How much money do hospitals lose on employed physicians? According to the New England Journal of Medicine, operating shortfalls range from $150,000 to $250,000 per provider during each of the first three years of employment. But for many hospitals, these initial losses are just the tip of the iceberg.
Mistakes that occur early in the physician employment process can add to hospital costs while decreasing long-term revenue. For example, poor financial modeling can mask future problems with practice expenses. Missteps in contracting and billing can reduce practice payments. Misaligned incentives can permanently suppress practice revenue. All told, these early mistakes can swell the total cost of physician employment. Hospitals that pursue even a modest employment strategy can easily lose several million dollars per year.
How can hospitals avoid excessive financial losses? The solution is to create a comprehensive physician onboarding process that preventively addresses the main causes of high costs and low revenue. The following seven tactics will help hospitals minimize losses by effectively integrating newly employed physicians.
1. Measure twice, employ once
Many hospitals today are on a practice acquisition "spree," employing practices they do not need and making financial commitments they do not yet understand. These acquisitions are expensive in terms of both upfront investment and future operating costs. They also carry a steep opportunity cost since they take capital away from other growth projects.
To avoid wasting money on unnecessary acquisitions, start by developing a sound physician strategy. Most hospital planners focus on high-end specialties such as cardiology, neurology and oncology, but it is also important to build the primary care base that will feed these services. Once your strategy is set, insist that all potential acquisitions align with defined strategic needs.
For every promising acquisition target, develop a financial pro forma to model the practice's performance under hospital ownership. The pro forma should take into account productivity, expenses, compensation, payor mix, current contracts and existing staffing. Include a network allocation to cover hospital administrative overhead. Use industry benchmarks, such as data from the Medical Group Management Association, to identify opportunities for improvement and cost control. A realistic pro forma will enable the hospital to forecast an employed practice's expected net operating income — or its potential losses.
2. Maintain the link between productivity and pay
Private practice physicians are accustomed to a lean organizational structure. Joining a large health system with complex demands can reduce physician productivity. To maintain productivity once employment begins, develop compensation plans that incorporate performance incentives. For example, tie physician salary to work RVUs and include bonuses for meeting quality metrics aligned with value-based care programs.
Alternatively, engage physicians under a provider services agreement. A PSA allows a hospital to collect revenue for an independent practice, pay its salaries and reimburse its operating expenses. Productivity expectations can be built into the compensation agreement. A PSA is often preferable when full acquisition would require purchasing a physician's office building. It can also make sense for a physician who would prefer a trial employment period before signing a long-term contract.
3. Establish and optimize payor relationships
Newly employed physicians need to be credentialed with several payors. Unfortunately, most hospital employees are unfamiliar with physician credentialing. A hospital system in the Southwest experienced this problem with a multispecialty spine practice it acquired in 2011. Administrative staff spent a full year attempting to credential the physicians and non-physician providers with the hospital's workers' compensation contracts. During this period, the system lost approximately $500,000 on under-reimbursed care.
To avoid this scenario, create a centralized team whose sole responsibility is to manage physician credentialing. Develop standardized processes and employ a dedicated software application to ensure credentials for all providers stay completely up to date.
As part of the credentialing process, take steps to optimize payor contracts. Many private practices accept health plan contracts indiscriminately, regardless of adverse fee schedules or adjustment policies. When a physician joins your organization, analyze the practice's payor mix and identify health plans to eliminate or leverage for better rates.
4. Declare war on payor denials
According to the MGMA, medical practices have an average claim denial rate of 30 percent on first submission. Unfortunately, these denial problems can get even worse after acquisition. To maintain practice revenue, hospitals need to devote resources to combating payor denials. Here's how:
5. Strike a balance on EHR
Many physician electronic health record systems do not integrate well with hospital IT systems and do not support population management goals. Yet, forcing physicians to adopt the hospital EHR system can be dangerous. Hospital EHRs are usually too expensive and complex for ambulatory providers.
Strike a balance between permissiveness and rigidity on EHR. One system will not work for all specialties and practice sizes, so study popular compatible vendors to find a range of appropriate options. All approved systems should support the hospital's strategic goals.
Take a project management approach to EHR implementation. Create IT project teams to work directly with practices to optimize system capabilities. Before implementation, perform an onsite workflow analysis to spot opportunities to redesign daily practice operations. Wasteful workflows will only be exacerbated with a new EHR system.
As part of the workflow analysis, perform a meaningful use gap analysis to make sure practices can earn government EHR incentives. The additional reimbursement will offset costs and help ensure the hospital gets the most value from its EHR investments.
6. Provide "concierge onboarding"
Transitioning physicians to employment is a 90- to 180-day process that requires attention to hundreds of details. Important steps can slip through the cracks, causing frustration and negative first impressions for newly employed physicians. The solution? Establish a well organized onboarding approach that emphasizes physician service.
