building the right physician platform

Better integration of both employed and independent physicians will be critical to high-performance population health management.

As hospitals and health systems nationwide develop and participate in integrated delivery networks to manage population health in their communities, many of these organizations are wrestling with challenges related to their physician enterprise. A common experience is that current arrangements with employed and independent physicians do not properly align financial incentives with the goals required to meet the expectations of payers, employers, and consumers for lower-cost, higher-quality care.

The Crux of the Challenge

Constant payment pressures and a desire to achieve the Triple Aim compel hospitals to make sure their owned physician practices operate at the highest level. Yet overall financial performance of physician practices has been eroding steadily during the past decade, while growth in employment of physicians by hospitals has risen. Median losses per physician increased nearly five-fold in eight years, from approximately $60,000 in 2005 to almost $290,000 in 2013, according to cost surveys published by the Medical Group Management Association in 2006 and 2014. Acquisition costs and accounting changes, including allocated expenses and removal of ancillary revenues, contribute to the deficit but are not the primaiy drivers (see the sidebar and exhibit on page 55).

Physician-related losses are weakening hospital margins and are a factor in the continued negative outlook from the rating agencies for not-for-profit health care in 3015." Organizations are looking for ways to improve the performance of their employed physician groups, but as the nation moves to a value-based system, the solution will not involve increasing the volume of services for the organization's existing population.

Physicians, both independent and employed, are still paid mostly on a fee-for-service (FFS) basis, a system that historically has fueled higher-than - necessaiy utilization and tolerated uneven quality of care. Under the new value - based payment arrangements being developed by the Centers for Medicare & Medicaid Services (CMS) and commercial insurers, hospitals are offering physicians shared savings on top of existing FFS arrangements, with bonuses if the physicians collectively reduce costs for the attributed patient population and meet quality and other efficiency targets. All physicians therefore need to understand how they affect the available dollars in contract incentives and the desired end result, and should work collaboratively to achieve that result. Communication is critical to maximizing shared savings and reducing financial exposure to penalties for failing to meet targets.

Tight alignment of employed and independent physicians using common goals will be required to deliver high-value care to a defined patient population across the entire care continuum.

Benefits to systems that successfully align with their physicians include:

* Expanded options to participate in population health management

* Ability to materially improve care coordination and quality

* Decreased financial exposure under risk-based or other performance-based contracts

* Ability to ensure access levels required by payers and employers

* Enhanced capacity to promote accountability for quality, service, and patient satisfaction measures

* Potential to "secure" medical staff before competitors enter the market

* Increased ability to bend the cost-of-care curve

The alignment challenges associated with employed and independent physicians differ in many ways, as do potential solutions. For this reason, these two physician groups should be considered separately in the discussion of key improvement opportunities and how best to create a sustainable physician enterprise.

Restructuring the Employed Physician Platform

Efficient clinical deliveiy networks are most likely to be attractive to payers, achieve quality and cost targets, and manage and furnish care in the least intensive setting appropriate to patient conditions.11 Six steps can help hospitals achieve these objectives.

Right-size the current service delivery network. As the necessary starting point, this step offers the biggest opportunity for improved performance of the overall physician enterprise and organization. Given changing utilization trends and market dynamics, all service lines and care sites should be evaluated according to quality, cost, and access criteria. Duplication of services in multiple sites, with the attendant physician and support staffing, may not be required or viable. It also may be necessary to consider discontinuing specific services or closing or retrofitting specific facilities.

Examples of ways in which organizations have right-sized their networks are increasingly common. One large health system, for example, sought to streamline care delivery-and thereby improve quality and transform its cost structurein a region where it operated three inpatient facilities and numerous ambulatory and physician sites. After a detailed planning process, the health system closed an obstetrics program in one facility and consolidated cardiovascular surgical services at one site, producing early operational savings of $1.5 million.

Among other examples, two community hospitals recently converted their inpatient and emergency facilities to an urgent care center and an outpatient center. And a hospital with more than 350 beds discontinued its sleep medicine services, which had not achieved sufficient volume to meet quality, cost, and revenue thresholds, and referred patients to an independent group practice.

