may, overall, be more beneficial for the radiologists. The danger is being unable to recruit qualified subspecialty radiologists to meet the needs of the referring physicians. Hospitals may also allow a greater service creep to other specialties to occur, thereby failing to supply radiologists with the work necessary to keep qualified radiologists occupied/engaged; turnover of radiologists may become more frequent, affecting the medical staff of the hospital. Historically, the salary scale in an employed relationship often falls below industry averages, also forcing potential turnover of radiologists.RBJ: Is this trend having an impact on your market? Is it a trend that will pass, or is it likely to be sustained?Radecic: It is currently not affecting the Nashville market, and I think this is a trend that will eventually pass. In my experience, the employment model for specialty physicians who do not supply direct referrals to the facility historically has not worked long term for hospitals that have adopted the model.Carter: I am not aware of any private-practice radiology groups in the area that have opted to move to a hospital-employed model. The trend is likely to continue and will succeed or fail based (in large part) on health-care reform. If the profitability of outpatient imaging is not completely stripped away, then I believe the trend (pendulum) will swing back toward independent groups developing outpatient services. On the other hand, if profitability is decreased to unsustainable levels, then there will be some increase in hospital-based groups, but I believe the majority of independent groups will remain independent and find new ways to meet their financial goals.Baldwin: The effect on our market is only indirect for now, but I would not be surprised if it became more of an issue in future.RBJ: Independent radiology private practices have a tradition of technology ownership. Is this an asset or a drawback in contract negotiations with hospitals? Carter: I believe it is an asset. Hospitals understand the need to have a strong, viable radiology group supporting their health systems. To accomplish this, a practice must offer something unique. In order to prosper, a practice must provide the right blend of time off, quality/quantity of work, and the opportunity for higher income. Ancillary sources of revenue help groups to thrive, and a thriving group will attract the best and the brightest. The best and brightest are likely to deliver optimal patient care. A reputation for providing better patient care will flow through to the bottom line of the group and its hospital partner.Baldwin: If a radiology group owns its own technology, I assume that the group would have an imaging facility separate from a hospital. From a hospital administrator’s perspective, a radiology group’s technology can be a threat, an advantage, or a neutral factor. For example, a group’s superior expertise in the application of PACS technology can be an advantage to a hospital, and if PACS is managed properly, can be beneficial to both parties. It also can be a threat, if the group uses its advantage to compete with the hospital for outpatient business. On the other hand, PACS also could be perceived as a neutral element if the group is not in the same competitive market as the hospital. The same can be said of imaging technology. Groups may enter joint ventures with their hospitals to the hospitals’ advantage, or they may compete.Radecic: This is a drawback in negotiations in two instances. The first is if the privately owned center is in direct competition with the hospital’s facilities (by having the same coverage area, for example). Hospitals feel that you should be providing them with the ability to compete directly in the outpatient market, not operating your independent center. Hospitals often feel that independent technical ownership by the group leads to loss of hospital business. The second issue relates to the first in that hospitals fear that radiology groups will place their best subspecialty readers only at their owned facilities, thus the perceived belief of providing better coverage than the hospital facilities receive. This normally is not an accurate perception. Groups need to be very sensitive to this belief when negotiating their agreements and prove that they will continue to supply the best coverage at hospitals. Managing this impression and being able to dispel the hospitals’ fears must be handled in a fashion that assures the hospitals that their needs are today, and will continue to be, met. RBJ: What does a practice need to do in order to preserve both its relationship with the hospital and its independence?Carter: First, a practice needs to be patient focused, delivering high-quality, consistent patient care. Make sure your hospital-based services are delivered at the same high standards as your outpatient services. Second, understand the needs of your client (hospital). Make every effort to meet those needs and those of the medical staff. Take the time to meet with administrators and members of the medical community to explain why certain needs are difficult to meet, and work collaboratively to resolve differences. Try to develop ancillary sources of revenue outside the competitive market of your hospital; proactively approach your hospital with joint-venture opportunities.Baldwin: Listen to the hospital’s administrators. Treat them as valued customers and respond to legitimate needs. Be active in the hospital’s affairs. Sit on committees and boards. Remember that the relationship, from an administration perspective, is not personal. For most hospital administrators, the relationship is purely business. They are motivated by what they perceive as the hospital’s best interests. Groups that can help the administrators achieve their objectives will deliver value. Groups demonstrating that they provide more to the hospital community than just interpretation of images can differentiate themselves from the trend toward commoditization.Radecic: Radiologists must be willing to provide reasonable service to their referring physicians, their patients, and the hospitals. Radiologists must be visible and available in their hospitals, and they must embrace their roles as consultants. If radiologists cannot or will not provide added value, they will not be appreciated as contributing medical-staff members. Next, radiologists must integrate themselves into the medical, social, and political aspects of their hospitals and their communities. They must sit on the important hospital committees and, if possible, must seek medical-staff offices or seats on hospital boards. Radiologists must be seen as important participants in their hospitals, aligning their incentives with those of the hospitals they serve. Radiologists must also strive for loyalty from referring physicians and patients. Radiologists must be cognizant of the effects their behavior has on those with whom they interact, and they must demand good citizenship from all of their group members. All radiologists must work to protect and build their practices. Cheryl Proval is editor of Radiology Business Journal and vice president, publishing, imagingBiz, Tustin, California; cproval@imagingbiz.com