In the past few years, the prevalence of hospital-owned physician practices has greatly increased as hospitals seek to expand referral bases and service lines while physicians seek a reprieve from growing federal and state reporting requirements and other regulations. One common stumbling block in these relationships, however, is the assumption that practices can be managed in the same way as hospitals. Hospitals need to understand that managing practices is very different from managing hospitals, says Peggy Naas, MD, MBA, vice president of physician strategies at VHA Inc., a healthcare purchasing network of more than 1,400 non-profit healthcare organizations.
Here, Dr. Naas shares five tips for successfully managing hospital-owned physician practices.
1. Marketplace sensitivity. Before acquiring a practice or employing physicians, hospitals need to explore the marketplace needs of the community, says Dr. Naas. No physician group should be developed without a specific need for its services. "Hospitals that look strategically at how to invest scarce capital in this area are in the best position to successfully deliver healthcare to a community," she says.
Knowing your market ensures physicians have enough patient demand and the ability to effectively coordinate care for certain patient populations. "If opportunities for the group include taking on [financial] risks by managing the care of a certain population, then the group needs to hire [individuals] to deliver that capability," says Dr. Naas.
2. Careful selection of physicians. Physicians employed by a hospital or health system need to share the same values as the parent organization. "An amalgam of individuals with individual business plans is not a best practice for a group to deliver desired operational and quality outcomes of the system," says Dr. Naas. "You need physician partners who share the same values and will work collaboratively toward these outcomes."
Dr. Naas recommends hospitals create a "culture of performance" for its employed physicians, meaning part of physician compensation and overall practice success is determined by measurable clinical and financial performance outcomes. "Hospitals should avoid physicians looking to sell their practices in order to never again have to worry about the financial viability of his or her practice," says Dr. Naas.
3. Don't underestimate the financial impact of an acquisition. Because of the downward pressure on reimbursements for purely physician services, such as office visits, many practices have begun offering a "menu" of ancillary services, such as imaging, physical therapy, durable medical equipment and device sales and drug research, says Dr. Naas. When a hospital acquires a practice, these ancillary services are often moved to the hospital, transferring corresponding revenues away from the practice itself and into a hospital outpatient department. While adding physicians may lead to increased referrals for these hospital services, the acquiring organizations must keep in mind that apparent practice revenues may drop accordingly. "It's important to take a careful look at the total value stream accruing to the organization. Compensation to the employed physicians of course must meet external independent review to ensure that compensation is within fair market value," says Dr. Naas.
4. Recruit experienced practice managers. Hospitals that are new to the hospital management side of things should recruit skilled and experienced managers of physician practices to lead the physician group. "Hospitals need to recognize the skill set of physician group management is separate and distinct from hospital and health plan management," says Dr. Naas. "The physician practice revenue stream is very different from a hospital's and is built on physician services rather than per diem contracts or the DRG system, which we see in hospitals."
5. Physician leadership in governance. Physician leadership in governance and operations is a critical component of a successful hospital-owned practice, says Dr. Naas. "Historically, we've seen this independent or self-determination gene in physicians. This is often best served by engaged leadership from and by physicians in governance and in operations."
Physician leadership also often improves the ease at which practices can gain buy-in from other physicians for changes. Dr. Naas reports that a paired leadership model, where a physician leader and a chief administrative officer jointly lead a practice, is becoming increasingly popular.
Learn more about VHA.
Here, Dr. Naas shares five tips for successfully managing hospital-owned physician practices.
1. Marketplace sensitivity. Before acquiring a practice or employing physicians, hospitals need to explore the marketplace needs of the community, says Dr. Naas. No physician group should be developed without a specific need for its services. "Hospitals that look strategically at how to invest scarce capital in this area are in the best position to successfully deliver healthcare to a community," she says.
Knowing your market ensures physicians have enough patient demand and the ability to effectively coordinate care for certain patient populations. "If opportunities for the group include taking on [financial] risks by managing the care of a certain population, then the group needs to hire [individuals] to deliver that capability," says Dr. Naas.
2. Careful selection of physicians. Physicians employed by a hospital or health system need to share the same values as the parent organization. "An amalgam of individuals with individual business plans is not a best practice for a group to deliver desired operational and quality outcomes of the system," says Dr. Naas. "You need physician partners who share the same values and will work collaboratively toward these outcomes."
Dr. Naas recommends hospitals create a "culture of performance" for its employed physicians, meaning part of physician compensation and overall practice success is determined by measurable clinical and financial performance outcomes. "Hospitals should avoid physicians looking to sell their practices in order to never again have to worry about the financial viability of his or her practice," says Dr. Naas.
3. Don't underestimate the financial impact of an acquisition. Because of the downward pressure on reimbursements for purely physician services, such as office visits, many practices have begun offering a "menu" of ancillary services, such as imaging, physical therapy, durable medical equipment and device sales and drug research, says Dr. Naas. When a hospital acquires a practice, these ancillary services are often moved to the hospital, transferring corresponding revenues away from the practice itself and into a hospital outpatient department. While adding physicians may lead to increased referrals for these hospital services, the acquiring organizations must keep in mind that apparent practice revenues may drop accordingly. "It's important to take a careful look at the total value stream accruing to the organization. Compensation to the employed physicians of course must meet external independent review to ensure that compensation is within fair market value," says Dr. Naas.
4. Recruit experienced practice managers. Hospitals that are new to the hospital management side of things should recruit skilled and experienced managers of physician practices to lead the physician group. "Hospitals need to recognize the skill set of physician group management is separate and distinct from hospital and health plan management," says Dr. Naas. "The physician practice revenue stream is very different from a hospital's and is built on physician services rather than per diem contracts or the DRG system, which we see in hospitals."
5. Physician leadership in governance. Physician leadership in governance and operations is a critical component of a successful hospital-owned practice, says Dr. Naas. "Historically, we've seen this independent or self-determination gene in physicians. This is often best served by engaged leadership from and by physicians in governance and in operations."
Physician leadership also often improves the ease at which practices can gain buy-in from other physicians for changes. Dr. Naas reports that a paired leadership model, where a physician leader and a chief administrative officer jointly lead a practice, is becoming increasingly popular.
Learn more about VHA.