If we accept the premise that “fee-for-value” will be the new reimbursement model for public and private payers, then we must also accept the fact that, in order to be successful in this environment, hospitals and physicians will need to develop a collaborative culture. The care process will need to be refined to eliminate costly inefficiencies, and quality benchmarks will be needed to monitor overall performance.
For many, that reality is far different from their current environment. The question is, “how do you get from where you are to where you need to be”? Perhaps an even better question might be, “if you don’t know where you’re going, how do you know when you get there”?
Many hospitals are employing physicians due to a reaction to competitive pressures, practice purchase requests from community physicians, as a strategy to attract critical specialties, or a combination of all three. As employment has grown however, so have per-physician losses.
Many hospitals are losing $200,000 or more on a per-physician basis. As hospital margins shrink, managing these losses will become more critical. Can you meet the challenges of a changing market and still remain financially sound? Yes, but it may require an approach that is different from what worked in the past.
Step One: Strategic Vision
Many of our clients have developed an extensive physician network before defining a strategic vision and as a result, have had to make some difficult decisions as they restructure. It is best to invest the time and plan now, rather than be forced to do so later.
As part of this process, each hospital must decide why it is in the physician business and what measures it will use to evaluate success. There is no common measure that all can use. If physicians are needed to meet patient demand for scarce services, the practices should operate at, or close to, break-even. Key specialists or primary care physicians at the edges of the service area may meet strategic imperatives and, as a result, a financial subsidy may be justified. If you are pursuing a “value” relationship with a payor, then the right physicians may be more important than the right number of physicians. Regardless, your physician integration strategy should support and be consistent with hospital goals and objectives.
Step Two: Development Plan
Medical staff planning is more complex than it ever was and recruitment firms will frequently recommend the more-is-better approach. This approach certainly increase losses before you realize any real benefits.
Once you know why you are in the physician business, then it is critical to define how many physicians in which specialties are needed. Matching current market demands to adequate physician supply can help you allocate resources more effectively. Also important is having the physicians with the right clinical skills and a willingness to address value issues as a culture of working cooperatively to manage care processes.
Step Three: Performance Improvement
Adding new physicians to a dysfunctional practice structure, no matter how sound the planning, will assure growing losses. Most hospital networks are comprised of small practices in an environment of semi-autonomy. This may make excellent political sense, but it seldom makes good business sense. While many point to physician productivity as the source of a negative bottom line, we have found that other factors, such as flawed revenue cycle procedures, staffing, and assignment of corporate overhead are major contributors. Often physicians are more than willing to be productive, but issues such as room availability, staff efficiencies, and schedule management make that impossible.
Our experience has shown that $1 invested in a performance improvement effort returns $12 in financial performance improvement. The key to success, however, is the willingness to make major operational changes. Value purchasing will be a major disrupter for business as usual. The last time reimbursement changed to this magnitude was with the introduction of DRGs. Then, whole new market segments were created or grew dramatically (home care, outpatient services, etc.). A frequently used business quotation, “every organization is perfectly structured to get the results it does” is absolutely true. Without those key changes the results will remain the same. So, critical analysis and rigorous planning is essential to changing performance.
Step Four: Clinical Integration
Once you have a strategically aligned physician network that is operating at maximum efficiency, it is time to address the redesign of the care process. Sharing clinical data, reviewing best-practices, referral management, and patient management are all key elements to success. Many organizations start with a focused approach, such as co-management, where a defined service line is jointly managed by physicians and the hospital with the goal being the attainment of quality goals and the sharing of revenue incentives. These experiences can be used to expand into patient population management, which is the foundation for Value-Based Care models.
If our assumptions are correct, we are about to experience the first major shift in reimbursement models since the DRG, and the impact will be no less significant. If you feel that you have not addressed some, or all, of the issues we highlighted above, it may be wise to revisit them. The resources that you will invest in a structured approach to your hospital/physician program will pay dividends in the future. Even if fee-for-service care remains a major component of the care environment, improving your relationship with physicians, improving the efficiency of the care process, adopting evidenced-based care models, and the reduction of losses associated with affiliated physician practices are valuable goals in themselves.
