31 May Hospitals and the Cycle of Physician Employment

Hospitals with performance issues in their employed physician network need to understand where they are in The Cycle.”

What Cycle?

Hospital employed physician networks tend to follow a predictable cycle. Determining where a hospital is in this cycle can provide insight on where to focus performance improvement efforts.

Here’s the “cycle” in a nutshell and the characteristics that can help you identify where you are.

cycle physican employment

Phase 1 – Acquisition – characterized by rapid acquisition, often with little time or thought given to development of the proper infrastructure to operate the employed practices. Acquisition prices and compensation offers tend to be more aggressive.


Phase 2 – Operational Development – characterized by evolving the operation of standalone physician offices to a more consolidated and standardized group practice platform. Operating losses are often higher than previously forecasted or reported. Acquisitions slow. Purchase prices and compensation become more standardized and less aggressive. Focus becomes cost efficiency while often the real problem is productivity and revenue cycle issues.


Phase 3 – Restructuring/Divestiture – characterized by attempts to reduce operating losses and restructure the employed physician network into the viable long-term component of the hospital’s business strategy.  Some “leakage” of unhappy physicians leaving the network is experienced and some (under-performing) physician contracts are not renewed. Restructuring of compensation plans and additional business discipline are implemented.


Predictable cycle – varied solutions – While the cycle is predictable, solutions are not – they vary widely. It is critical to understand the myriad of factors unique to each hospital’s competitive market, system affiliation, competitive environment, financial stability and many other factors.

But knowing where you are in the cycle allows you to fast-forward directly into practical hands-on solutions.


Experience is important but so is perspective. Perspective saves time and money by allowing immediate focus on the “real” issues. Understanding the cycle and what it means is a pathway to performance improvement.