In seeking partners, hospital alienates physicians

By Markian Hawryluk / The Bulletin

A palpable rift has emerged in the medical community of Central Oregon, threatening to tear apart the fabric of the region’s health care system.

Faced with increasing economic pressures in recent years, physicians and hospitals have taken steps to ensure continued revenue streams. With costs rising faster than payment rates from insurers and public health programs, doctors and hospital administrators find themselves competing for the same patients and services. As a result, relations among physicians, clinics and hospitals in Central Oregon, once collegial, have turned ultra-competitive, if not outright hostile.

Some doctors have accused the hospital system of using its dominant position in the region to drive patients to its business partners. The hospital maintains it is trying to better coordinate patient care and secure the revenue it needs to survive.

For patients, however, the rift could mean increased barriers to access, an erosion of quality, further limits on the choice of providers, and higher costs. The dispute could fundamentally alter the health care landscape throughout Central Oregon, with uncertain consequences.

Tensions mounted last month after Cascade Healthcare Community, which owns or manages the region’s four hospitals, and Advanced Surgical Care of Bend announced they had entered into discussions about the possibility of the hospital acquiring the physician group, and hiring its surgeons and endocrinologists as employees.

Although St. Charles Bend already employs physicians in some specialties — such as emergency room physicians — the move was seen by many physicians in the community as the first step away from the traditional structure of a community hospital with independent medical staff.

“We’re concerned that in this rush to create a system driven by big health insurance and big hospital systems, the patient is being forgotten,� says Marvin Lein, the CEO of Bend Memorial Clinic. “Business interests can quickly overshadow the fact that patients want continuing relationship with their doctors.�

Hospital staffing

Hospitals have traditionally operated in co- operation with physicians, granting them privileges to see patients and conduct procedures at the hospital in exchange for treating patients who come to the emergency room or other areas of the hospital without a physician. Doctors with privileges form the medical staff, which traditionally directs the clinical operations of the hospital.

Most insurers follow the payment structure set up by federal health programs, which pays separate amounts to the doctor and the facility for in-hospital patient care. The cooperative arrangement worked well until the pool of money started to shrink. As physicians felt the pressure of falling reimbursement rates from federal health care programs — most notably Medicare, which funds treatment of the elderly and disabled — they began to increase the number of patient appointments and procedures to try to maintain their income and cover their practice costs. From 2001 to 2007, practice costs for doctors increased 18 percent, while Medicare payment rates dropped 1 percent.

Primary care physicians, in particular, began to see the hospital as less important to their practices. It made more sense to see three additional patients in an hour at their offices than to spend that time traveling back and forth to the hospital. And with the advent of hospitalists — contracted physicians who practice only at the hospital — primary care doctors could contract with them and avoid coming to the hospital altogether, further eroding the traditional bond between hospital and doctor.

“In primary care, we have a different perspective. Our income is not as tied into the hospital,� says Dr. Rich MacDonell, an internal medicine doctor in Bend and the former chief of the medical staff at St. Charles Bend. “Surgeons have a bigger role in the hospital. That’s where they get their income,�

Primary care physicians find new patients through referrals from other patients or even by advertising to the community. Surgeons and other specialists often build their practices by continuing to treat patients they first encounter in the emergency room or through referrals from the hospital.

But as payments to physicians continued to lag behind their increasing costs, doctors looked for new ways to secure their income. And that began a steady migration of services once performed in the hospital out to physician offices and physician-owned facilities.

Doctors started adding in-office laboratory tests and buying X-ray or magnetic resonance imaging machines. As they pioneered new, less-invasive surgical techniques, they invested in ambulatory surgery centers were they could operate on patients safely without an overnight hospital stay. Doctors were collecting not only their surgical fee but part of the facility payment as well.

And that was money that would otherwise have gone to the hospital.

“The problem is, physicians peel off all the revenue-generating stuff from hospitals, so basically hospitals have to make alliances with people who are concerned with keeping the hospital viable,� says Dr. Tim Bollom, a sports medicine physician with The Center: Orthopedic & Neuro- surgical Care & Research. “Otherwise the hospital takes care of the uninsured and the disenfranchised, and it’s up to the state to pay for it.�

Joint ventures

Doctors at The Center say that’s why they opted not to build their own surgical center but to partner with the hospital instead.

