Keeping Employed Physicians Profitable: Is It Impossible?

Health systems have been on a physician group-acquiring frenzy in recent years anticipating more hospital referrals and ancillary service as well as better positioning for population health initiatives, but for many, that comes at a steep price.

Consulting firm Dean Dorton Allen Ford in March released a report titled "In-te-gra-tion: The Challenge of Integrating Physician Group Operations," which found many hospitals lost $100,000 or more per physician annually, creating a strong incentive for hospitals to learn how to keep their physician groups profitable before an acquisition is finalized.

To be clear, many industry experts agree that employed physicians don't need to operate in the black in order to contribute to the health system's bottom line. "In no way do we feel like every [physician group acquisition] needs to have a positive bottom line to be beneficial to hospitals," says David Bundy, president and CEO of DDAF and co-author of the report. "Our point is not to say you need to make money on them." Rather, he says, "we're not sure hospitals are managing these practices as effectively as they can."

The breakdown often occurs during the due diligence process, in which health systems inadequately negotiate patient volume and wRVU minimums into contracts or agree to compensation levels for physicians that emphasize stability over productivity, says Justin Chamblee, vice president of the Coker Group. Too often, hospitals establish compensation variables within their employment models solely based on market survey data, rather than considering the actual economics of the physician practice.

Keeping an independent mindset

Before a hospital buys it, an independent physician practice is completely dependent on productivity and collections to stay afloat. That doesn't have to be thrown out the window when they are acquired by a hospital, says Gary Ermers, DDAF associate director of healthcare consulting services and co-author of the report with Mr. Bundy. "Employing doctors doesn't mean you have an integrated system."

"We believe, particularly if it's a competitive market, hospitals really aren't thinking about the longer term sustainability and are trying to scoop up practices and gain that competitive advantage," says Jennifer Snider, vice president of operations for the Halley Consulting Group. She and her colleagues "favor an wRVU-based model, largely because it is payor blind and lets [physicians] focus on productivity and patient care, and lets management focus on the payor mix and collections."

Mr. Ermers favors physician compensation models that tie directly into the revenue physicians generate. "The model needs to incentivize volumes of patient delivery," he said, but added, "it needs to also incentivize the payor mix." Simple wRVU-based compensation pays physicians equally, even for treating less profitable government-insured or self-pay patients. If a physician treats high volumes of those populations, he or she brings less revenue into the practice and therefore receive less in output-based compensation. However, he says that can be offset with supplementary metrics to boost pay for high quality or patient satisfaction ratings. He also recommends that contracts with physician groups include an annual review clause to ensure wRVU levels meet or beat levels from one year prior to the acquisition.

Allowing physicians to focus exclusively on clinical elements wrongly spares physicians from the financial side of the practice, Mr. Bundy says. "Hospitals try to cushion doctors from too many market forces. Hospitals shouldn't feel they need to keep compensation stable."

More Articles on Physician Compensation:

25 Statistics on Physician Compensation: Medscape's 2013 Report
11 Specialties With Most Satisfied Physicians
100 Great Places to Work in Healthcare

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