Right-size the employed medical group. This strategy is pursued in concert with service-delivery right-sizing. Many organizations have realized that they do not need to employ-and cannot afford to employ-all their specialists. One community hospital, for example, determined that its emergency medicine services could be delivered more effectively and efficiently by a community-based physician group. Because the organization had a high self-pay and Medicaid payer mix, its employed emergency medicine practice was unable to achieve a supportable collection rate. As utilization declines, health systems should continually assess whether they require their full complement of employed or contracted specialists.

Build a sustainable compensation program. CMS's physician payment model continues to be based on the volume and intensity of services. In April, however, Congress passed legislation that, over the next five to 10 years, moves physician payments away from FFS while emphasizing alternative payment models that use a pay-for-value approach.

A sustainable compensation program in the new environment balances productivity (i.e., volume) and value and uses uniform compensation standards and metrics that are applied consistently across physicians, locations, and specialties.

Compensation per work relative value units (wRVUs) remains a preferred productivity model for high-performing groups for three reasons:

* The physician is held accountable only for his or her productivity and clean charge entry.

* The compensation per wRVU can be indexed up or down in timely response to changes in net collections per wRVU.

* This method allows for the integration of quality, service, access, and strategic metrics, and for rewarding physicians based on health system goals, such as achieving high levels of patient satisfaction or expense management (e.g., through creation of "shadow wRVUs" paid out in proportion to productivity).

Perhaps most important, the wRVU model works under fee-for-service or capitated revenue. A conversion factor for the payment rate can be adjusted up or down based on changes in payer mix, managed care payment levels, and/or net revenue or collections (see the exhibit at right).

Especially vigilant care should be taken in assessing physician compensation data. Published data typically are six to 18 months old. Large compensation discrepancies are emerging between independent and employed physicians, particularly in certain specialties. For example, in a recent year, median compensation for invasive cardiologists varied as much as 170 percent based on the survey source. Compensation surveys differ with regard to longitudinal consistency, sample size, and local applicability. In an employment model, benchmark financial performance is based on operating the practices at a large loss-hardly an aspirational target or standard.

Enhance revenue collected. Opportunities to improve the revenue cycle in owned practices typically are significant and can be quantified through use of industry benchmarks. Key revenue cycle metrics include collection rates, denials and write-offs, bad debt, days in accounts receivable, collection costs, and net collections per wRVU by payer across sites. Some benchmarks have better longitudinal surveys and larger sample sizes, making them more reliable over the long term.

Also valuable is review of front-end processes (e.g., registration, coding, charge capture, time-of-service collections) and back-end processes (e.g., claims submission, edit management, payment posting, account follow-up, denial management). Success can hinge on an organization's ability to manage the physician revenue cycle in a way that results in improved collection metrics and reduced collection costs.

Increase use of midlevel providers. The role of allied clinicians has expanded well beyond the primaiy care environment and into primaiy and specialty practices owned by hospitals. Working independently of physicians according to the scope of their licenses, midlevel providers are enhancing access by filling appropriate gaps in physician supply, staffing ambulatoiy clinics, assuming labor-intensive management of chronic patients, delivering patient education and follow-up care, and assisting physicians in the provision of highly technical care.

Increased use of midlevel providers can reduce the underlying expense structures of many hospital-owned practices, which typically treat these clinicians as a 0.5-provider FTE. Analysis for a single hospital, for example, found that it could save more than $1 million by increasing midlevel wRVUs to 10 percent of total practice wRVUs, and more than $5 million by increasing the proportion to 30 percent. Among other strategies, the hospital would use midlevel providers in place of hospitalists to deliver lower-acuity care, to provide patient education in practices with heavy geriatric populations (thereby freeing up physicians for new or more complex visits), and to fill some positions currently slated for primary care physicians. State laws related to scope of practice apply, but many states now grant full independent practice rights to midlevel providers, such as nurse practitioners. To free up physicians for higher-acuity cases, midlevel providers must be working at capacity according to their licensing level, and not employed simply as scribes.