“They can’t give up all their profit centers and continue to support their nonprofit centers like the ER,� says Dr. Tom Carlsen, a retired orthopedic surgeon who was instrumental in developing The Center as a joint venture with St. Charles. “My idea behind that was we could benefit from their expertise, and they wouldn’t be harmed as much than if we just did our own surgery center.�

But the venture in 2000 represented the first time one group of physicians in town had an economic alliance with the hospital.

“That split the community,� says Dr. Mike Ryan, an orthopedic surgeon with the competing Desert Orthopedics. “This community had an amazing collegiality, an amazing esprit de corps between the hospital and the physicians when we came here. It was better than anyplace we’d ever been. This divided it. It was the ax.�

Ryan says Desert Orthopedics took steps after the venture was announced to secure its own long-term viability, investing in a surgery center and imaging facilities. He says the hospital has operated fairly in how patients are referred to the competing orthopedists in town. The hospital has not used its position to drive patients solely to its joint-venture partner, he says.

“But other physicians, family practice doctors and internists, and other docs in the community really got upset,� Ryan says. “We’ve got very poor morale now.�

The drama was played out again when the hospital entered into a joint venture with local cardiologists to build The Heart Center in 2004. That brought the hospital in direct competition with cardiologists at the region’s largest group of physicians at Bend Memorial Clinic.

In the ensuing years, administrators at the clinic and the hospital would clash over issues such as the credentialing of a clinic cardiologist and the setting of standards for cardiac imaging at the hospital. BMC’s Lein says he has received complaints from patients that they were pressured by hospital staff to see cardiologists at The Heart Center instead of their own doctors at the clinic. Because of privacy concerns, Lein did not identify the patients.

“What is happening is that the hospital, whether overtly or inadvertently, may be interfering with the patient-physician relationship for reasons that are more business-related than patient-oriented,� Lein says.

On the outside

With the announcement about discussions with Advanced Surgical, now a whole new group of specialties — gastroenterology, endocrinology and general surgery — saw the potential of the same type of competitive environment that orthopedists, neurosurgeons and cardiologists have faced.

The announcement coincided with a May 21 letter to the medical staff of the hospital that outlined the hospital’s intention of moving to an integrated health care delivery system. That raised fear among many independent physicians that they could find themselves shut out. If the hospital created a health system with its own network of its own doctors, it could then contract with health insurance companies and effectively exclude non-allied physicians. Patients could be forced to pay out-of-network rates to see those physicians.

“The worry is the hospital will take over the world gradually and maybe have some unfair partnerships. There will be the ‘haves’ and the ‘have-nots.’ They’re worried that eventually the only ‘have’ will be the hospital if they create such an unequal playing field,� Carlsen says. “But I don’t see (the hospital) as being that malevolent.�

Many physicians are also convinced that next year Clear Choice Health Plans will no longer contract with the Central Oregon Independent Physicians Association, which negotiates rates on behalf of the majority of doctors in the region. If Clear Choice and other insurers begin to pick and choose providers in hopes of getting better rates, those involved in a network with the hospital would have a distinct advantage.

Clear Choice Health Plan CEO Pat Gibford denied the insurer has decided to end its negotiations with the physicians’ group.

“I think there’s been assumptions,� she says. “We’re in discussions with COIPA, but no real decision has been made.�

Jim Diegel, the president and CEO of Cascade Healthcare Community, says the health system has no desire to shut out independent physicians.

“It is not our intention to be exclusive or to create a system where there is a closed panel, where only yours is the favored nation, and everyone else is not allowed to play,� he says.

The details of how an integrated delivery system would work are still to be determined. Diegel envisions a model in which the health system is interconnected throughout Central Oregon, linking hospitals and providers in Bend, Redmond, Prineville, Madras and other locales.

Part of the interest in Advanced Surgical is that it, too, had made moves to establish more of a regional presence with offices in Bend and Redmond, and more recently by putting an endocrinologist in Madras.

Diegel says no decision has been made on employing physicians. According to hospital officials, Pioneer Memorial Hospital in Prineville does not yet employ doctors, but that may be changing. St. Charles Redmond has employed doctors off and on, out of necessity, since 2000.

