10 Best Practices for Creating Hospital Group Practices

Todd Sagin, MD-JD, national medical director of HG Healthcare Consultants in Laverock, Pa., is coauthor of the book, "Creating the Hospital Group Practice: The Advantages of Employing or Affiliating with Physicians." Here he offers some best practices for hospitals on organizing employed physicians into group practices.

1. Form a multi-specialty practice. Rather than allow each newly acquired practice to operate separately, Dr. Sagin prefers combining them in one large multi-specialty group that benefits from economies of scale. To function properly, he says such a practice needs at least 40 physicians. He thinks even a community hospital with a few hundred physicians on staff could reach this number by including hospital-based physicians as well as the practices it acquires.

2. Keep the hospital at arms length. Instead of making the group practice a subsidiary of the hospital, it should be a subsidiary of the parent health system on equal par with the hospital. Operating at arms length from the hospital, physicians can identify goals that go beyond inpatient admissions but still satisfy the mission of the health system. "Healthcare is becoming less about filling hospital beds," Dr. Sagin says. "There need to be better drivers of overall healthcare goals."  

3. Build a group practice culture. Hospital-owned practices have failed in part because doctors didn't like working under middle managers in the hospital. Dr. Sagin suggests creating a "group practice culture" in which physicians manage each other. Building such a culture requires setting expectations for membership and spending a great deal of time orienting physicians. The process can take six months to a year, he says.

4. Acclimate physicians to new culture. Hospitals typically pick up practices with only one, two or three physicians. "They had a great deal of autonomy," Dr. Sagin says. "They have no history of being part of a group practice culture." In the new group, they will have to share income, participate in governance and perhaps give up staff and move their locations. This involves an entirely different mindset.

5. Create governance bodies. The group practice should have its own governance system. Many decisions about structure need to be made. Will it have board or executive committee? Will members be elected or appointed? What accountability does it have to the health system board? There should be subcommittees for activities like finances, quality and practice culture. A full-time medical director can be added when the practice gets bigger. Since experienced medical directors are rare, this may involve grooming one of the physicians in the practice for the role.  

6. Don’t make promises you can’t keep.
When hospitals guarantee salaries for several years or let physicians keep their staff or current location, the multi-specialty group's hands will be tied. For example, the group may want to have its own centralized billing office or change locations. It may be able to get out of the commitments the hospital made, but not without leaving a bitter trail. "Physicians would feel there was a bait and switch to get them in," Dr. Sagin says.

7. Expect to pay a subsidy. Under typical hospital accounting, a medical practice usually operates under a loss. Downstream revenue, such as physician referrals for ancillary services, is not included in practice earnings. "There needs to be some subsidy for the downstream revenue the practice makes for the hospital," Dr. Sagin says.

8. Don’t just pay for productivity. Since payors no longer reimburse just for volume, neither should physicians be compensated just for volume. For example, if hospitalists are paid just for their productivity, they would simply see as many patients as possible. Instead, they should be incented to discharge patients as early as possible. This involves developing a fine-tuned payment system based on all expectations of the physician.

9. Adjust pay for organizational activities. If physicians are paid just for how many patients they see, they will avoid other important activities, such as meeting quality goals, participating in governance and helping to redesign care models. The compensation system should reward participation in these activities.

10. Prepare for new payment models. The physicians group should begin planning how it will shift reimbursements to bundled payments, shared savings in accountable care organizations and other arrangements coming up in the future but not quite here yet. The group can’t make such changes until payors alter payment methodologies, but they will need new systems in place and must know when to implement them. "It will be a challenge to decide when to change," Dr. Sagin says.

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