The Challenges of Integrating Physician

Group OperationsPresented by Gary Ermers, Associate Director of Healthcare ConsultingDavid Bundy, President and CEO of Dean Dorton Allen Ford

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Why we did the study:

Dean Dorton Allen Ford created this report in response to a

clear need. Nearly every health system and hospital our healthcare team has interacted with has recently acquired

physician groups, is actively seeking to acquire them, or both. Yet, nearly every health system and hospital with integrated

physician groups is realizing substantial operating losses from those groups.

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Who were the participants?

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Most of the participants were in Kentucky and Indiana

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The Survey• Every hospital in Kentucky

was invited to participate in this study through an email request via e-newsletter

• The survey had 30 questions and was taken using Survey Monkey

• The survey was broken down into 4 sections

Background Structure Operations Opinions

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• Length of time Hospital has employed physicians

• Types of physician specialties employed

• Employed physicians organized in a separate group

• Physician compensation• Average annual loss per

physician

Some questions from the survey

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Analyzing the dataOnce we received all the responses, we analyzed

the answers from each as it related to the question…

“What is your average annual

loss per physician?”

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41% of all respondents reported that their average annual loss for hospital-owned physician groups is greater

than $100,000

87% of all respondents reported a loss

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Some other stats from the study

When it came to losses…• The size of the hospital

didn’t matter• The more physicians

employed, the more likely operating losses became• Hospitals reported that physician groups operating as separate legal entities had the highest losses

• Length of contracts did not impact results

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Some other stats from the study

• Less than a quarter of respondents reported that their hospital had a unique board of directors that oversaw the operations of the physician group(s)

• 69% of the respondents reported utilizing productivity based compensation measured by RVUs

o 67% of hospitals using RVU-based compensation also experienced the highest losses

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Does every physician group acquisition need to have a positive bottom line to be beneficial to hospitals?

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Not necessarily….But hospitals need to

manage these practices as effectively as they

can.

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Hospitals benefit from the tradeoff of additional revenue

streams to the hospital for losses on employed physicians;

as compensation criteria changes, that

tradeoff becomes less sustainable

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Why are hospitals losing money on

physician groups?

87% reported losses

41% losses over $100K

70% losses over $50K

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• Employing specialty and sub specialty physicians to meet needed service gaps

• Employing whomever is available, not necessarily following a strategy

• Employing for clinical quality support of other providers and the hospital

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Compensation model does not drive profitable results or

includes unaligned incentives

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Compensation models• The model needs to incentivize volumes

of patient delivery and the payor mix; physicians work harder and smarter with correct productivity goals

• Negotiated compensation is not realistic to actual market forces; minimum base is too high, productivity incentives are too rich, or additional non-productivity compensation builds up.

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Compensation Models• Pure productivity

based compensation without regard to actual collections and cost often result in unfavorable financial results

• Discipline to communicate and adjust annual plan for lower results, including terminating underperformers, is sometimes lacking

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Understanding operations

• Operations can become disjointed or hospital-centric. The business of physician practices differs from the hospital.

• Integration of computer systems for EHR, billing, and practice management

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Understanding operations

• Meaningful Use and clinical data reporting

• Duplication of functions and staff occurs as practices get added rather than accomplishing economies of scale

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Hospital Experience• From Me Too to Mission

Critical• Overstated Downstream

Impact• Competitive Market and

Defensive Reasons caused over value/pay

• Relying on Hospital Based Reimbursement is risky

• Availability impacted strategy• Underperformance not

addressed

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Physicians Experience• Administrative, management, and billing

functions less efficient than promised• Confusing compensation model with data

integrity concerns• Equity (Financial) issues and Quality

issues among employed physicians• IT solutions lacking• Decision rights and integration in Health

System confusing

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Successfully employing physicians

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• Understand the goals of the physicians selling their practice.

Recruitment and or retirement issues

Capital, IT, Investment needs

Administrative and Regulatory burdens

• Understanding what the group values will lead to a more positive, transparent agreement

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• Strategic Recruitment Program• Effective/Efficient practice management

structure and support– Data rich; Frequent reporting and tracking of

clinical quality, patient satisfaction, and financial results.

• Physician Leadership development and support, and governance structure in place

• Address different generational culture and goals among physician group.

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Compensation plans• Compliant. Stark, Anti-Kickback,

OIG/CMS• Design a compensation model

that aligns Hospital and Physician goals with an objective methodology for calculating physician compensation• Transparency, understandability

and data integrity will engender trust with the physicians

• Plans must evolve to align with changing reimbursement systems

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Compensation plans• Plans should reward

integration with the system– For example if leakage

occurs in diagnostic testing consider leaving minor ancillaries with physician practice.

– Determine equitable allocation of bundled payments among practices

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Compensation plans• Maximize revenue growth while

preparing for transition toward quality, satisfaction, and population health based system– Incorporate Value Based criteria lightly, as

supplemental, to begin knowledge build towards transition

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Compensation plans• Capture all additional

revenue streams available from payors for care coordination, shared savings, P4P, VBP, and bundled payments. – Include Internal savings

sharing as part of cost responsibility built into the plan.

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As with Hospitals, recruit the best Physician practice management

• Experience and balanced approach are key• Benchmarking and data driven

decision making • IT technology and resources• Avoid overlay of excessive

bureaucracy

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• Employing doctors doesn’t mean you have an integrated system

• It is just the beginning. Getting to a true integrated delivery network is the key to success under ACA.

• ACA is the key differentiator from the 1990s when many hospitals did a mere about face after incurring losses

Keeping an independent mindset

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Healthcare reform is trying to line doctors and hospitals up in one

continuum… these entities need to learn to work cohesively and in a

financially sustainable model

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QUESTIONS?

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Contact InformationGary Ermers,

Associate Director of Healthcare Consulting859.425.7683

germers@ddafhealthcare.com

David Bundy, President and CEO

859.425.7650dbundy@ddafcpa.com