Stop the Red Ink.
Reversing the Trend on Losses from Physician Group Practices
Q&A with Nathan Kaufman, MS, managing director, Kaufman Strategic Advisors, San Diego, CA
As one of the nation’s foremost physician integration experts, Nate Kaufman provides strategic and tactical advice to many of the largest health systems and medical groups. Here, he shares his thoughts with Hardwired Results on challenges in the current operational landscape and how to tackle them.
HR: How did we get to this place, where for many organizations, employing physicians is not economically viable?
NK: In the past, hospitals have been able to stabilize physician incomes at historical levels, primarily through rate increases and by converting the physician fee schedule to a hospital fee schedule. Unfortunately, those things are under attack right now. As a result, I believe we are going to reach an inflection point, where health systems will not be able to maintain physician incomes at their current levels. In 2011 and 2012—the good old days, if you will—commercial rates were increasing. By shifting the physician’s office-based ancillary services (e.g., lab, imaging) to hospital outpatient ancillaries, the practice’s revenue improved so losses associated with physician employment could be absorbed.
However, in 2013, several things changed. First, revenue per case was reduced through the combination of sequestration and reimbursement changes converting short inpatient stays for Medicare patients to observation days. Additionally, the economy and emphasis on reducing inappropriate admissions have resulted in a net negative impact on hospital performance. At the same time, more investment was required for physician employment. I am beginning to see system performance deteriorate as a result of these factors. (See bar graph below.)
HR: What is “Job One” for healthcare leaders intent on reversing this trend?
NK: It’s creating and sustaining a culture of high performance. Frequently, what I see is leadership trying to create urgency with physicians by motivating them through a fear of failure in the future (i.e. a “burning platform”). It turns out that what motivates physicians much more effectively is when leaders inspire physicians with a “burning ambition” to improve clinical quality and efficiency of care…that is, to do better for patients.
What we need is a culture where innovation flourishes and high-performing physicians self-select in. There is excitement and pride in the organization. When Administration and physician leadership collaborate to convert challenges to opportunity, physicians get on board. In the past, I made the mistake as a consultant of involving physicians in strategy and telling them what, when, and how they needed to do something. I’ve learned though that, more than anything, most physicians want to do the right thing for patients. If you can convince them why they need to do something, they’ll get on board.
HR: Can you share a little about what you are seeing in terms of the “phases” of physician employment?
NK: The first phase is aggregation. I’d estimate 65 percent of organizations employing physicians are still in this phase. It’s economic chaos, with no budget discipline, uniform culture or code of conduct. Organizational losses are driven by physician income expectations without a willingness to eliminate waste to find the funds to sustain their income at historical levels. I find it takes anywhere from three to 30 years to move employed physician organizations to “consolidation.” It’s dependent on a strong culture driven by physician leaders who understand their role within the health system.
There are three key things to making this shift: First, there will need to be a self-governing board comprised mostly of physicians to set policy. Secondly, physicians will need to move from their small offices to more modern, consolidated facilities where it makes sense. And third, organizations will need to base at least 20 percent of physician compensation on factors other than personal productivity metrics that measure performance of the specialty or the group. For example, achievement of certain quality metrics or even “citizenship,” participating in initiatives to improve care in the health system.
HR: What other mistakes do you see?
NK: One of the biggest mistakes I frequently see is under investment in physician infrastructure. Yes, we need to cut costs aggressively, but we need to overinvest in the physician infrastructure because it is complex to consolidate many independent practitioners. When we skimp on areas like revenue cycle and management, we inevitably have to spend more money later hiring consultants to fix it.
A blended compensation plan is also important. If we compensate physicians only on productivity, we’re asking compensate physicians only on productivity, we’re asking them to put their heads down, see as many patients as they can, and not worry about clinical outcomes, the patient experience, or the overall success of the organization. That just doesn’t align with shifting reimbursement incentives through the Affordable Care Act or the goals of the enterprise.
And last, to engage physicians in behavioral change, you need to hit three targets simultaneously: You need to improve their income, their work flow/work-life balance, and you need to demonstrate improved clinical outcomes for patients with outcomes data. The challenge is that, in many instances, it’s difficult to deliver particularly on those last two items. But here’s a secret: A culture of organizational pride and vision trumps all those things. Physicians are frequently willing to sacrifice some income and adapt to more rigid workflow for the opportunity to work in a great place to practice medicine.