March 2009 A New Blueprint for President and Chief Executive Officer
A New Blueprint for A New Blueprint for Hospitals and physicians are revisiting old models and creating new ones for hospital and physician working relationships. Hospitals that abandoned the physician employment frame work just two years ago are re-establishing new physician staffing and relationship models. While independent physician groups have been seeking new types of affiliations with hospitals, hospital organizations, both not for profit and for profit entities, have the need to resurrect the old integrated delivery systems to address the growing employer influence on local healthcare markets. While the old memories of poor models still remain after a decade, hospitals and physicians have real incentives to work together in capturing the competitive healthcare dollar. In this paper, we will investigate the different incentives that exist today for both hospitals and physicians and provide a new model for hospital/physician organizations to not only co-exist but to meet the market expectations of a quality, integrated delivery system. While there are risks in any new strategy, there are even greater risks for hospitals and physician groups that ignore the current healthcare market movements and relationship formation. Long term physician, hospital and ancillary provider relationships are currently being formed to protect and improve local healthcare market share. The Winner Is? Despite recent improved financial performance at many hospitals, the true prize is not defined as leading market share or positive year end financial results for hospital-owned or affiliated physician groups. The prize in any healthcare marketplace is a quality, integrated healthcare delivery system. The winner is the hospital system that can successfully work through physician relationships to enable attainment of this prize. A quality integrated healthcare delivery system is more than a newly resurrected buzzword. This system will be composed of a financially viable, technologically enhanced relationship among hospitals, outpatient facilities, physicians, and alternative providers within a retail-oriented delivery system that can initiate and prove quality healthcare delivery for its patients and their employers. Capturing and measuring the entire quality healthcare experience for a patient will be the underlying strategy for the winner. Compared to past efforts, hospitals must determine methods to build upon their physician relationships in a financially viable way. Accumulating losses in physician groups that are sheltered within hospital admissions will not be an effective strategy in the future. Hospitals and physicians have a symbiotic relationship and key groups on each side are beginning to understand this symbiosis. While there might be strong disagreement on the potential of such a venture, all parties are realizing the significant downside risk of ignoring it. There is much more at stake here than revenues or salaries. Today, groups and entities will be disintermediated from the entire healthcare process within a marketplace due to financial viability, market coverage, physician coverage, quality programs and retail orientation. For example, patients and employers are rising up as major players with renewed interest in healthcare. No longer will patients blindly wait hours for service or pay whatever is charged. Now, patients are moving from one physician to another only because of the difference in network status of the provider. Employers are also demanding an annual reconciliation of their healthcare payments versus benefits received. Hospitals cannot take an agressive facility-focused approach towards physician relationships without adverse reactions. Hospitals and physicians must recognize the nature of this symbiotic relationship and commit to a process which will protect their current market share initially and then grow market share for their new, influential customers: patients and employers. Without recognizing this symbiotic relationship, each party could lose much more than in the past. 1
A New Blueprint for Hospitals, Why Now? More than ever, hospitals are facing growing pressure from corporate employers to reconcile rising healthcare costs which increasingly outweigh the healthcare benefits received. Not only is this pressure real, but it also has significant long term market ramifications for the hospital s market share. Today, the hospital s customer base is bifurcated between the employer, who acts as the ultimate payer, and the physician. The patient is the end customer of the hospital, but patient influence is somewhat static as insurance continues to pay a majority of the individual s medical claims. Historically, the patient was the primary public facing customer of the hospital with the physician as its underlying customer foundation. Now, hospital executives understand that patient admissions are almost always generated through physician referrals. If employer-sponsored insurance continues, employers will scrutinize their healthcare expense/benefit analysis much more closely on behalf of their employees. Since quality healthcare is the mandate, it must be defined. There are elementary measures of quality healthcare that employer decision makers do not currently understand. Hospitals provide an opportunity to be the confluence of preventative care through outpatient facilities in conjunction with physician groups in addition to the traditional patient care management of inpatient admissions. Quality healthcare within hospital admissions is showing evidence of progress in the measurement of quality care, i.e. infection rates and mortality rates for certain disease states. However, quality healthcare must be measured and provided prior to admission. Once a patient is admitted for acute cardiovascular disease, little can be done in the way of quality preventative care. Therefore, new physician relationships are critical in acquiring the clinical data network of a hospital s target market to initiate quality preventative care measures demanded by employers and ultimately by any government healthcare reform program. Without successful and financially viable physician relationships, a hospital will not be able to deliver on these ever-increasing quality measures. Hospitals have large investments in physical plants that have served the acute care marketplace very well. With the shift towards preventative care and changes in payment structures, hospitals must reorient preventative care along the lines of retail establishments. Physician organizations provide the hospital with the revenue generation sources to