5 Tips for Implementing an Alignment Strategy With Independent Physicians

2012-10-22Many hospitals have physician alignment strategies that include expanding the number of employed physicians. The pool of physicians interested in employment varies greatly by market. Additionally, employment can be a significant investment. Hospital balance sheets make it imperative to also have a strategy to align with independent physicians.


By focusing only on expanding the number of employed physicians, hospitals are ignoring the vast majority of the market. The 2012 AHA Hospital Statistics estimates that only 20 percent of all physicians are now employed by hospitals. While this number is expected to continue to rise, still 80 percent of the physicians are not employed by hospitals. Making the jump to employment may in fact be too big without an earlier step on the alignment continuum.


The bottom line is that not all physicians think alike; therefore, hospitals must develop multiple strategies because one size doesn't fit all. In an era of cost containment, increasing quality outcomes and new payment models on the horizon, both hospitals and physicians can benefit from strategies including strong medical directorships, co-management agreements and other affiliations.


affiliation continuum

Affiliation continuum
With the CMS demonstration projects related to bundled payments and accountable care organizations, many models are under exploration. As you move from left to right on the continuum above, the relationship becomes tighter, and the risk higher for both parties. Many of the alignment strategies such as clinical integration offer many of the benefits of tight alignment without the operational risk of employment.


Most systems agree, it is cost prohibitive to employ all physicians. Additional alignment strategies should be considered to respect the time and contributions of the independent physicians. Regardless of the strategy chosen, care should be used to ensure the legal structure of the arrangement is appropriate, compliant and measurable.


5 steps for implementing agreements with independent physicians
1. Legal. Engage legal counsel in the structure of the arrangement. The complexities of both federal and state statute and law necessitate good legal review. The agreement must stand the test of reason related to physician referrals. If inside counsel isn't accessible, invest in outside counsel.


2. Fair market value. Use an outside firm to render a FMV opinion for your arrangement. It is important the compensation is deemed FMV and not related to volume or value of that physician. It is best to have an arms length relationship to the dollar amount considered for the compensation component by using outside sources. Document all steps in arriving at the compensation arrangement.


3. Compliance. Use a compliance "lens" to review the agreement before implementing. The agreement must be in writing, and should specify the services to be performed with performance measures defined. The services must be commercially reasonable, and the term must be for at least one year. The compensation must be fixed in advance and be fair market value, and not related to volume or value.


4. Track. Put the appropriate tracking mechanisms in place to administer the agreements. The services performed by the physician should be documented, timely and reflect the agreement. Care must be taken to administer the agreement as outlined.  Automated web solutions are recommended to drive use and consistency of reporting.


5. Review. Each year, the agreement should be evaluated, reconsidered and tweaked. Automated solutions compile information to be analyzed and ensure there are no violations. Consider the return on the investment from both the hospital's and the physician's views.


Gail Peace is president and CEO of Ludi, Inc., a company that helps hospitals and health systems automate, track and reduce administrative expenses and potential risks of physician alignment strategies. Ms. Peace has 20 years of healthcare experience and spent the past four years developing new partnership structures with physicians as part of Vanguard Health Chicago. Contact her at gail@ludiinc.com.

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