Too many cooks in the kitchen? Why hospitals struggle to see real ROI from their physician alignment strategies

Hospitals of all sizes are finding it increasingly difficult to achieve financial success while also ensuring their physicians are appropriately compensated. To get there, hospitals must include these three main ingredients in their overall strategy: compensation plans suited to the organization's needs and business goals, accountability and coordination over the details of those plans, and an automated approach to managing said details.  

During a Feb. 26 webinar hosted by Becker's Hospital Review and sponsored by Ludi – a healthcare technology and physician-advocacy firm – industry leaders discussed best practices in today's physician alignment strategies. More specifically, the conversation provided insight into how hospitals can better understand exactly what their physician partners are being paid for, how to tie that back to real ROI for the organization and how to satisfy all internal stakeholders involved.

Understanding today's hospital-physician relationship

"Hospitals should start by thinking about physician alignment in very simple terms: that is, anytime you pay a physician, you're aligned," Gail Peace, founder and CEO of Nashville-based Ludi, said. "And the amount we spend on all different types of alignment is quite astounding," she added.

Physician expenditure (also referred to as "physician spend"), on average, makes up about five to 10 percent of a hospital's net patient revenue, and is projected to grow 5.5 percent annually, according to a 2019 study in Health Affairs. Resources invested in physician strategy also take away from other capital expenditures.

Moreover, successful hospitals must assess the amount of net patient revenue tied up in their physician enterprise and calculate the return on investment, Ms. Peace noted.  

However, the hospital-physician relationship is not just a big financial investment for providers – it’s also a complex one, too. Why? Because it requires hospitals and health systems to balance the differing views and goals around physician compensation from all of their internal stakeholders, namely: business development, physician enterprise, compliance, legal, human resources and finance departments. And when you have that many "cooks in the kitchen," it's very likely things can steer off course.

Avoiding conflict with internal stakeholders

Alignment with physicians and department stakeholders may hit roadblocks for several reasons though. First, problems arise when hospitals aren't measuring key business data, such as: volume, EBITDA, satisfaction, quality and their physician spend in a dashboard-like view. Without this critical information in an easy-to-understand format, it's difficult for a hospital and its internal stakeholders to see what progress they're making toward their goals, which can cause incorrect assumptions and relationship friction down the road. Second, if physicians don't feel involved in their compensation, alignment can be negatively affected. Physicians, like anyone else, want to get paid accurately, on-time and for all the work that they do. So, when surprises occur (e.g., missed or incorrect payments, etc.), that can correlate to a doctor's feeling of dissatisfaction with the hospital. Offer full transparency in the way you’re paying your doctors. Finally, just like any busy restaurant kitchen, there needs to be one person/department in charge of a hospital’s physician alignment strategy. However, they also need ongoing support from their colleagues across various departments to help own all of the processes that go into paying doctors. It's a team-driven approach 100 percent of the time.  

Common physician compensation mistakes

Opal Greenway, director and principal at Stroudwater Associates, discussed seven common compensation pitfalls she often sees as a consultant, beginning with a failure to have an up-to-date written agreement. 

Inconsistencies between agreements and their execution is one of the largest contributors to physician practice losses, Ms. Greenway continued. Other compensation pitfalls include legacy agreements, confusion about who is responsible for negotiating contracts, lack of compensation strategy, failure to track professional services agreements and inconsistency amongst specialists.

Ultimately, execution is most likely to fail when there is a lack of communication across the board. Legal problems can arise when valuation isn't conducted, the valuation doesn't match the contract or the contract doesn't incorporate all terms. And payroll-related issues can happen when a contract isn't executed as written, or when incentive compensation is complex and untracked. Ms. Greenway also noted that revenue cycles can also contribute to issues in physician compensation. Use of third-party revenue cycle companies can help an organization, but the organization must still be engaged enough in the information to ensure proper application of WRVUs to productivity incentives. 

Finally, Ms. Greenway discussed the cost noncompliance can have on an organization. Large financial penalties – sometimes tens of millions of dollars – can shut a hospital down, ruin relationships with physicians and tarnish a hospital’s reputation with its own patient community.  

Recipe for success

There are three main ingredients hospitals must have to achieve success in managing their physician alignment strategies.

First, implement a compensation strategy that ties directly to an organization’s overarching business goals. Hospitals must consider what they are trying to achieve and if their compensation method moves its goal(s) forward. Secondly, to foster accountability and coordination, hospitals must know who negotiates contracts, who is in charge and what their responsibilities are. Map all of this out and stick to the plan. Finally, hospitals should use automation technology to track, manage and audit all the different components of payments to physicians.

Insights from hospital panel: AMITA Health & Western Reserve  

John Guidotti, vice president of acute care compliance for Chicago-based AMITA Health – one of the largest hospital systems in Illinois – partnered with Ludi in 2014 and implemented their DocTime Log® solution. Previously using a contract management system only, AMITA Health had faced challenges ensuring they were paying physicians according to their specific contracts. Ludi fixed all of this.  

In fact, DocTime Log data "helped AMITA Health avoid contract conflicts, and has become a trusted source of data for our organization that we now share with many different departments," Mr. Guidotti said. The solution has standardized processes at AMITA Health and has made the data around what physicians are being paid to do more transparent. This, in turn, drives the CMO's strategy.

The biggest surprise when switching to Ludi's solution? Physicians were extremely open to the change, Mr. Guidotti noted. In fact, AMITA Health’s physicians wanted to get away from turning in paper time sheets and logs, and were highly engaged in the process with virtually no learning curve.  

Nealie D'Abate, vice president of organizational development and chief learning officer at Western Reserve Hospital – an Ohio-based, physician-owned hospital – echoed Mr. Guidotti's comments. Specifically, Western Reserve originally wanted to streamline operational processes around physician time tracking and minimize administrative stress for physicians and hospital teams. That's where Ludi came in.

Ludi's DocTime Log technology significantly increased the ease of getting data and making payments to physicians; auditing; submitting the physician administration time on the Medicare Cost Report; and budgeting. In addition, Western Reserve was able to standardize their agreements, and physicians now better understand what they're being paid to do, which has increased accountability across the board. The result was an enhanced alignment between physicians and leadership with no internal friction.

To view the Feb. 26 webinar with Ludi, Western Reserve and AMITA Health, please click here.

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