Despite these investments, though, their compliance with regulatory requirements and the ability to make informed decisions are under threat as systems increasingly acquire physician practices – many of which rely on inconsistent data sources and outdated techniques and tools that undermine their performance and create significant risks for the healthcare systems.
Consolidation has been a hallmark of the healthcare industry in recent times, and the trend is not expected to end any time soon. While many systems consolidate through mergers, the acquisition of physician practices also continues apace. According to a study from the not-for-profit Physicians Advocacy Institute, hospitals acquired 5,000 physician practices from July 2015 to July 2016.1
Many of these smaller practices have been able to get by with using spreadsheets or similar nonautomated tools, but their new parent healthcare systems cannot afford to rely on these basic applications. Not only are such simplistic approaches to running a business inefficient, they also put parent systems in jeopardy of costly regulatory violations through the use of inconsistent data sources. The parent systems, therefore, must commit to making the technology investments to bring the information used by their physician practices up to speed.
The continuing growth of hospital-owned physician practices
Even physicians reluctant to join healthcare systems are coming to terms with the difficulties private practices face in competing with comprehensive healthcare systems. For example, private practices often lack the leverage to negotiate favorable, sustainable payment rates with third-party payers. The costs of new technology and regulatory compliance climb seemingly every year, as do the day-to-day expenses incurred to run a practice. And healthcare systems have a much easier time absorbing the costs of capital investments.
With these hurdles constantly looming, few physician practices are able to keep up with technological advances. Moreover, physician practices often resist change and lack faith in financial performance software versus the manual methods that have “worked” for them for years and that they understand backward and forward.
Ultimately, many physicians realize they can earn the same amount of compensation as a healthcare system employee, without all the headaches of private practice. From an operational perspective, though, their practices likely have suffered for years from their reliance on manual approaches. This underperformance could spread to the healthcare systems that acquire such physician practices. The lack of timely, consistent, actionable data from multitudes of these practices will make it hard for the systems to render savvy, informed decisions.
Using technology to manage physician arrangements
One of the areas ripest for technological intervention in physician practices is the management of physician arrangements. The burdens of compliance with the False Claims Act, Stark Law, anti-kickback statute and other state and federal regulations only compound as a healthcare system adds physician practices. Systems would be foolish to allow acquired practices to merely continue with their traditional compliance processes – or to fail to adjust their own processes as they employ more and more physicians. A process that might have worked adequately for 100 hospital-employed physicians probably will not scale effectively when applied to thousands of doctors.
The consequences of insufficient compliance procedures can prove substantial, including steep fines and penalties. The astounding $237 million False Claims Act verdict against Tuomey Healthcare System in 2015 was the largest levied against a community hospital2, but multiple hospitals have had to pay $85 million or more.3 (Tuomey ultimately reached a $72.4 million settlement with the U.S. Department of Justice.)4 It also is notable that these violations can have personal consequences. Tuomey’s chief executive officer settled with the DOJ for $1 million for his involvement in the illegal Medicare and Medicaid billings for services referred by physicians with whom Tuomey had improper financial relationships.5
Industry experts often say there are three kinds of physician employment agreements: the one they were on, the one they are on and the one they are moving to. A healthcare system that pursues an ongoing campaign of physician practice acquisition quickly will grasp the monumental – possibly insurmountable – challenge of aligning all of its agreements in a single compensation plan. In the meantime, it must juggle many different compensation plans for the thousands of physicians it employs. It’s no wonder, then, that some healthcare systems are establishing executive positions solely to manage physician compensation.
Health systems acquiring physician practices should take advantage of evolving technologies that allow them to do the following:
• Integrate financial and operational data into a single application that generates financial results (including profit and loss by physician).
• Provide support to efficiently manage the practice (for example, calculating physician compensation).
• Remove the manual components that introduce the possibility of costly operational and regulatory errors.
The bottom line
The acquisition of physician practices can seem like an easy decision for healthcare systems with a growth strategy, but management of these practices is a complicated and risky endeavor. The investment in and implementation of emerging technologies that integrate to provide a single source of truth will become only more important as systems move from practice acquisition to practice management.
1 “Updated Physician Practice Acquisition Study: National and Regional Changes in Physician Employment – 2012-2016,” Physicians Advocacy Institute, March 2018, http://www.physiciansadvocacyinstitute.org/Portals/0/assets/docs/2016-PAI-Physician-Employment-Study-Final.pdf
2 Lisa Schencker, “Tuomey Will Pay U.S. $72.4 Million to Duck $237 Million False Claims Verdict,” Modern Healthcare, Oct. 16, 2015, https://www.modernhealthcare.com/article/20151016/NEWS/151019923
3 See, for example, “Adventist Health System Agrees to Pay $115 Million to Settle False Claims Act Allegations,” U.S. Department of Justice, Sept. 21, 2015, https://www.justice.gov/opa/pr/adventist-health-system-agrees-pay-115-million-settle-false-claims-act-allegations; “Florida Hospital System Agrees to Pay the Government $85 Million to Settle Allegations of Improper Financial Relationships With Referring Physicians,” U.S. Department of Justice, March 11, 2014, https://www.justice.gov/opa/pr/florida-hospital-system-agrees-pay-government-85-million-settle-allegations-improper
4 “United States Resolves $237 Million False Claims Act Judgment Against South Carolina Hospital That Made Illegal Payments to Referring Physicians,” U.S. Department of Justice, Oct. 16, 2015, https://www.justice.gov/opa/pr/united-states-resolves-237-million-false-claims-act-judgment-against-south-carolina-hospital
5 “Former Chief Executive of South Carolina Hospital Pays $1 Million and Agrees to Exclusion to Settle Claims Related to Illegal Payments to Referring Physicians,” U.S. Department of Justice, Sept. 27, 2016, https://www.justice.gov/opa/pr/former-chief-executive-south-carolina-hospital-pays-1-million-and-agrees-exclusion-settle
