Amid doctor departures and lawsuits, Atrium Health’s strategy is actually going better than planned

The name is an obvious one. The hospital group was formerly known as Carolinas HealthCare System, and the old moniker still adorns most of its buildings.

But Atrium has continually been in the news over the past few weeks as doctors have taken issue with a number of the other changes being made.

• A number of south Charlotte pediatricians have left Atrium to join competitor Novant Health over a new contract that would have cut their pay.
• Atrium did not renew their contract with Southeast Anesthesiology, prompting the company to wage a public relations campaign against the hospital group.
• 92 doctors at Mecklenburg Medical Group, Atrium’s largest physician practice, sued to be released from their contracts in order to operate independently.

Atrium Health also agreed to acquire a hospital group in Georgia, expanding beyond the Carolinas for the first time (hence the name change). They were in talks with UNC Health Care about a merger, which fell through.

The latest news came Wednesday, when Atrium Health announced it would grant Mecklenburg Medical Group’s request, canceling the noncompete agreements that kept doctors there. Atrium is offering new contracts to each of the doctors in hopes they will stay.

What in the world is going on?

That’s the question everyone in the medical world is getting right now. The Agenda was able to ask Atrium Health CEO Gene Woods some questions to figure out the answer.

Here’s the big picture.

Like most industries, healthcare is in a time of massive change right now.

Healthcare is too expensive in general, American society has finally realized. The system as we know it is unsustainable in the long term — and quickly getting that way in the short term, as well.

The federal government is pressuring hospitals on reimbursements from Medicare and Medicaid. The nation is also aging, increasing demand for services.

Different companies and hospitals are responding in different ways. Amazon, Berkshire Hathaway and JPMorgan Chase have said they will team up to set up their own healthcare company. CVS acquired insurance company Aetna, touching off a wave of consolidation. There are rumors that Walmart might acquire Humana.

Against that backdrop, enter Gene Woods.

He came to Carolinas HealthCare System in February 2016 after five years as chief operating officer of a major hospital group in Texas. He’s a heavyweight in the industry, even serving as chairman of the American Hospital Association.

He quickly set about coming up with a new strategic plan for the hospital group, called Destination 2020. It went into effect starting last November.

The plan is about two things: Reducing costs and increasing quality.

But it’s complicated. There are only so many levers that he can pull. Woods points out that Atrium Health is much more often a price taker than a price maker. Meaning, what they’re able to charge is often determined by outside forces — the federal government’s Medicaid program, or insurance companies. So when their costs go up, they can’t always just pass things along to the consumer.

“There’s not a lot of easy changes left,” Woods said. “They can be painful, and as we’re finding out, they can be a little noisy.”

What you’re seeing now is the reaction to some of the first changes.

The overall goal is to reduce $300 million in costs, on a base of roughly $10 billion.

Much of that is to be in labor costs, which account for a higher percentage of Atrium’s costs than peer hospitals. Around 90 people were laid off over the winter, and other vacant positions have been held open.

Other decisions are being made to centralize functions. For example, while each individual practice would once have people answering the phones, a lot of that work is being moved to a call center in Mint Hill.  Atrium is also tweaking how many nurses work with each doctor.

And then there’s overall efficiency across the system. Atrium Health was built by conglomerating hundreds of doctor groups and other medical practices. They all came into the hospital with their own compensation structure grandfathered in — more than 100 different types, some of them more than two decades old.

That’s what you saw with the pediatricians and Mecklenburg Medical Group — Atrium offered them a new standardized contract that in many cases would cut their pay.

Some of this is also showing up in standardizing best practices. Doctors have standard 15- or 30-minute appointment slots, and they’re given a general formula for how to conduct the visit.

With Southeast Anesthesiology, Woods made the decision to cancel their relationship and start hiring anesthesiologists in-house. Southeast is run by a for-profit company, and Woods said they could save money by not having to pay their profit margins.

So who are the bad guys?

Nobody is, really.

It’s understandable why a lot of doctors are chafing under some of the changes. Doctors are really smart, highly paid professionals — and enforced change is hard.

For the pediatricians, a pay cut just isn’t acceptable for a lot of people. Some doctors made a business decision to leave.

Then take things like the 5-star reviews that patients are asked to give their doctors. It’s understandable why doctors would get frustrated with such a system, particularly if they have a manager that harps on any low scores.

But then there’s also an anecdote that Atrium shared about the time they published a ranking of doctors’ patient satisfaction scores. One doctor near the bottom of the list was prompted to learn from the people near the top — and his scores quickly went up.

Atrium was actually expecting more doctors to leave.

Atrium said that consultants who helped with their strategic plan told them to expect 25 to 30 percent of doctors to leave. The reality has been far less — about 100 out of a total of 2,000 so far.

The hospital’s strategy has been to simply hire new doctors, and Woods said they haven’t had trouble doing so. They have more than 20 doctors ready to fill in at Mecklenburg Medical Group should current physicians choose to leave.

Atrium also already hired pediatricians to the point that they have more than when they started.

“We don’t believe we’re going to have any problems with recruiting,” Woods said.

What’s really going on at Atrium Health is the friction that naturally comes with cutting costs.

It’s playing out in the public because contracts are involved, and different groups have motivation to increase their leverage or bring the other side back to the bargaining table.

Things will likely settle down.