Major investments and significant losses are too often the outcome when hospitals employ physicians. But market realities are driving such employment, as private groups struggle economically and hospitals face the reality that employment will likely be required to ensure an adequate supply of physicians. So, what is a CEO to do?

As a model, we like to focus on two elements of the value equation:  revenue production and expense management. This template provides a good mental model to think about and to address the group’s value to the hospital owner.

Revenue. In all hospitals, revenue and growth cover a variety of sins, meaning aggressive revenue growth should be a focus of management. But where should you first focus? We recommend six questions for consideration.

1. Do you have the right physicians? The biggest mistake you can make is employing doctors who can’t, or won’t, develop a loyal patient following. If patients do not like the physician, you have a fundamental problem. For existing physicians, you certainly should have insights into their behavior. For new physicians, the Cleveland Clinic and P&G worked together to develop methods to identify candidates who are likely to satisfy patients. These findings are highlighted in a 2007 publication in the New England Journal of Medicine Career Center, and are worth your time to review.

2. Do scheduling protocols facilitate volume growth?  Many scheduling issues can thwart the growth of a practice, and hospital executives have little understanding of those factors. Your dashboard reports for practices should collect information on slots per day, the percentage utilization, and other key measures. Beyond data, staff and physician motivation is key, and it is often useful to incent the staff to fill the schedule. Scheduling practices, including overbooking and developing systems to deal with urgent appointments, may significantly affect volume. Just as you study bed utilization in your hospitals, you should study appointment utilization in the employed practices.

3. Do compensation plans incent hard work?  This is much discussed, and we will not focus on it here, but physician compensation must be a motivator for physicians to see patients and be productive.

4. Do you have an effective marketing plan?  Many hospitals have promotion plans, not marketing plans. They must address how marketing will be operationalized, how the practice will deal effectively with the influx of patients, how the product will be improved to retain new patients, how referring physicians will be courted and their needs served, etc. The marketing article in this newsletter addresses this issue. Review and contrast it with what your organization is doing with your practices.

5. How can you maximize the rate per unit of service?  Managed care negotiations and coding drive this element of your revenue growth. Coding is the basic blocking and tackling of practice management, but your dashboard should address the accuracy of your coding. Many physicians under-code, and correcting this can produce real revenue (not to mention improve compliance). Managed care contracting is much more centralized and therefore understandable, but the strategy of bundling hospital and physicians negotiations works well, at least if the organization is needed by the insurer.

6. Are the employed physicians using your specialists and hospital(s)?  This sounds basic, but it must be tracked and office staff should document referrals outside the system. Once they start tracking this data, we see hospitals evolving to more active management.  Some make this a focus of the employed physician council/advisory group. The most aggressive make it essentially mandatory, with a review if the referral is going outside. Either way, this area of focus will help increase the value of the group to the hospital.

Expenses. There are three ways physicians can add value in the area of expense management. They can control care processes, control practice expenses, and help control the hospital’s expenses.

1. Controlling Care Processes.  At a basic level, physicians can control what they order.  But to add the most value, you must tap into their knowledge about care processes and drive them to best demonstrated practices. Value-Based Care organizations, bundled payments, and other such mechanisms require hospitals and physicians to work together to exploit this knowledge and expertise. Employed physicians are an obvious audience for this type of effort.

2. Controlling Practice Expenses. In the worst models, physicians abdicate this responsibility to lay managers. Allowing that is a mistake, as it almost ensures conflict and disconnects the physician from spending decisions.  Just as with productivity, proper incentives are mandatory.

3. Controlling Hospital Expenses. There are two ways employed physicians can be involved in this. First, while they may be part of an employed physician group, many should have a dotted-line relationship to the most relevant hospital unit. For example, employed cardiologists should provide management input for the cath labs and CCU, employed trauma surgeons should be engaged with the ER and OR, and so on. You can also engage the physicians in a formal co-management arrangement. Such deals allow involvement of employed physicians.  And while incentives to reduce costs are problematic, you can have incentives to meet budgets or implement best practices, both of which can result in cost savings.

Integration of physicians into hospital systems will produce great value in the coming years. In the near term, healthcare executives need to better understand the leverage points that will produce value, and focus on those levers. There may be others, but this provides a good outline of those that should be an early focus.  With the pressure organizations are under to control costs and produce profits to help fund capital needs, getting moving on this has never been more important.


David W. Miller

Founder and Chairman