Clients are reporting a growing awareness by their Boards of losses per physician in hospital employed networks. With average losses approaching $200K, many systems are finding that shrinking margins and uncertainty about the impact of health reform are again focusing attention on mounting red ink in employed networks and senior leaders are being challenged for answers and, more importantly, solutions.
Those that were part of the physician practice buying binge of the early and mid- 1990s remember that overpaying for underperforming practices was a formula for losses that frequently exceeded $100,000 per FTE physician. Is this really dÉjÀ vu all over again or are things actually different this time around? Our experience is that, while the reasons behind mounting losses are in some cases substantially different, the need to address the problem and, therefore, reduce the risk to job security, are the same. Unfortunately, the solutions this time are more complex and, as a result, require far more focused intervention.
Primary Care vs. Specialists
Last time around the focus was on primary care. This time many of the practice additions are specialists and, in some cases, the guaranteed incomes are higher than can be justified by physician productivity. Specialists know they generate revenue for hospitals and they want a share.
This time the employment model is being used as a medical staff development tool as much as it is a reaction to the market. This brings new specialties and new challenges. Without employment, many markets would lose key specialties.
Measuring Market Demand
Primary care capacity is easier to match to market demands than is the case with specialty practices. Frequently, hospitals are intentionally building over-capacity in response to physician pushback on issues such as call frequency. In other cases, they are simply reacting to a call from a recruiter that a specialist is willing to come to the area. New practices are started without a clear idea where the patients will come from.
Compensation vs. Revenue
The growing physician shortage has pushed up physician wages (in employed situations) and general operating costs have increased dramatically over the past two decades. Surveys have shown that physicians typically receive four monthly contacts from recruiters. Low compensation may mean lost physicians. Balancing cost and revenue is a challenge.
Compensation Plan Design
Many historic compensation plans were tied to collections, while most now are based on wRVUs. Poor payer mix doesn’t impact physicians, only the bottom line. Recent data shows that median effort doesn’t equal median income in private practice environments; many current plans equate those factors.
Hospitals have invested in expensive technology (EMR) with little return from improved efficiency. Data systems have to be used, and used correctly, to be effective. This is even more critical as we move toward ACOs.
More than a few practices that are seeking hospital affiliation are having their own performance problems. Failure to identify and address those issues before acquisition simply shifts losses to your bank. Some physicians see employment as an exit strategy; if they wanted to keep working hard, they would stay private.
What’s the same?
Charge Capture and Cash Collections
Management of the revenue cycle continues to be a challenge. This is the weakest area of many networks, but is certainly one of the most important.
Many Sites, Few Physicians
Networks continue to be comprised of a large number of small, inefficient practices. Newly acquired practices typically stay where they were.
Don’t Rock The Boat
Systems are reluctant to make substantial changes in network operations and are, again, learning that incremental change is seldom successful. Deming wrote that, “Every organization is perfectly designed for the results it gets.” The hardest thing to change is culture, and your culture may contribute to your problem. Unless you’re willing to transform the organization, you’ll get the same results every time.
Effort And Income Aren’t Perfectly Correlated
Production-based compensation plans don’t always lead to profitability. Recent information indicates that median production shouldn’t mean median incomes.
We don’t suggest that you copy this article, send copies to your Board, and indicate “see, it’s not my fault.” The factors that are driving the losses can be resolved and it can be done in a way that maintains the integrity of critically important physician networks. A quick case study will prove our point. An academic medical center-affiliated small multispecialty network was experiencing losses per FTE physician > $150,000 per year. Site consolidation, revisions to the physician compensation model (with physician endorsement), staffing changes, and identification of strategically important but underutilized practices (these need to be treated differently) turned network operations cash positive in 18 months.