Alignment is key to success
Physician practices of the past followed these principles to success:
- High volume.
- High compensation.
- High independence.
But those of the future might very well adhere to a different set of principles:
- Great outcomes.
- Great compensation.
- Great partnerships.
Welcome to the new normal.
From volume to value
“Successful private physician practices will continue to survive long-term, but not without aligned and/or more formal relationships with hospitals/health systems and third party payers,” says John Lutz, FACHE, FACMPE, managing director, Huron Healthcare, who spoke at the 2013 MGMA Annual Conference about the alignment strategies physician practices must adopt in order to ensure their long-term survival. Chicago-based Huron Healthcare is a healthcare consulting organization. Lutz himself has 18 years experience leading a multispecialty practice and 10 years experience on the acute-care health systems side.
Entitlement programs, such as Medicare and Medicaid, are focused on reducing their costs as they cover a greater portion of the population, says Lutz, who was CEO of a multispecialty practice in Albany, N.Y., for 18 years. “Physician practices – particularly primary care practices, which are responsible for ‘covered lives’ – are now gaining acquisition popularity as hospitals, health systems and insurers all try to capture greater market share. Many payers have spent significant time and resources trying to identify the lowest cost physicians with satisfactory outcomes to create ‘narrow networks’ to hedge their bets against those physicians deemed to be more costly to them.”
Making the transition from “volume to value” calls for physician practices to change many things about the way they operate, he says. They must assume some risk for clinical outcomes, build population-health-management capabilities, and move from a “consolidated practice” status to a “clinically integrated” one.
Many shades of alignment
Pursuing partnerships will be key to achieving scale and integration, he says, pointing to three core aspects of alignment: clinical, economic and market:
- Clinical alignment addresses the need for significant improvements in care coordination, referral management and patient-focused initiatives, such as patient-centered medical homes.
- Economic alignment addresses the need for developing financial incentives that reward physicians for providing care in the right place, at the right time and at the most appropriate cost (often referred to as the “triple aim.”).
- Market alignment addresses the need to ensure that patients have ready access to the most appropriate level of care within a reasonable geographic proximity. Such alignment brings together physicians and other advanced practice providers in primary care and specialties, based on community or market need; and providers in the market are structurally aligned to ensure that patients can transition without major disruption in their care. Example: A physician wants to admit his or her patient to the local hospital; the local hospital has access to the physician’s notes, patient medication lists and diagnostic studies, eliminating the need to duplicate them.
Physicians and hospitals
It’s no secret that hospitals are a prime target for many physicians seeking alignment. In many cases, those physicians are becoming employees.
“Employment is by far the most commonly occurring alignment relationship,” says Lutz. More than half of the physician groups responding to MGMA surveys are now employed by their local hospital or health system. Typically, the physician practice sells its assets to the hospital or health system, and the physicians become employees of the provider or a related corporate entity. The physician is paid a salary and largely gives up his or her independence and administrative decision-making responsibilities.
But physician/hospital alignment can take on other forms as well, says Lutz. One is a structured engagement, such as a professional services agreement, or PSA, in which the hospital or health system leases the services of the physician practice, based upon a mutually agreed upon budget. The hospital or health system may or may not acquire the practice assets. In this model, the physician practice remains intact and allows the physician owners to continue to make decisions without being employed. Some physician practices do this in advance or in lieu of employment.
Another model is clinical co-management, in which the physician practice becomes responsible for a specific clinical discipline in conjunction with the hospital or health system. Often, the physician practice is paid for its administrative time and may be rewarded if mutually agreed-upon goals are met.
Many hospitals and health systems offer business services – e.g., information technology, billing, coding, human resources, etc. – to smaller physician practices to assist them in keeping their overhead down. “Unfortunately, most hospitals and health systems do not have the expertise to successfully manage these services, and physicians usually end up spending more money than it is worth to them,” says Lutz.
The most recent alignment strategy has been the clinically integrated network, or CIN, in which physician practices, hospitals and health systems come together for the purpose of negotiating with payers and improving clinical alignment; and optimizing information flow, care management and financial performance; yet remaining autonomous business entities.
Making the transition
The path toward alignment won’t be easy, says Lutz. “Most physicians and their staff members work very hard every day to ensure their patients get the best care possible. It is very hard to redesign how you do work while you are doing it.” It’s like transforming a biplane into a jet while still flying, he says.
“It is my sense, from leading a multispecialty practice for 18 years, that most practices understand the concepts but do not have the staff ‘bandwidth’ to successfully make it happen. Many practices, hospitals and health systems that have successfully made the transformation have had to use outside resources.”
The good news is, tomorrow’s doctors may be better equipped than today’s veterans to make the necessary transition. “My oldest daughter is a fourth year medical student and has been well prepared for what to expect in the future,” says Lutz. “Her medical school has been bringing internal and external experts into classes throughout her training to help prepare them.”
Sidebar: Making value-based contracts work
Organizations that are positioned to successfully manage value-based contracts have the following characteristics:
- Full physician engagement and alignment.
- An unwavering focus on patient-centered care.
- Ability to establish, operationalize, and enforce a standard of care across the health system.
- Ability to rationalize care across the system to gain the best results.
- Ability to manage care across the continuum.
- Clear roles and accountability for physicians in management positions among otherwise independent physicians.
Sidebar 2: Alignment model: Co-management
A co-management agreement differs from hospital employment in that it involves a group of physicians and takes a team-based approach to managing specific aspects of patient care delivery. What makes these agreements unique is that compensation can be structured so that a portion is “at-risk” and based on the achievement of predetermined outcomes, while a second portion is for administrative duties. If the outcome goals are achieved, physicians receive the associated compensation. But if they are not, physicians do not receive the compensation.
Upside for doctors: Alignment is based on services; doesn’t require direct employment. Allocates effort and reward among groups.
Downside: Leverages revenue and income on two parties directly. Is not “permanent,” as an employment arrangement.
Sidebar 3: Alignment model: Employment
Includes variations of strategies that meet the legal definition of employment. Can be applied in a variety of ways and often incorporates many of the other strategies as part of the employment agreement. Examples include:
- Individual employment agreements.
- Large single-specialty group employment.
- Formation of multispecialty groups and foundations.
Upside for hospitals: Large primary care network provides key to accountable care organizations and defense against competition.
Upside for doctors: Salary guarantees; better work/life balance; avoidance of administrative burden of an independent practice.
Downside for doctors: Perception of loss of control, “anchoring” on one health system partner.
Sidebar 4: Alignment model: Professional service agreements
PSAs provide a viable alternative to physician employment by establishing an independent-contractor-type of relationship between the hospital and physician, whereby the physician is paid compensation to provide services that are beneficial to the hospital. Examples:
- Medical director agreements.
- Coverage agreements.
- Hospital-based service agreements.
- Leased employee agreements.
- Foundation model arrangements.
Upside for doctors: Physicians preserve a modicum of practice independence and future strategic options.
Downside for doctors: Potential conflicts around locations of practice.