The Effect of Hospital‐Physician Integration on Operational Performance: Evaluating Physician Employment for Cardiovascular Services

Abstract

A dramatic change in the hospital industry is the increasing emphasis on linking provider payment to quality performance metrics. This is one of several considerations leading hospitals to employ physicians. Yet, there is little evidence regarding whether physician employment as a form of hospital‐physician integration leads to better operational performance. Using data from 201 California hospitals that experienced a total of 405,766 eligible opportunities to conform to external performance metrics (conformance quality) for treating patients in the cardiovascular service area, we empirically evaluated the relationship between physician employment and conformance quality. We also evaluated whether the presence of core capabilities in the hospital's cardiovascular service area complements or substitutes for physician employment. Findings suggest that physician employment is not only positively associated with conformance quality, but also associated with more consistent conformance quality. Moreover, the presence of core capabilities in the service area substitutes for physician employment. Theoretical, managerial, and policy implications are discussed.

Examining Governance in Hospital Operations: The Effects of Trust and Physician Employment in Achieving Efficiency and Patient Satisfaction

“…Finally, in accordance with the advice of industry experts, we collected two sets of data to reflect the practice reality that most hospitals provide services to patients using a combination of both employed and nonemployed physicians (Fink & Hartzell, ; Dobrzykowski et al., ; Zepeda et al., ). In fact, our data collection effort produced results consistent with feedback from subject matter experts, as only 7% of the hospitals in our sample operate in full employed physician models (100% physician employment).…”

“…Formal governance mechanisms are defined as structural arrangements, such as incentive systems, explicitly intended to influence the behavior of network members (Klein, Rai, & Straub, ; Goo, Huang, Hart, Cheng, & Tseng, ; Huang et al., ). In a growing number of cases, hospitals implement formal governance by employing physicians with the objective of integrating care delivery and incentivizing the physician to pursue the goals of the hospital (Zepeda, Nyaga, & Young, ). However, recent studies suggest that although physician employment may improve quality, the high salaries that accompany physician employment along with reduced capacity flexibility decrease operational efficiency (Mishra et al., ).…”

“…Physician employment is a formal governance mechanism that may improve coordination in healthcare delivery (Huang et al., ). An employed/nonemployed physician is defined as a doctor who receives/does not receive financial compensation from a hospital in exchange for treating patients (Schneller, ; Fink & Hartzell, ; Dobrzykowski et al., ; Zepeda et al., ). Given the increasing importance of integrating care delivery, employing physicians has emerged as an effective means of improving coordination and communication with hospital staff (Dobrzykowski & Tarafdar, ).…”

“…As a result, physicians' allegiances have been spread among many parties including patients and insurers as well as the hospital (Dobrzykowski et al, 2015). Additionally, hospitals' monitoring of physicians' behavior-the agency problem-is relevant because of information asymmetry and ineffective monitoring systems (Eisenhardt, 1989;Ford & Scanlon, 2007;Smith, Bradley, Bichescu & Tremblay, 2013;Zepeda et al, 2019). The principal often lacks the information needed to manage its agents, especially when the nature of an agent's work practices and outcomes are difficult to measure and monitor.…”

“…For many years, the relationship between a physician and a hospital has been decoupled with the physician being granted privileges to admit and treat patients in the hospital but receiving compensation for services from actors such as insurers who are outside the physician–hospital relationship (Zepeda et al., ). As a result, physicians’ allegiances have been spread among many parties including patients and insurers as well as the hospital (Dobrzykowski et al., ).…”