Almost every health system we work with is experiencing soft patient volumes. Our take is this is largely permanent, and a result of a fundamental shift in utilization. Incentives created by the ACA and actions by CMS that pre-date the legislation are affecting the inpatient/outpatient mix and overall utilization volume – despite the millions of previously uninsured and underinsured patients who have been added to the insurance rolls.

This new landscape requires an aggressive coordinated response:  a simultaneous focus on revenue growth, expense management, and improvements in care processes. And it requires hospital executives and their physician leadership forge strong alliances to chart a winning course. This article focuses on eight proven tactics our clients are using to successfully tackle these issues.

Revenue Growth

1.  Risk contracting. Client hospitals are having success moving “closer to the premium.” While this can be scary (and has produced spectacular failures), we strongly believe that most providers need to move in this direction, as reimbursement for piecework will not be successful over the longer term. Creating some upside potential is essential, and we are seeing clients successfully negotiate rewards with no potential punishment, at least for now. Insurers are trying to get hospitals and their PCPs in the saving mindset, and that is a win/win.

2.  Geographic Expansion. Many clients are looking to serve new markets, mainly through their primary care strategy, but also through ambulatory service sites. Through aggressive acquisition and relationship strategies, your referral base can be increased. This is a long-term play, but if done appropriately, it will improve your market position and reinforce risk contracting moves.

3.  Enhanced Practice Revenue. We see a lot of money left on the table in client-owned practices. This is mostly due to poor revenue cycle management. But it can also be due to lackluster rate negotiation efforts with insurers, or significant issues with coding and lost charges. In any case, paying close attention to practice operations represents a great revenue opportunity for many hospitals.

4.  Contracting with Employers. Working directly with employers, particularly those that are self-insured, is a proven strategy. Their privately-insured employees produce most (if not all) of your profits, so it’s reasonable to focus on them. With your integrated physician network, you offer them access to enhanced patient management insights in an organized fashion.

Expense Management   

5.  Supply Expenses and Engaged Physicians. Now more than ever there is an opportunity to incentivize physicians to help you save money. In specialty services, we see co-management being particularly effective. Giving the physician cost targets and rewarding them for achieving those targets is something many of our clients are re-visiting.

6.  Employed Physician Compensation. This is a complex area. At times, increased costs may be unavoidable due to market forces. But  at other times, compensation packages are overly generous and don’t create the correct incentives. A thorough review of your physician compensation program will allow you to align compensation with market dynamics, productivity,  and appropriate quality standards. Every hospital will eventually face realigning their physician compensation plans. It’s just a matter of when.

7.  Practice Productivity. Most of our hospital clients have had a rigorous productivity measurement/monitoring system for the hospital in place for years. But rarely do we see  the same systematic monitoring of provider and staff productivity for the organization’s physician practices. In light of the soft volumes hospitals are facing, this is critical going forward and represents an opportunity that must be managed.

8.  Hospitalist Incentives. Hospitalists represent a three-layer opportunity. First, they’re positioned to understand and address DRG-level losses. Incentivizing them to reduce these losses, particularly by defining and adhering to best medical practices, could be very useful. Second, they’re positioned to help with “frequent flyers” – the chronically ill whose conditions often drive readmission rates and high annual treatment costs. Hospitalists’ ability to work with primary care providers and care coordinators to reduce readmissions will be of great financial value. Third, hospitalist programs enhance physician loyalty, and close working relationships with physicians will certainly drive revenue.

David W. Miller

Founder and Chairman