finance the retail market expansion that will continue to be demanded by employers and patients alike. No one paying medical bills wants to circle a large parking deck, take a crowded elevator to a nondescript medical office and wait an hour for care. Physician practices and ancillary services provide a new revenue stream to finance the market build of convenient, retail-oriented, delivery systems. Hospitals have operated in a patient-centric world of technology where multiple departments touch the patient record through a variety of clinical and business applications. These continually improving systems comprise a network of information to provide healthcare services to the patient. An obvious extension of these clinical routes is the Electronic Health Record (EHR) that all practices must plan to use in the future. Hospitals, through the EHR, can provide the clinical data flow of their patients necessary to measure and coordinate the delivery of patient-centric quality healthcare. In the quest to prove quality for overall inpatient, outpatient and preventative care, hospitals have the highest incentive to distribute a single-source EHR through physician relationships. An Electronic Medical Records (EMR) solution within a single practice has limitations in the coordination of clinical delivery outside the walls of the practice. Access to timely clinical field data from a hospital s physician network will be the cornerstone of an effective and meaningful quality healthcare delivery system. Hospitals that rely on independent practice EMR and quality reporting will not meet the most basic requirements of employers, payers or the government. 2
Due to these factors surrounding the access to data as well as the factors associated with physician relationships, hospitals must face the inevitable result of the actions of their competitors. Once a physician practice enters into a strategic relationship with a hospital or with another multiple facility practice, the long term opportunity for an alternative hospital relationship will decline accordingly. In multiple hospital markets, sides are being chosen and these decisions are long term. For example, as a hospital administrator, wouldn t you lose sleep over a competing hospital that has an exclusive agreement with your largest surgical group? If so, you must carefully monitor the financial, strategic and operational initiatives of your competitors and be prepared to answer those challenges. Physicians, Why Now? Integrated delivery systems, hospital/physician organizations and physician practice management companies have attempted and failed in the past to deliver on economies of scale, better reimbursement and practice stability. What s different today? First, the economics of independent medical practices have changed over the past decade with continued downward pressure from employers on healthcare costs. In the last ten years, payers and hospitals have consolidated in almost all markets, gaining market share, market power and improved financial results. Physicians did not consolidate effectively in the past as their primary motivation for consolidation was not to create more efficiencies but rather to exit the practice. Today, the practice exit strategy is not even a factor as practices make strategic decisions for the future. Market share, managed care access, managed care contracting, benefits, quality medicine and business complexity are driving the consolidation of medical groups. A New Blueprint for There are a number of factors that provide independent physician groups with real incentives to seek alternative relationships within their marketplace. Continued downward pressure on fees In any administration, efforts to curb medical demand will continue by reducing reimbursement on a national level along with shifting reimbursement from insurance payments to patient payments. While physicians have been continually able to avoid the annually planned 10% reduction in fees, future expectations of avoiding such a reduction are not realistic. Increased labor costs Medical practices generally hire for a wide array of skill sets to perform the healthcare delivery function. Nurses, technicians, business, reception, etc. are some of the skills required today. Small groups are experiencing record healthcare insurance increases that are driving up benefit costs to 30%+ of base salary. In addition, employee turnover at the front desk and in the business operation is estimated at 40% annually. This turnover not only increases the trailing labor cost, but also creates other costs due to lost processes, lower productivity, and additional training. Revenue cycle management complexity NPI, HIPAA and PQRI represent national efforts for security, quality healthcare and better data. All of these efforts have dramatically increased the cost of collection for physicians and have increased the complexity of the revenue cycle. Historically, a medical group s administrative staff could muscle their way through billing challenges. But now, the billing process is segmented into discrete, technical functions that require increased skill, visibility and accountability that cannot be provided within the traditional medical practice business structure or practice management system. 3
A New Blueprint for Payers requiring evidence of quality healthcare The traditional medical practice does not have the technological flexibility or capital to implement the systems necessary to provide evidence of quality healthcare as demanded by public and private payers. For most practices, the technology infrastructure including disaster recovery combined with poor economics on fee schedules and lack of medical practice capital is inadequate for EMR delivery. Physician capital has traditionally been limited to the wallets of the physicians within the physician group. The recent financial woes of the stock market and banks have exacerbated these issues dramatically. Payer compliance, credentialing and contracting Physician groups and Independent Physician Associations (IPAs) have been providing managed care contracting and credentialing on a very reasonable and effective basis. However, these groups are now experiencing contract reductions and contract exclusions due to lack of geographic coverage, quality initiatives and group size. In addition, commercial payers have successfully challenged the legal structure of IPAs to reduce their effectiveness in managed care contracting for their members. Why Hospitals and Physicians? The symbiotic relationship between physicians and hospitals is more visible today than ever before. The market-led differences in the healthcare payments