“I know there is anxiety out there in the physician community. It’s to be expected,� he says. “I understand there is probably nothing I can say that’s going to alleviate the fear that independent physicians or some groups are going to have that we could be moving in the direction up to and including the employment of physicians.�

In his letter to physicians, Diegel also outlined steps the hospital system would take to improve relations with physicians and to better align economic and clinical incentives. The letter also invited independent physicians to talk to the hospital about possible partnerships, ventures or acquisitions.

“We want to be inclusive. We want to talk to anyone,� Diegel says. “But if you choose not to be inclusive, you can’t stand on the sidelines and throw things at everybody.�

Diegel says some physicians have voiced strong opposition to the notion of the hospital employing physicians. But he’s also seen his counterparts at hospitals across Oregon and the U.S. take the same steps and weather the same anger from physicians.

“We may be moving in a direction that will naturally create a competitive dynamic. We understand that,� Diegel says. “But the competitive dynamic is not intended to purposely hurt others. We understand the collateral consequences, but we’re not saying we’re going to do this because it’s going to put someone out of business.�

Dr. Stephen Archer, a surgeon with Advanced Surgical, says he, too, received many phone calls from physicians after the announcement. He says calls from other physicians ranged from “Who do you think you are?� to “How do we make it happen for us?�

Diegel confirmed that the hospital is talking with two physician groups and independent physicians about possible acquisitions or partnerships.

“We are probably one of the last bastions in the United States where this is an issue,� he says.

Nationwide trend

Dr. Martin Merry, a professor of health management and health policy at the University of New Hampshire in Durham, says that throughout the U.S., economic pressures are driving a wedge between physicians and hospitals.

“Poor community hospitals, which is still where most medicine is being practiced, are extraordinarily vulnerable in the current environment,� he says.

Central Oregon, he says, may be one of the few remaining communities where hospitals have not employed physicians. He says the trend is also being driven by a new generation of doctors who have less interest in working marathon hours to build their own practices.

“They aren’t business people. They want to practice medicine,� Merry says. “So they’re much more amenable to employment arrangements.�

Many also face massive debt loads coming out of medical school and need the security of a stable income to pay off those loans.

Merry now runs a consulting business that helps hospitals and physicians build bridges and work together. He is not currently working with any clients in Central Oregon.

“Left to their own devices, the natural tendency is to drive these wedges between hospitals and physicians, get people really angry, and create polarization, us versus them. And it’s really tragic,� he says. “They’re all well-intended.�

Advanced Surgical’s Archer says his group approached the hospital about a possible acquisition and requested the hospital be open with the community about the discussion to avoid many of the criticisms launched with previous joint ventures. He believes the concerns of independent physicians are unwarranted.

“This doesn’t mean we’re forming an HMO in Central Oregon or that we’re going to abdicate the responsibility for clinical care to an administrative system. That’s not the deal we’re signing on to,� he says.

Physician angst

Employing physicians has become a flash point for the hospital and its medical staff.

“There currently exist very complex dynamics that influence physicians’ relations with (Cascade Healthcare), good and bad,� says Dr. Jeff Absalon, the chief of the medical staff at St. Charles Bend. “The goal of the medical leadership is to enhance physicians’ engagement with (Cascade Healthcare) to tackle some of the more difficult issues, including physician employment and hospital-physician partnerships.�

Those issues are likely to be the sole topic of discussion at July’s quarterly meeting of St. Charles Bend’s medical staff, he says.

“There certainly does exist some polarity on the complex issues at hand, but there also clearly exists some substantial portion of our medical staff that has not yet engaged in these topics or currently feels that they are not affected,� Absalon says. “Their perspective, I believe, will be extremely important.�

The hospital and its allies may face an uphill battle. Physicians seem to be harboring major discontent with the current administration. A physician survey conducted by a consulting firm about a year ago found widespread dissatisfaction with the hospital. Only 6 percent of 313 U.S. hospitals surveyed by the firm had an overall score lower than St. Charles Bend.

The survey was conducted after the hospital had experienced a second change in leadership in a short amount of time, and after an earlier attempt to create a single electronic medical record for the community, which was seen as a monumental failure by many community physicians. Diegel says physicians may have seen the survey as their first opportunity to respond to a number of decisions the hospital had made in the past.