Implement a common technology platform. The need to implement a common electronic health record (EHR) is a key factor behind hospital employment of physicians and development of technology support programs for independent physicians. It can easily cost a hospital five times what specialty practices typically spend for technology to achieve organizationwide interoperability and standardization. Developing a common technology platform requires thorough technology planning that defines user requirements at the physician level, with physician engagement early in the process. Technology should aid physicians in the practice of medicine without intruding on their discussions with patients. Adoption efforts will be successful if clinical technology serves its primary purpose of enabling and improving clinical processes and decision making.

Shaping the Independent Physician Enterprise

Health systems achieve alignment with independent physicians not only through customer service programs that provide them with support and services in technology, insurance, marketing, and other administrative functions, but also through contractual arrangements. Such arrangements include professional services agreements, physician-hospital organizations (PHOs), co-management agreements, management services organizations, and clinical integration programs-all of which can provide independent physicians with aligned incentives based on productivity, quality, and efficiency metrics, among others. Moreover, these approaches can be used to align physician and health system objectives whether or not a clinically integrated network (CIN) is in place. Five strategies can help to shape a high-performance independent physician enterprise.

Understand payer contract models. Increasingly available from public and private payers, value-based contracts are designed to shift "performance risk" for care quality and costs to healthcare providers, which ultimately control the costs and quality of care. Most payers are focused on reducing year-over-year total spending, adjusted for inflation, as a function of per-member-per-month costs.

Participate in shared-savings arrangements. In such arrangements, payers incent providers to reduce healthcare spending and improve care efficiency and quality for a defined patient population by offering the providers a percentage of the net savings realized as a result of their efforts. Many payers view their shared-savings contracts as "still evolving" as they move from fee-or-service to value-based models. Considerable variation exists in the contractual provisions and organizational infrastructure requirements.

For example, some payers offer providers funding for items such as patient - centric registries and salaries for care navigators required under the contract. Other payers require providers to fund care navigators and to use the payer's web-based information systems. Substantial differences also exist in the quality metrics and the shared-savings calculation method for incentive payments, making it extremely difficult for physicians who are participating in multiple contracts to achieve the same contractual success rates by treating all their patients under one standard of care. Organizations should strive to meet the highest standard of care recognized by the organization's clinical leadership and in all contracts.

Assess alternative distribution models to maximize aligned goals. Payers establish incentive funds for providers based on reduction in total spending and achievement of efficiency and quality targets. When a contract exists between a hospital or CIN and a payer, the pooled dollars are then distributed by the hospital or CIN to participating physicians based on goals that could be different from those specified by the payer in the contract. For example, a hospital or CIN may provide incentives related to physician administrative participation and different quality targets.

Contracting providers should seek to establish distribution methodologies that maximize physician cooperation and incentive earnings. For example, one CIN distributed its sharedsavings incentive fund by having 30 percent go to the hospital and 70 percent to physicians. The CIN then distributed 30 percent of the physician portion based on group performance and 70 percent based on individual physician performance (see the exhibit on page 58). The CIN's quality committee developed the target metrics.

Choose metrics with care. Quality metrics typically include the Healthcare Effectiveness Data and Information Set (HEDIS) indicators as a foundation. The HEDIS physician measures cover effectiveness of preventive, acute, and chronic care, access/availability of care, and utilization. Additional metrics deemed important by the payers may be included in arrangements and may differ by plan and/or geography.

Efficiency metrics typically are focused on avoidable costs (e.g., high-end imaging) and avoidable emergency department visits, admissions, and réadmissions. Current measurement approaches must rely on existing data sources, which may not be sufficiently robust given that gaps exist in current clinical measurement sets.c For example, few measures address accuracy of diagnosis and appropriateness of procedural interventions. In all cases, the extent to which physicians will be motivated to meet targets will depend on which metrics are selected and the specified targets that must be met to receive incentive payments. Performance data should be transparent and regularly reported.

Consider shared branding options. As consumerism increases in health care, brand loyalty will become increasingly important to both consumers and physicians. Physician-led organizations, such as Cleveland Clinic and Mayo Clinic, have been extending their brands nationwide to deliver patient care under direct-to-employer or management services agreements. Health systems should assess the strength of their brands as they fine-tune their independent physician networks. Shared branding can benefit both parties only if work standards and performance are unified among physician and hospital providers.

