Two lesser-known approaches can improve hospital/physician relations.

In theory, employing physicians can be a great strategy to align interests in a synergistic fashion by enhancing referral patterns and building loyalty; however, this may not always be the case. To develop a successful physician services business line, the appropriate level of resources must be dedicated to the venture that understands the physician business and creates the best opportunity for success.

Certainly, employment can be the right answer by shortening the gap between two points that initially may not have been close. Some hospital leaders are happy with employment arrangements and continue to engage in them. Others are looking at the increased level of financial exposure such relationships can occasionally create and wondering whether employment makes sense.

There are two additional approaches that, while not receiving huge amounts of attention, can be very effective in improving alignment between hospitals and physicians. And, importantly— if properly structured—neither runs afoul of the Stark law.

The first alternative can prove very powerful. Under this approach, a hospital creates a co-management arrangement with a specialty practice group(s) to enhance a hospital service line.

Many physicians excel at providing care but do not have the time or expertise to build an effective business.

The second retains the traditional independent ownership and operating structure but helps physicians find ways to more effectively manage their practices.

Synchronized Rowing

The first approach keeps a physician group and hospital in separate ownership boats but strongly encourages them to row together. By forming a joint venture between the physician group(s) and the hospital to co-manage a hospital service line, each party gives up a certain amount of control but gains a lot of upside potential. Possible synergies include enhanced efficiencies as a result of improved staffing ratios, lower supply/implant costs, improved service quality and patient satisfaction.

To create a win-win scenario, incentive arrangements must focus on quality metrics that demonstrate improvements in care and outcomes, such as lower nosocomial rates, improved blood conservation measures and enhanced turnover rates. Physicians in specialties such as orthopedics, cardiology, neuroscience and oncology are likely candidates for this approach as they represent high-cost areas, although other specialties also can be a good fit for this approach.

Physician preference items are one way to demonstrate how a service line joint venture can improve efficiency. These items are one of the biggest sources of supply chain costs in hospitals. Under a traditional affiliation arrangement at a hospital, orthopedic surgeons, for example, commonly use an implant brand they prefer, regardless of price. But for an orthopedist group in a joint venture, it makes financial sense to select fewer implant options, potentially maximizing the buying power of the group, ultimately reducing costs. Cardiovascular service lines have been able to decrease costs by establishing a performance measure around whether the group met appropriate use criteria for implantable cardioverter-defibrillators. These kinds of progressive strategies represent an opportunity for systems struggling to move beyond baseline efforts to impact utilization.

Decisions, of course, have to be quality and value driven. This arrangement holds the promise not only of financial reward but also improved care. When aligned physicians partner with a hospital, it becomes easier to collaboratively tackle issues like control of hospitalbased infections, clinical pathways and other clinical enhancement metrics. With bundled payments and other arrangements on the horizon, it makes sense for hospitals and physicians to work together to reduce costs, improve outcomes and financially benefit from their efforts.

As an example, a 536-bed academic medical center and a joint-venture limited liability company that represented the medical center and three orthopedic practices struck a co-management agreement. They created an orthopedic steering committee that meets on a quarterly basis and is composed of medical directors and co-management medical directors from various orthopedic sub-specialties—medical center administration, three surgeons and anesthesia physicians. The committee provides expertise in the development and implementation of critical pathways, quality metrics and materiel management standardization.

These kinds of progressive strategies represent an opportunity for systems struggling to move beyond baseline efforts to impact utilization.

From a financial perspective, the medical center reimburses the LLC for the benefits and salaries of 36 staff members’ salaries and benefits. A management fee is structured in fair market value fashion for medical directors. The arrangement equates to 2.5 percent of net revenues of the overall orthopedic service line. Physicians are compensated for meeting time and other administrative duties. In addition to the base management fee, incentives are available for quality of service, operational efficiency and new program development. These are structured in measurable quality metric format. All compensation is determine by FMV hourly and fixed at-risk compensation.

Results include a far lower incidence of minor complications in post-surgical patients managed by the orthopedics comanagement teams, compared to patients managed under the standard model. In addition, 61 percent of patients in the collaborative care group left the hospital with no complications, compared to 49 percent of those treated under the standard arrangement. And the rate of minor complications was far lower—30.2 percent versus 44.3 percent— in the co-managed arrangement.

The Miracle of Good Management

Under federal law, it is illegal for a hospital to provide indirect-but-valuable benefits to a physician practice without appropriate payment. However, hospitals can suggest that physician practices partner with a practice management firm that can recommend ways to improve patient satisfaction, build revenue and reduce expense.

Many physicians excel at providing care but do not have the time or expertise to build an effective business. A referral to a practice management firm that can provide billing, management/ administrative oversight, human resources management, accounting and consulting services can strengthen the quality of services the physician group provides while bolstering the physician group’s relationship with the hospital providing the referral. One well-known hospital system has used this approach when acquiring hospitals, with strong success for the physician practices involved.

In one such situation, a large for-profit hospital owner/operator decided to refer most independent physician practices to a single management services organization. This reduced the hospital’s exposure and created a more satisfied physician base.

Once an alternative to the full-employment model was created, hospitals and physicians were able to enhance their overall level of trust and the environment for recruiting additional physicians improved. The hospitals also stemmed the losses on the physician front. Initially, the physicians formed an independent practice association in many of the system’s markets and ultimately formed a single multispecialty group under one tax identification number, thus enabling them to share in ancillary revenues under a Stark-approved compensation model. A few of the markets actually created additional hospital-physician integration models and are now be better prepared for the bundled payment program and expansion of the ACO model in the future.

Exploring a Variety of Models Is Critical

With physician alignment at the top of the priority list for many hospital executives, it makes sense to consider a variety of alternatives. Both types of arrangements represent excellent precursor-type arrangements that can lead to closer alliances between hospitals and physicians without the stress and exposure of the full-employment model. Creativity is still alive in healthcare management via collaborative synergistic models that can make sense for your hospital.

Andrew D. McDonald, FACHE, is partner-in-charge for LBMC Healthcare Consulting in Brentwood, Tenn.

Originally printed in Healthcare Executive Magazine

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