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Rethinking Hospital-Physician Alignment

Hospitals and health systems are well served by proactive strategic planning and processes with respect to physician alignment, both for employed and independent physicians.  This article points out some common problems and solutions to becoming a more purposeful organization with respect to physician alignment.

Many hospitals are reactive in determining where resources are best spent around physician alignment.  Often, a physician group will approach a hospital looking to be acquired or to enter into a contractual arrangement, such as an on-call deal, and the hospital will immediately begin working with the group to reach an understanding or accommodation.  This reactive approach can waste time and resources on low-impact results or low-priority relationships.

Hospitals need to develop a clear strategy around physician alignment and implement a unified process around affiliation activity. Hospitals should rethink their approach to physician alignment around these two key principles:

  • Systematic Approach – Naturally, as we repeat processes, we become more consistent and efficient. An ad hoc approach to physician alignment leads to hurried due diligence and hasty decisions and is frequently undercoordinated internally. The clear benefit to a consistent, predictable and repeatable approach to physician alignment is internal efficiency and synergy, as well as presenting well to the external physician community.
  • Physician Leadership – The presence and active participation of physician leaders generates buy-in among the broader physician community and results in more thoughtful planning and governance.

There is always resistance to these principles, so let’s address three common concerns:

  1. “We don’t have the time to form another committee.”  Without physicians, there is very little revenue cycle to worry about. The same is true for information technology, facilities management, legal, etc. Simply put, physicians admit patients, order tests and have a direct impact on supply cost, length of stay and numerous other factors. The idea that a hospital does not have time for physician alignment is absurd. The bottom line is that physicians are critical to operations, and hospitals need to make systematic alignment a priority.Hospital administrators of all stripes spend a good part of their time on physician matters, so unifying and standardizing the internal and external physician interface may not be difficult to fit into the schedule. In fact, because so many functional areas spend time dealing with physician issues, a unified approach may save time in the long run.
  2. “There are no suitable physician candidates.”  If this is your facility’s situation, you need to take action right away.  While leadership cannot be cultivated overnight, moving away from a low-trust or low-respect culture with physicians should be an immediate priority.  Leadership also may need to come from outside of the community, especially in rural areas.  There have been a few recent success stories in recruiting specifically for leadership positions at rural facilities, which may offer some hope to communities that have historically had difficulty recruiting.
  3. “We can’t play favorites between competing physician groups.” This is another area where hospitals can take the high road by inviting both parties to the table.  Unlike Issue 2, at least there are candidates. However, sitting on the sidelines with respect to alignment issues is a poor decision in the long run. As community organizations, the purpose of bringing physicians to the table is positive, e.g., care coordination, community health, patient safety, etc.  In general, if the situation is politically charged, the relationship-building process should be more formally structured.

Physician alignment is of great importance to hospitals, and there are tremendous benefits to being organized and deliberate on this issue. The alternative is eventual market weakness in the face of rapid industry change.

Specifics on Employed Physicians
Do not assume that just because you have employed physicians they are necessarily “aligned.” While alignment may bloom spontaneously, hospitals are largely at a loss on how to effectively manage and motivate employed physicians.

Strategic Planning & Corporate Governance – In some cases, the rate of physician practice acquisition by hospitals is so fast that there is an immature culture of leadership and governance of a hospital-owned physician entity. On the other hand, installing a traditional hospital bureaucratic structure on top of a mishmash of acquired physicians is not the answer to meaningful alignment. Hospitals must invest for success and provide resources for employed physician groups to cultivate a strategic plan and unite around common principles for performance and accountability.

Compensation Plan Design – While an effective compensation program is difficult in the absence of strategic planning and good corporate governance, compensation can be a huge motivator for driving behavior. Payment for volume alone can encourage the wrong behaviors—overutilization—and discourage the right ones—preventative screening, disease management, etc. Pay for performance is the future of health care reimbursement and already is beginning to impact hospital reimbursement. Ultimately, similar pay-for-performance principles will apply to physician compensation.

The compensation plan of the future will reduce the incentive for volume with a corresponding increase in earnings paid for success in quality, patient experience and corporate citizenship. A compensation plan change will need physician input and creative thinking to meet a variety of challenges, including cultural norms and available information infrastructure.

The bottom line is that physician employment by itself is not a strategic partnering strategy. Organizations should seriously consider whether or not the significant losses many facilities are incurring on employed physicians are truly necessary to achieve meaningful alignment and integration.

Specifics on Independent Physicians
Hospitals are well served by understanding the various types of contractual relationships to find the best fit for working with different groups of independent physicians. The toolbox for relationships with independent physicians is enormous. From medical directorships and on-call relationships to co-management arrangements and joint ventures, the scope and depth of physician alignment opportunities can be overwhelming. The wealth of options can lead to indecision about the best vehicles for nonemployed formal physician relationships.

A description of all the different types of financial relationships with physicians with a summary of pros and cons is beyond the scope of this article. However, here is a brief summary of some of the more common arrangements:

In general, you should tap into the entrepreneurial spirit of physician practice leaders. Physicians tend to be data-driven and respond well to systematic approaches.  But wherever possible, allow physician entrepreneurs to think big. Both parties can capitalize on the ambition and zest of hard-driving physicians and well-organized hospitals. Of course, the noted assignments regarding alignment value, financial cost and complexity are subjective and can vary from arrangement to arrangement.

Legal & Fair Market Value Compliance
When a hospital is entering into a contractual relationship, the importance of compliance cannot be overstated. Because so many services are “designated health services,” the Stark regulations will likely be in play, as well as the federal anti-kickback statute and not-for-profit rules, if applicable. Getting early advice on structural and compensation issues will help all parties comply with Stark regulations and avoid the dreaded false claims zone. Early advice also will keep the parties from wasting time on exploring impermissible deal elements.

This subset of due diligence is important as a part of a hospital’s overall compliance plan and ties into existing financial relationships with independent and employed physicians.

If your organization hasn’t gotten serious about physician alignment strategy and process, now’s the time to get started. With the onset of payment reform and a variety of other economic pressures, developing a formal physician alignment program will enable your organization to be more effective and efficient in meeting its mission-driven goals.  For more information, contact your BKD advisor.

This post was written by:

Randy is a senior managing consultant with BKD National Health Care Group. He provides fair market value analyses of compensation for a variety of regulated hospital-physician transactions. Randy also has experience providing advisory services such as physician compensation plan design, strategic affiliation processes, development of management arrangements and on-call programs.

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Recent Comment

  • Karen Vance says:
    This would be under §484.18 of the Conditions of Participation describing regulations for the Plan of Care. Below is the Standard that addresses your issue: "§484.18(b) - Agency professional staff promptly alert the physician to any changes that suggest a need to alter the plan of care." From the State Operations Manual (guidance for state surveyors) "The
    February 24, 2011 on Webinars

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