5 Common Mistakes in Managing Hospital-Owned Medical Practices

Hospitals seeking to maintain a strong network of referring primary care physicians may face major challenges in the years ahead if their community does not offer an employed practice model. Many physicians coming out of residency have a different mindset of the independently minded physicians before them — they seek better work-life balance and less personal risk.

At the same time, the challenges for existing private practices continue to mount. Reimbursements continue to be pressured, practices are pushed to make capital-intensive investments in IT, and practices face even greater regulatory and reporting requirements than in the past. As a result, an increasing number of independent physicians are considering a sale to the hospital.

All of these forces make it likely hospital employment of physicians will continue to rise in the next several years, says Laura Jacobs, senior vice president at The Camden Group, a healthcare management consulting firm.

As hospitals begin to expand their physician employment rolls, it's important they structure their practices in ways that will lead to future success and avoid common mistakes.

1. Relieving physicians from the worries of practice management. While hospital employment does relieve physicians from some of the financial risks associated with owning a practice, hospitals should avoid also removing the all of the duties of practice management, says Ms. Jacobs. Hospitals must include mechanisms to engage physicians in the success of the practice. "It's such a personal business; you want them to care about financial performance and clinical care," she says.

Hospitals can include physicians in practice management by creating a physician advisory committee for the practice or, if the practice is a separate entity from the hospital, include physician representatives on the board and on various committees, such as quality and financial oversight committees, says Ms. Jacobs.

2. Not using a performance-driven compensation methodology. Hospitals must ensure physician compensation is driven by performance. In most markets, compensation is based on productivity, which is determined by work relative value units (wRVUs) generated by the physician. However, some markets with prevalent managed care programs are able to compensate physicians on quality and efficient use of resources. While most hospitals have learned from the '90s and now use productivity-driven compensation, compensation models will need further attention as the national healthcare agenda moves more toward value-based payment structures, says Ms. Jacobs. Expect to see compensation formulas that reimburse for caring for a population of patients and for adhering to evidence-based disease protocols.

3. Failing to track physicians against performance metrics. Practice managers should regularly share with physicians their performance against various performance metrics, whether or not their compensation is tied to those metrics. For example, practices could share transparent data of how physicians compare to one another on quality indicators, patient satisfaction and financial impact. "Physician practices owned by hospitals often lose money, and if you're only looking at the bottom line, you don't have clear benchmarks of overall performance and you can't understand how you're truly performing," says Ms. Jacobs. "It's just like any other business; you have to provide and measure clear performance metrics."

4. Not having dedicated resources for the practice. Hospitals often assume they can successfully manage a physician practice because they pale in comparison to hospitals in terms of size and revenue generated. However, hospitals must ensure practices are overseen by dedicated managers experienced in the management of physician practices. "Even though physician practices may be small, they are a different beast, and in their own way very complex. They require different management techniques than hospitals," says Ms. Jacobs. "Physicians manage pennies, and hospitals manage dollars. It takes a different skill set to manage a physician practice." Practice administrators, like physicians, must be held to certain performance metrics and should have some level of compensation dependent on performance.

Another common error hospitals make is having the hospital billing office manage the billing for the practice. "[Physician practice billing] doesn't get the attention it deserves under the hospital umbrella," says Ms. Jacobs. Not only is practice management coding markedly different from coding for inpatient services, but bills for physician's services are relatively small compared to hospital bills, meaning they can easily be overlooked by billing staff used to working with large outstanding hospital accounts.

5. Viewing physicians as referral feeders. As U.S. healthcare moves away from a fee-for-service system to a medical-home model, viewing referrals as physicians' most important output will be detrimental, says Ms. Jacobs. Not only are there legal risks involved with such a mindset, but the hospital is also squandering an opportunity to set itself up as an integrated delivery system. Instead, hospitals should provide incentives to physicians to lead the redesign of clinical care by developing patient-centered, coordinated care models. "Healthcare is about to undergo a major mindshift, and hospitals who are most successful in developing models for coordinated care will be those that involve physicians heavily in their efforts," she says.

Learn more about The Camden Group.

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