When It Comes To Physicians, It’s Relationships Not Ownership
One of the largest trends in recent years has been the acquisition of physicians and groups by providers, and this trend only looks to continue in 2015. But is this the right approach for hospitals and health systems?
This trend is driven by the continuing decline of inpatient volumes as payers and patients look to now utilize the most cost effective care setting. Providers are acquiring physicians in hopes of increasing volumes and ensuring a steady flow of referrals.
But this isn’t always cost effective. Modern Healthcare recently reported that a study by the Kentucky Hospital Association found that not only are hospitals that have acquired physicians experienced sizable financial losses, but also the losses in 2014 were greater than in prior years.
According to the article, “A total of 58% of respondents reported losses exceeding $100,000 per physician in 2014, up from 41% in 2013. The report did not specifically spell out cost issues associated with employing physicians, but for every physician practice that a hospital or system absorbs, it must upgrade its information technology, pay comprehensive benefit packages and assume the costs of maintaining office space, equipment and staff.”
“Many healthcare executives argue that even if physician employment strains their balance sheets in the short-term, it’s a key step toward creating clinically integrated networks that allow them to participate in risk-based payment models, such as accountable care organizations.”
While this is possibly a strong argument justifying the short term loss as a future investment, that study highlights an even more concerning fact. “The survey found that 42% of executives aren’t tracking the downstream contributions from physician integration. And of those who are, there’s no clear consensus on whether there’s any downstream benefit at all.”
How can this be? How are these providers justifying their capital expenditures, let alone providing an ROI to their leadership and boards?
In a recent posting, Shift To Healthcare Consumerism: The Business Of Healthcare, I made the case that healthcare needs to start thinking and acting like a business, rather than its own unique business model. A core tenant of business is the business case and justification for investment and the return on investment and assets. How can you evaluate your strategy if you are not tracking critical success factors?
In that previous post I also brought up the idea that providers need to be proactive and selective in their acquisition of referrals. The same is true for physician relationships and acquisitions.
Providers should be selective about their acquisitions. What is their go-to-market strategy? What physicians will provide them with the referrals and patients that they want whether based on payer mix, ICD codes, zip code, capacity, or other factors.
Once your plan is in place you need to be able to track the results and adjust accordingly. What assumptions did you make that weren’t accurate? What was the impact?
I would also argue that it’s the relationship that is important not the ownership. I know that many leading organizations, such as Beth Israel Deaconess in Boston don’t actually acquire, but rather execute affiliation agreements with practice and individual physicians. My hypothesis is that this is the ideal approach. Regarding service, it seems that you would get all the benefit without acquiring the cost and risk burden.
Only time will tell if I am right, but only if we start tracking our business outcomes, as we do our clinical outcomes.
Source: Modern Healthcare