A 2015 study by the American Medical Association showed that almost 33% of physicians work directly for a hospital or in a practice with some hospital ownership – a 12% increase in just two years.1 Why are hospitals acquiring physician practices? Many go this route to broaden their reach for referrals, capture more admissions and grow in size for more negotiating power, all to compete in an environment that is moving toward reimbursement based on quality of care, outcomes and cost control rather than fee-for-service.

As many hospital administrators have learned in the last few years, employing and integrating physicians into a hospital is not a no-brainer. Costs such as physician salaries and benefits, office overhead and technology to unify disparate billing and scheduling systems are high, and patient volumes don’t always make up the difference. It’s not uncommon for conflicts between employed physicians and administrators to arise over compensation, contracts and practice management. And, morale can be a problem for physicians who give up their independence to go to work for businesspeople rather than clinicians.

Physician alignment hurdles and solutions

All in all, physician alignment and engagement are complex, challenging and potentially risky to a hospital’s revenue cycle. The Medical Group Management Association reported that in 2013, the average hospital-employed physician, in their first year of employment, accounted for more than $206,000 in losses after deducting operating costs and provider pay from total practice annual revenue.2 With so much at stake, hospitals must take steps to improve physician alignment while preventing a negative impact on the revenue cycle. Here are five key areas to focus on:

  1. Break down silos and communicate regularly.
    It seems obvious to establish open lines of communication between the hospital staff and practice staff, but this simple step is one many organizations take for granted. Meet early and often to set expectations for all parties, set up practice management models and identify potential trouble spots. An outsourced partner can help facilitate these discussions and map out a communications framework.
  2. Scale resources intelligently.
    New practices may require additional or specialized staff such as specialty coders to offload business office work from clinicians. Coders are often not highly skilled in both professional fee and facility coding and therefore denial rates could spike and compliance issues could arise, putting your hospital at risk as more practices come onboard. Managing your coding and compliance program requires a full-time, hands-on, proactive approach. Staff shortages, changing rules and regulations, and reworking rejected claims make "getting it right the first tine" your top priority. Knowing when to recruit, when to retain skilled staff and when to outsource can keep costs low and make the best use of resources.
  3. Use technology to manage and monitor financial performance.
    Winding down a practice’s accounts receivable and transitioning records and processes to the hospital billing system take time and expertise. An outside partner who understands hospital systems and workflows can help optimize existing technology and recommend scalable enhancements to prevent revenue leakage.
  4. Gather and use business intelligence.
    Employed physician accountability is critical to a hospital’s bottom line. Be vigilant in sharing the organization’s revenue cycle KPIs and holding the practices accountable to them, as well as tracking and analyzing data from every department, down to the physician level. Review reports and financials with employed doctors to educate them on the health system strategy in which they operate and hold them accountable for business results as well as patient outcomes and quality care.
  5. Enforce compliance.
    Most physicians are trained to be solo practitioners, and moving from a private independent practice to a hospital or health system is a big adjustment. Employed physicians may want to continue doing things “their way,” putting the hospital at risk of noncompliance. At the outset, educate physicians and their clinical staffs on the importance of adhering to hospital policies, using phone scripts consistently, maintaining proper clinical documentation and following other procedures to remain in compliance.
Where to go from here

The five issues listed above are just the tip of the employed physician alignment iceberg. Hospitals must address these and many others to help ensure physician engagement while protecting the hospital revenue cycle. The experts at McKesson Business Performance Services understand these issues and offer services to help address challenges such as technology integration, training, staffing, analytics and workflows, as well as AR wind down, related to employed physician integration.

Learn more about how McKesson’s revenue management services can help improve your return on investment as you acquire practices and engage new physicians.

1“New AMA Study Reveals Majority of America's Physicians Still Work In Small Practices,” July 8, 2015.
2“Financial Risks in Physician Employment,” Jeff Goldsmith, Sept. 16, 2014.

Brian Baughman

About the author

Brian Baughman
Vice President, McKesson Business Performance Service