Measures of Success

The right physician platform for the new era will deliver value propositions for both independent and employed physicians. Significant elements will include access to reasonable payment rates, ability to maintain appropriate levels of productivity, coordination and alignment of care, and reduction in practice overhead costs. Value also will be offered through access to IT solutions, involvement in administrative efforts to impact care delivery and cost, and practice promotion and branding. Education, real-time reporting, and the dissemination of best practices are critical to strong clinical and financial performance improvement going forward. Successful organizations will:

* Develop physician leaders and make their involvement in organizational leadership a high priority

* Truly integrate their physicians-both employed and community-based

* Develop a physician strategy that aligns with organizational goals and objectives and with payment models available in the market

* Employ a balance of primary care physicians, specialists, and midlevel providers based on the needs of the community, value-based care models, and changing provider roles

* Consistently communicate, assess, and enforce operating standards, scheduling protocols, and professional work standards across all practice locations

* Develop and use care protocols uniformly throughout the organization, ensuring that peers hold physicians and other clinicians accountable for adherence

Ultimately, an organization's arrangements with physicians should provide the platform for organizational growth and sustainability in the future.

AT A GLANCE

* The challenges health systems often face in aligning physicians with organizational cost and quality goals related to the delivery of value-based care differ between employed and independent physicians.

* With employed physicians, the focus should be on right-sizing the service delivery network and employed medical group, building a sustainable compensation program, enhancing the revenue cycle, increasing use of midlevel providers, and implementing a common technology platform.

* With independent physicians, the focus should be on understanding available contracting models, participating in shared-savings arrangements, considering alternative payment distribution models, choosing the right metrics, and exploring shared branding options.

Anatomy of Employed Practice Losses

Many higher expenses of an employed physician practice are not discretionary, but are required costs of operating within a health system and are driven by physician compensation. These expenses include:

* Atypical compensation bump of 10 to 15 percent as part of recruitment or acquisition

* A three- to five-year contractual iock-in of the initial compensation

* Increase in nonphysician wages

* Increase in benefits for physicians and all employees

* Higher medical malpractice costs

* Higher technology and facility costs

* Decreased revenue cycle performance during the transition

* Higher administrative costs

In addition, reporting issues can lead to higher costs due to the conversion of K-i income for independent practices to W-2 income for employed practices. If a health system does not account for this differential properly, it can unknowingly increase physician compensation levels with the change in employment status. A significant portion of practice losses can be attributed to post-acquisition compensation, as Indicated in the high-level K-i to W.2 crosswalk presented the exhibit at right.

A sustainable compensation program in the new environment balances productivity and value and uses uniform compensation standards and metrics that are applied consistently across physicians, locations, and specialties.

It can easily cost a hospital ñve times what specialty practices typically spend for technology to achieve organizationwide interoperability and standardization.

The right physician platform for the new era will deliver value propositions for both independent and employed physicians.

a. Moody's Investors Service, 'Cash Flow Settling into Low Level of Growth Amid Negative Outlook,' 2015 Outlook, Dec. 2,2014; Standard & Poor's, 'Not-for-Profit Healthcare Outlook 2015,' presentation, Dec. 18,2014.

b. Morrissey, W.W., 'Reconfiguring Your Delivery Network,' hfm, December 2014.

c. Berenson, R. A., 'SGR: Data, Measures and Models: Building a Future Medicare Physician Payment System,' testimony before the U.S. House of Representatives Energy and Commerce Committee, Feb. 14,2013.

About the authors

James J. Pizzo

is managing director, Kaufman, Hall & Associates, LLC, Skokie, III. (jpizzo@ kaufmanhall.com).

Debra L. Ryan

is vice president, Kaufman, Hall & Associates, LLC, Skokie, III., and a member of HFM A's First Illinois Chapter ([email protected]).

Luke Sullivan

is director, Carle Neuroscience Institute, Urbana, III.