Across the nation, hospital financial performance is weak on average. Rating agencies, such as Moody’s, are citing lower returns and posting a negative outlook for the industry.

Why Financial Performance Is Weak

In working with our client hospitals, we see a number of reasons for this deteriorating performance:

  1. Efforts to better manage care are slowly but surely having an effect, so utilization is down. An obvious example relates to readmissions, but that’s not the only factor.
  2. The switch to outpatient services pushes the revenue into a market with diverse ownership and hospitals/health systems may lose this revenue to other providers.
  3. Insurance exchanges are increasing insurers’ commitment to low cost providers, lowering the overall dollars paid to hospitals. This is also accelerating the importance of cost and reducing the degree to which patients are isolated from costs.
  4. High-deductible insurance plans are also creating revenue challenges, making revenue cycle management increasingly important.
  5. Payments for governmental programs such as Medicare and Medicaid are not keeping up with costs.
  6. Hospitals are making big investments in physicians, and are not yet getting value from that investment. In many institutions, employed physicians are a drag on the bottom line.
  7. Hospitals are also making big investments in IT, and are not yet getting the value from that investment, either. The operating and implementation costs of this transition are tremendous.
  8. Reimbursement schemes have not caught up with the new realities, and in a fee-for-service world, providers are being punished for increased efficiency.
  9. Hospitals are slowly getting into risk arrangements, which will financially reward efficiency, but the data requirements and change in physician behavior required are daunting to many hospitals/health systems.

Offsetting Factors

Despite the doom and gloom, there are reasons for optimism:

  1. The number of insured patients is rising with the Affordable Care Act. Some may not be well insured, but at least there is some level of insurance. The out-of-pocket limits under the Act also help; insurance will kick in at some point on catastrophic cases.
  2. The population continues to grow older, which creates demand for many specialties.
  3. The focus on prevention increases demand for PCPs and newly insured patients will have underlying medical problems that require care.
  4. The government and private payers are experimenting with models that will allow providers who can efficiently produce quality care to benefit and flourish.

Evolving Physician Roles   

In the short term, physicians can help hospitals improve their financial performance and overcome immediate market challenges by:

  • Effectively managing the resources utilized for each patient;
  • Managing length of stay;
  • Cutting supply costs through cooperative efforts; and
  • Managing patients across the continuum to reduce readmissions.

Managing patients across the continuum is also key to long-term success, and creates a new role for physicians. Building and sharing the knowledge among physicians will be a core competency to meet changing incentives and provide value going forward.

But what specifically do physicians need to do? We see six key roles.

  1. Build expectations and standards within the medical community. In training, most physicians were required to work and act in a certain way. Behavioral norms were part of the deal. But in most medical staffs and hospital employed groups, it’s a free-for-all. Physicians need to decide what the norms are as they relate to patient and peer interactions, compliance with best practices, etc. They need to define the desired characteristics of a group with which they would be proud to be associated.
  2. Use of best practices. Working together, and working with the IT system, physicians need to research and institutionalize best practices. This should occur not only at the specialty level, but also in terms of handoffs. Ultimately, the organization will be expected to manage care across the continuum.
  3. Define quality and cost metrics. Many will be defined by insurers or the government, but physicians need to be actively engaged in defining the metrics that are most important to their practice operations and clinical care. This engagement will help create buy-in and improve performance under those metrics.
  4. Talk to payers. Whether an insurer, a large self-insured employer, or the state Medicaid program, physicians need to understand the perspectives of the people who pay for their services, and incorporate those perspectives into their thinking. This will help keep the physicians market-focused, and that in itself will create benefits.
  5. Help hospital leadership with thinking through strategic challenges. Most of the strategic decisions hospitals make can be improved by physician engagement. To be effective contributors, physicians must step beyond their perspective as physicians (albeit those insights are crucial to decisions as well) and understand the payers’ and hospital/health system’s views as well. They must also take into account the views of their peers and other providers along the continuum. That will increase the value of their insights.
  6. Create new organizational models that can deliver results. It’s unlikely that physician practices and hospitals as they are currently configured will produce dramatically better results. Physicians need to help adapt these models to the new realities. That may mean medical homes, new and different roles for extenders, or any number of approaches. Physicians need to help define new models and guide their implementation.

David W. Miller

Founder and Chairman