Create an onboarding checklist with deliverables, timeframes and milestones. Cover activities such as human resources orientation; IT assessment and connectivity; revenue cycle optimization; office workflow redesign; credentialing and contracting; and marketing integration. Make the list as detailed as possible — down to ordering supplies and new office signage.
Streamline the process for physicians. In many health systems, new physicians might have to interact with a dozen departments to iron out details in finance, HR, IT, etc. Instead, assign one liaison to each acquired practice to serve as the go-between and project manager for all onboarding issues.
The concierge approach enables the hospital to customize the onboarding process to the specific needs of individual practices. Making sure every practice is "good to go" on day one will help maintain continuity in productivity and patient care.
7. Lay the groundwork for clinical integration
The ultimate aim of physician employment is to achieve greater coordination around clinical improvement and cost management. Hospitals will receive less than full value on any employed practices that do not contribute toward this goal. Onboarding efforts need to focus on aligning physicians with clinical integration objectives in quality, patient care and cost control.
First, establish measurement processes within acquired practices. Physicians and practice staff will need the right workflows, processes and IT tools to reliably capture cost and quality metrics.
Second, create feedback systems to keep physicians focused on system goals. Provide regular dashboard reports with KPIs in productivity, patient volume, budget performance and clinical quality outcomes. Hold regular operations reviews (monthly or quarterly) to give physicians feedback on practice performance.
Most importantly, establish organizational milestones for cost and outcomes goals. Physicians need to understand how they can help the system develop disease management initiatives, transition from fee-for-service to value-based payment and prepare to operate as an accountable care organization.
Smooth transitions require preparation
Without appropriate preparation, hospitals stand to lose significant money on employed physicians. The key to a sustainable investment is to focus on sound strategy, aligned incentives, practice efficiency and clear overall goals. Optimizing practices clinically, operationally and financially during the onboarding phase will minimize losses and help hospitals get the most out of physician employment.
Sabrina Burnett and Cami Hawkins, MHA, are vice president and managing associate at Health Directions, a national healthcare firm dedicated to improving the financial, operational and strategic performance of hospitals, medical groups and physician practices. They can be reached by phone at (512) 795-5500 or by e-mail at sburnett@healthdirections.com or chawkins@healthdirections.com.
Mistakes that occur early in the physician employment process can add to hospital costs while decreasing long-term revenue. For example, poor financial modeling can mask future problems with practice expenses. Missteps in contracting and billing can reduce practice payments. Misaligned incentives can permanently suppress practice revenue. All told, these early mistakes can swell the total cost of physician employment. Hospitals that pursue even a modest employment strategy can easily lose several million dollars per year.
How can hospitals avoid excessive financial losses? The solution is to create a comprehensive physician onboarding process that preventively addresses the main causes of high costs and low revenue. The following seven tactics will help hospitals minimize losses by effectively integrating newly employed physicians.
1. Measure twice, employ once
Many hospitals today are on a practice acquisition "spree," employing practices they do not need and making financial commitments they do not yet understand. These acquisitions are expensive in terms of both upfront investment and future operating costs. They also carry a steep opportunity cost since they take capital away from other growth projects.
To avoid wasting money on unnecessary acquisitions, start by developing a sound physician strategy. Most hospital planners focus on high-end specialties such as cardiology, neurology and oncology, but it is also important to build the primary care base that will feed these services. Once your strategy is set, insist that all potential acquisitions align with defined strategic needs.
For every promising acquisition target, develop a financial pro forma to model the practice's performance under hospital ownership. The pro forma should take into account productivity, expenses, compensation, payor mix, current contracts and existing staffing. Include a network allocation to cover hospital administrative overhead. Use industry benchmarks, such as data from the Medical Group Management Association, to identify opportunities for improvement and cost control. A realistic pro forma will enable the hospital to forecast an employed practice's expected net operating income — or its potential losses.
2. Maintain the link between productivity and pay
Private practice physicians are accustomed to a lean organizational structure. Joining a large health system with complex demands can reduce physician productivity. To maintain productivity once employment begins, develop compensation plans that incorporate performance incentives. For example, tie physician salary to work RVUs and include bonuses for meeting quality metrics aligned with value-based care programs.
Alternatively, engage physicians under a provider services agreement. A PSA allows a hospital to collect revenue for an independent practice, pay its salaries and reimburse its operating expenses. Productivity expectations can be built into the compensation agreement. A PSA is often preferable when full acquisition would require purchasing a physician's office building. It can also make sense for a physician who would prefer a trial employment period before signing a long-term contract.
3. Establish and optimize payor relationshipsNewly employed physicians need to be credentialed with several payors. Unfortunately, most hospital employees are unfamiliar with physician credentialing. A hospital system in the Southwest experienced this problem with a multispecialty spine practice it acquired in 2011. Administrative staff spent a full year attempting to credential the physicians and non-physician providers with the hospital's workers' compensation contracts. During this period, the system lost approximately $500,000 on under-reimbursed care.
