What were the financial problems facing Phelps and its medical staffing 2010?Half of Phelps’ discharges are from its primary service area, and 9.5 percent are from its secondary service area.

What were the financial problems facing Phelps and its medical staffing 2010?Half of Phelps’ discharges are from its primary service area, and 9.5 percent are from its secondary service area.

Where the Rubber Hits the Road: Physician-Phelps Hospital Relationships

Anthony R. Kovner

As professor of healthcare management at New York University/Wagner, I was invited by Phelps Memorial Hospital Center’s CEO Keith Safian to visit the hospital in 2010 and review the impact of Medicare and potential health reforms on hospital—physician collaboration.

Competitive Position of the Hospital

Phelps is a community hospital of 235 beds, operating at 70 percent occupancy. Inpatient services include medicine, surgery, psychiatry, obstetrics, pediatrics, and physical rehabilitation. Two units of mentally ill chemical-abuse patients operate at 97 percent occupancy. Pediatrics operates at 20 to 30 percent occupancy. The emergency department had 25,000 visits in 2009.

Phelps is surrounded by other hospitals and by water. Patients do not come from the west side of the Hudson River. Phelps is part of the Stellaris alliances with Northern Westchester Hospital, Lawrence Hospital Center, and White Plains Hospital Center. The region is overbedded. Phelps collaborates and competes with these hospitals.

Half of Phelps’ discharges are from its primary service area, and 9.5 percent are from its secondary service area. For both areas, Phelps has a 29.3 percent market share. An important nonhospital competitor is the Mt. Kisco Medical Group of 150 physicians, which is located across the street from Northern Westchester Hospital, about ten miles to the northeast.

Phelps Medical Staff

The medical staff includes 470 individuals, 445 of whom are physicians. AbouQ 100 physicians admit 80 percent of the patients. Two small medical gröups are the largest—the North Star group, which includes 14 primary care physicians, and the seven-person orthopedic group. The hospital lacks enough physicians with thriving practices. The medical staff is aging—40 percent of the primary care physicians are older than age 55—and the hospital has the capacity to admit more patients. The hospital salaries three obstetricians and eight internists, a family practitioner, a procedural gastroenterologist, a thoracic surgeon, and six hospitalists. Many of the directors of clinical services receive small hospital stipends; several are full-time employees.

I interviewed some key players to learn more about the situation and possibly to write a case study that would be useful for learning by physician leaders of tomorrow at Phelps Hospital.

Interview with Keith Safian, CEO

National health reform had just been passed by Congress. Mr. Safian estimates the impact on Phelps could be a negative $3.5 million each year for the next ten years. Presently, Medicare and Medicaid reimbursement to Phelps is at a rate lower than cost. Phelps operates at a 1.8 percent profit margin, while costs increased an average of 10.3 percent each year from 2007 to 2009. Phelps raises $2 to $3 million through philanthropy each year.

The hospital has physician issues. Specialists want to be paid to be on call for the ED. They want to be paid when they see indigent and Medicaid patients. They want to be paid for referring patients, although this is prohibited by law. Phelps is making some adaptations, and the CEO and the chief medical offcer are considering the following options:

The hospital has recently salaried two gastroenterologists. Voluntary cardiologists have approached the CEO about partnering to perform stress tests because reimbursement is better if these tests are done at the hospital.

Phelps is thinking of discontinuing some outpatient mental health programs (which generate a total of 50,000 visits per year) if Medicaid cuts occur.

The CEO does not approve of salary freezes. Phelps gave full-time employees an average 3.5 percent pay raise last year. Safian would rather cut some positions than decrease health insurance benefits.

Phelps has started an educational program for younger physicians, the medical leaders of tomorrow. The program covers organizational and health system issues, hospital payment, and the nature of the competitive market.

Phelps is considering building a new ambulatory surgery center on campus, although there is no pressure on operating room (OR) capacity as yet.

Phelps has had diffculty collaborating with primary care physicians. The largest physician group has not been able to hire more primary care physicians, and they just added two specialists.

Interview with Dr. Robert Seebacher, Medical Director of Joint Replacement Services

Phelps is the only hospital where Dr. Seebacher practices. He is in a large orthopedic practice with seven partners. They now participate only in Medicare and workers’ compensation. Medicare pays $1,200 for a knee operation, whereas commercial out-of-network insurance pays $22,000. Dr. Seebacher’s malpractice premiums are $110,000 per year, and offce overhead is 35 percent. He performs 240 joint replacements a year; he must do 100 to pay for his malpractice insurance.

Views on Medicare and Hospital Adaptation

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