The survey was also conducted around the time that discussions between the hospital and physicians about a joint venture specialty hospital broke down. The hospital would have provided additional surgical capacity to the community and reduced the number of times surgeries scheduled by physicians had to be postponed because of emergency cases. Specialty hospitals normally do not provide all the services a general hospital does.

Diegel says he was initially intrigued by the idea of a specialty hospital, thinking it might be one way to better align interests among physicians and the hospital.

“I hear all the time that it was our fault that this concept fell apart, because people invested in land and stuff like that, but I think a lot of that accountability and responsibility is on the other side, too,� he says. “It’s very easy, again, for those who felt disenfranchised with the specialty hospital to say that we were the reason for that. The fact that it couldn’t get off the ground tells you the business model wasn’t truly vetted.�

Ryan says Desert Orthopedics was involved late in the discussions for the specialty hospital but felt the environment was not right to build such a facility.

“It’s hard to build a specialty hospital. I don’t think that would have gotten off the ground,� he says. “I think the investment that’s been made in this campus (around the hospital) is so great that to pick up and move would be impossible.�

The hospital’s recent announcement that it plans to build a cancer center also raised eyebrows, considering the hospital only contracts with radiation oncologists. All of the medical oncologists practicing in Central Oregon are employed by Bend Memorial Clinic. The clinic and the hospital have had discussions in the past about the creation of a regional cancer center but could not come to an agreement.

“I think it was that (Cascade Healthcare Community) has become impatient with cancer center development,� says Dr. Archie Bleyer, an oncologist who works as a consultant with the hospital. “If nobody else is going to do it, St. Charles is the organization that will. How that will look and who will do it? That’s still to be determined.�

The two sides also have clashed over Bend Memorial Clinic’s decision to change its radiology provider. The community was once on a single imaging system operated by Cascade Medical Imaging, a joint venture between Central Oregon Radiology and Cascade Healthcare Community. The clinic opted to use a new imaging system and radiology provider. Lein says that Cascade Medical won’t link the two systems together for what appear to be “political� reasons.

“It makes it challenging to go home and feel like you’ve done your best for patient care when our own hospital seems to be working against patient care instead of for it,� Lein says.

“Unfortunately, things have lined up with the two biggest organizations at loggerheads, which is really the opposite direction from where things should be going,� says Dr. Knute Buehler, an orthopedic surgeon with The Center. “In my opinion, a unified medical community is going to be much better than dividing up an ever smaller pie.�

Buehler, who said he was not speaking on behalf of the Cascade Healthcare Community board of directors, of which he is a member, said the dispute is really all about money.

“This is all economically driven, despite what you might hear,� he says. “Let’s face it, that’s the underlying issue.�

Buehler says no matter what the hospital decides to do, it’s going to be increasingly difficult for an independent physician to survive in the current climate.

“The margins have become very tight. So unless you’ve developed some type of other ancillary revenue to help recover the balance, it’s darn near impossible to make it as an independent physician, regardless of what the hospital does,� he says. “I don’t think it’s anyone’s fault. I think it’s the economic pressures.�

Buehler says he believes the hospital will provide every doctor with the same opportunities for partnerships and ventures.

“But if one chooses not to take that opportunity, then you’ve got to live with that decision,� he says.

Meanwhile, doctors angry with how the hospital has been treating them have coalesced into a sort of opposition.

“There is a group of physicians in the community of every stripe that has come together since the hospital’s announcement of its approach, to preserve at its core the patient-physician relationship and develop a system that we feel is going to serve patients much better than what the hospital has proposed,� Lein says. “The activity of those groups is immediate and very much alive, and very much moving forward.�

Lein declined to specify what steps those physicians might take.

Merry, of the University of New Hampshire, says when hospitals and doctors can’t agree, it’s often the patients who suffer.

“Anything that is draining energy from doctors and hospitals from their primary focus of their community and patient care reduces the quality of care,� he says. “Anybody who says, ‘We can have this conflict on the side and it won’t affect how we take care of patients,’ they’re whistling Dixie.�

Markian Hawryluk can be reached at 541-617-7814 or

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