To avoid this scenario, create a centralized team whose sole responsibility is to manage physician credentialing. Develop standardized processes and employ a dedicated software application to ensure credentials for all providers stay completely up to date.
As part of the credentialing process, take steps to optimize payor contracts. Many private practices accept health plan contracts indiscriminately, regardless of adverse fee schedules or adjustment policies. When a physician joins your organization, analyze the practice's payor mix and identify health plans to eliminate or leverage for better rates.
4. Declare war on payor denials
According to the MGMA, medical practices have an average claim denial rate of 30 percent on first submission. Unfortunately, these denial problems can get even worse after acquisition. To maintain practice revenue, hospitals need to devote resources to combating payor denials. Here's how:
- Create effective workflows. Establish solid processes for entering charges, submitting claims, posting payments and appealing rejections. Assign clear responsibilities, whether the work is organized through a central billing office or a dedicated biller for each physician.
- Set benchmarks and monitor collections. Establish key practice indicators for collections (daily, weekly, monthly) and denials by type (coding denials, prior authorization, etc.). Compare KPIs to industry benchmarks and act on variances.
- Create a denial follow-up process. Appealing denials is labor-intensive, but it is crucial to maintaining revenue. Establish processes and timelines for denial follow-up. Identify staff members with the best appeal success rates and share their methods across the organization.
- Consider outsourcing. Contracting with a billing company or management services organization to manage the physician revenue cycle may be less expensive and more efficient than maintaining operations in-house.
5. Strike a balance on EHR
Many physician electronic health record systems do not integrate well with hospital IT systems and do not support population management goals. Yet, forcing physicians to adopt the hospital EHR system can be dangerous. Hospital EHRs are usually too expensive and complex for ambulatory providers.
Strike a balance between permissiveness and rigidity on EHR. One system will not work for all specialties and practice sizes, so study popular compatible vendors to find a range of appropriate options. All approved systems should support the hospital's strategic goals.
Take a project management approach to EHR implementation. Create IT project teams to work directly with practices to optimize system capabilities. Before implementation, perform an onsite workflow analysis to spot opportunities to redesign daily practice operations. Wasteful workflows will only be exacerbated with a new EHR system.
As part of the workflow analysis, perform a meaningful use gap analysis to make sure practices can earn government EHR incentives. The additional reimbursement will offset costs and help ensure the hospital gets the most value from its EHR investments.
6. Provide "concierge onboarding"
Transitioning physicians to employment is a 90- to 180-day process that requires attention to hundreds of details. Important steps can slip through the cracks, causing frustration and negative first impressions for newly employed physicians. The solution? Establish a well organized onboarding approach that emphasizes physician service.
Create an onboarding checklist with deliverables, timeframes and milestones. Cover activities such as human resources orientation; IT assessment and connectivity; revenue cycle optimization; office workflow redesign; credentialing and contracting; and marketing integration. Make the list as detailed as possible — down to ordering supplies and new office signage.
Streamline the process for physicians. In many health systems, new physicians might have to interact with a dozen departments to iron out details in finance, HR, IT, etc. Instead, assign one liaison to each acquired practice to serve as the go-between and project manager for all onboarding issues.
The concierge approach enables the hospital to customize the onboarding process to the specific needs of individual practices. Making sure every practice is "good to go" on day one will help maintain continuity in productivity and patient care.
7. Lay the groundwork for clinical integration
The ultimate aim of physician employment is to achieve greater coordination around clinical improvement and cost management. Hospitals will receive less than full value on any employed practices that do not contribute toward this goal. Onboarding efforts need to focus on aligning physicians with clinical integration objectives in quality, patient care and cost control.
First, establish measurement processes within acquired practices. Physicians and practice staff will need the right workflows, processes and IT tools to reliably capture cost and quality metrics.
Second, create feedback systems to keep physicians focused on system goals. Provide regular dashboard reports with KPIs in productivity, patient volume, budget performance and clinical quality outcomes. Hold regular operations reviews (monthly or quarterly) to give physicians feedback on practice performance.
Most importantly, establish organizational milestones for cost and outcomes goals. Physicians need to understand how they can help the system develop disease management initiatives, transition from fee-for-service to value-based payment and prepare to operate as an accountable care organization.
Smooth transitions require preparation
Without appropriate preparation, hospitals stand to lose significant money on employed physicians. The key to a sustainable investment is to focus on sound strategy, aligned incentives, practice efficiency and clear overall goals. Optimizing practices clinically, operationally and financially during the onboarding phase will minimize losses and help hospitals get the most out of physician employment.
Sabrina Burnett and Cami Hawkins, MHA, are vice president and managing associate at Health Directions, a national healthcare firm dedicated to improving the financial, operational and strategic performance of hospitals, medical groups and physician practices. They can be reached by phone at (512) 795-5500 or by e-mail at sburnett@healthdirections.com or chawkins@healthdirections.com.