structure, reimbursement expectations and increased cost of delivery preempted by a national demand for quality measurements did not exist a decade ago. At that time, consolidation was primarily driven by the capture of goodwill for physicians and hospitals. Now, the driver is long term economics. Hospitals and physicians are likely partners in a variety of relationships as hospitals depend on physicians for admissions and physicians depend on hospitals for places to care for their patients, for new medical technology and for the necessary capital and business infrastructure to sustain and grow their practices. Is there a place for large independent practices within a marketplace? The obvious answer is certainly. However, larger groups must commit capital to their retail-oriented quality healthcare delivery systems. Instead of approaching the market the way a traditional practice would, large independent groups must apply a keen understanding of the influences and risks of their delivery system and marketplace. A New Model for Relationships The key term for this new era is relationship. Various types of practices and hospitals will seek different relationships that meet the current and future expected demands of both parties. In the past, the physician employment model was the only solution. Today, the employment model is a good solution for only certain practices and physicians. However, there are alternative relationships that include coordinated technology delivery, shared business solutions and/or true partnership that might work for hospitals and physician groups depending on the nature of the local market. Whatever form the relationship takes at the outset, a key element is that it has the flexibility to change with the needs of the practice, market or hospital. Forward thinking hospitals are committed to clear, open relationships with their physicians and to providing financial resources that insure the endeavors succeed. Some key requirements for a successful hospital/physician relationship include: Clear commitment to the integrated delivery system plan This obviously assumes the hospital system has a clear mandate within its organization. Physicians require transparency in this process. 4
Committed capital to fund the operation Make no doubt that these initiatives require money and should be self-funded from operations after the first 12-24 months, depending upon growth rates. Physician operations are independent from hospital operations While the functions of administration are similar, the scope, transparency and accountability operate on a different scale than those aspects of the hospital. Attempts to operate a physician relationship business within the hospital operation have tended to relegate the physician s business as secondary. With transparency as a requirement for success in these relationship models, an independent, committed organization is a critical step. Business Services Construction There are numerous strategies to build the scope and services for any hospital/physician relationship. Internal sourcing can be successful but is limited in scope, scale and responsiveness. For example, the average collection per CPT code range for physicians is $42 to $250 with an average claim balance range of $42 to $500. Most hospital billing operations have a low end scope and scale range of $2,500. Additionally, with a 40% turnover rate for practice staff, the training sessions, payroll adjustments and benefit enrollments for a physician group are very high and very frequent with low employee volume. As an example, new employee orientation sessions might include five employees within the average practice versus 25 or 30 in a larger hospital organization. Scope and scale in accounting, human resources and revenue cycle for physicians are new challenges for hospital organizational in-sourcing solutions. A New Blueprint for Third party vendors offer solutions as well, however, the scope, scale, information technology and transparency requirements are consistent with any third party vendor. Additionally, an unsuccessful third party vendor solution could create a tri-party dispute between the vendor, hospital organization and physician. Great care must be taken in this scenario in choosing the right vendor and ensuring the relationships with physicians remain strong. These relationships are the foundation of the hospital/physician organization. A new model for addressing the independence and solutions required in a physician relationship is the formation of a joint venture entity which includes a management services organization (MSO) whereby the hospital, physicians and perhaps approved vendors have capital committed to the success of the organization with contracts that allow for the flexibility of the variety of physician relationships, whether employed, staff or service delivery. A jointly owned MSO provides all parties with transparency for all functions including human resources, credentialing, recruitment and the revenue cycle. Additionally, these functions must be integrated as discrete parts to allow the physician group to maintain clarity and accountability for key areas such as accounts receivable management. Key Joint Venture/MSO Services There are a number of fundamental MSO services that are the foundation of a hospital/physician organization. EHR deployment and management The hospital generally has the capital, compliance and clinical incentives to manage and deploy this application to all of its staff as well as to affiliated and employed physicians. Recent changes in the Stark regulations have also made it easier for hospitals and physicians to cooperate on quality via EMRs/EHRs. 5
Accounting services Monthly financial statements, cash reconciliation, merchant banking, general ledger and accounting reports from the practice, location, and physician levels are required. Benchmarking on a traditional common size as well as Relative Value Unit (RVU) or CPT code is also very important for managing the cost of delivery and productivity. Human Resources Traditional time and attendance, payroll, compliance, policies and insurance coverage are critical elements for all physicians. However, in many cases, hospital benefit costs are higher than the market average for physician practices. A New Blueprint for Revenue Cycle Management Traditional billing and collection activities will not address the ever-increasing demands for true transparency and analytics. Physician demand for unit, allowable, RVU and A/R metrics are the foundation for managing practice behavior and compensation. Many previous attempts to establish successful hospital/physician relationships have failed due to the inability to provide transparent data and comparative benchmark data that validate the financial performance of the practice or physician. Uncoupling revenue cycle services into separate, unit cost driven functions enables the practice and physicians to select levels of service that meet their needs versus having a single endto-end solution as the only option. A key control element of revenue cycle is the function and responsibility for A/R management. By uncoupling the components, the hospital/physician organization allows physicians to manage the A/R function on a centralized or decentralized basis along with the responsibility for the cost of that function. The MSO should be focused on the timeliness and quality of the clinical data and invest in systems and analytics that provide real information to the practice administrators and physicians to guide and influence compensation and behaviors. With these types of solutions, all parties have influence and control over the most important issues to them without compromising the data quality needed to manage the business aspects and quality initiatives of the organization. Managed Care Contracting With the declining influence of IPAs, physician groups are limited in their ability to negotiate effective managed care contracts with the much larger and consolidated payer community. While electing to be out of network is liberating, it converts insurance payments to patient payments at a very high rate. Many physicians may believe their patients would pay out of pocket for their care, however, patients have been hit with the current economic crisis and will select physicians operating within the health plan they have purchased. Today more than ever, managed care contracting is a needed resource but is limited in its effectiveness by the scope, geography and size of the entity. Practice Management Practice management has become a very challenging vocation whereby a myriad of skills are necessary to insure patients are seen, employees are recruited and retained, and the financial viability of the practice is maintained. While all businesses face these challenges, medical groups face acute challenges in all of these areas due to current medical economics, labor supply, benefit costs, technology reliance, complexity of the revenue cycle and, of course, the ever-changing needs of the patient. Due to scale, these hospital/physician organizations have an advantage in recruiting and training employees as well as in implementing the policies, processes and technologies to enable the practice to operate during these turbulent times. 6
A New Blueprint for Practice Development Typical practice development, by necessity, is limited to maintaining relationships with known referral sources and updating the Web site. With advanced analytics, practices have the ability to refine their market position, understand their referral base and geographies on a detailed level and truly assess the impact of these marketing investments. As patient volumes and new patient volumes are the lifeblood of a practice, identifying and segmenting this information for each practice will be critical. While one practice may market extremely well, an MSO has the ability to market the solution not only to the payer community but also to employers and patients who are becoming very interested in the continuity of care for various disease states. The team concept of patient care has proven results at institutions like the Mayo Clinic and M.D. Anderson. These MSO organizations have the informational, financial and strategic capabilities to provide a real return on invested marketing dollars. Summary The symbiotic relationship between hospitals and physicians is more evident today than ever. The reconstruction of the integrated delivery system is a requirement to meet the increasing financial, technological, quality and employer demands for any healthcare participant. Hospitals have real incentives to build new relationship models with the physicians in their market areas. Employment, service relationships and joint venture models are the tools needed to lay a foundation for the hospital/relationship organization. Physicians have incentives to establish relationship models with hospitals to alleviate increasing demands for quality measures, technology, managed care contracting, benefits and access to capital. Current motivations for all parties in the healthcare spectrum lie in addressing the needs of employers and patients. Patients and payers have a greater need to reconcile healthcare costs and benefits received. Opportunity costs in failing to understand market trends and the competitive environment are much higher today than in the past due to the market demand for integrated delivery systems that are financially viable with a commitment to measuring quality medicine in a retail-oriented environment. 7
President and Chief Executive Officer John Thomas has been with MedSynergies since its inception in 1996, when he began as senior vice president and managing director of development. While at MedSynergies, Mr. Thomas has held positions such as senior vice president and chief financial officer, and has been a member of the board of directors since 1999. Prior to joining MedSynergies, Mr. Thomas was the vice president of the newly formed HealthCare Finance Group for Bank One. He was also the assistant vice president for Texas Commerce Bank, where he focused on hospitals and emerging healthcare markets. About Now serving 3,000 healthcare providers in 37 states, MedSynergies provides revenue cycle services and integrates leading software programs into the daily operations of healthcare organizations. Founded in 1996, MedSynergies serves physicians in hospitals, specialty medical groups, ambulatory surgical centers, rehabilitation centers, and independent practice associations (IPAs). Based in Irving, Texas, the company has regional offices across the United States. For more information on MedSynergies, please visit www.medsynergies.com. Mr. Thomas is a national speaker on topics such as revenue cycle management, billing and collections processes, capitalization, and turnarounds. Mr. Thomas received his Master of Business Administration, with honors, from the University of Texas Graduate School of Business. While at the University of Texas, he focused on finance and management and was selected as the Sword Scholar and received the Dean s Academic Award. Mr. Thomas received his Bachelor of Arts from the University of Arkansas. 1255 Corporate Drive Third Floor Irving, Texas 75038 972.791.1224 www.medsynergies.com Copyright 2009 No reproduction, in whole or part, without written permission.