The push for higher-quality, more cost-effective care requires an organizationwide focus on performance improvement. Physicians are essential to the effort. Without their participation, a higher-value healthcare system cannot be achieved.


Past Mistakes

From the beginning of HFMA’s Value Project in 2010, the need to engage physicians in navigating the transition to value, given their central role in care delivery and management, has been a constant theme. Veterans of the managed care experiments of the 1980s and 1990s agree that failure to get the physician piece right was a significant factor in the overall failure of managed care. All agree that getting the physician piece right this time will determine the success of the transition to value.

What went wrong in the past? Lots of things. Physicians were asked to assume the role of “gatekeepers” within managed care systems, but the focus of their success in this role was determined largely by cost savings removed from the context of quality. Physicians were employed with income guarantees that were not tied to productivity, undermining the long-term financial viability of physician employment when, for a number of reasons, productivity fell as physicians became hospital or health system employees. Perhaps most important, physicians often felt that they were not being represented on leadership teams that made decisions affecting physician practices. 

A survey of HFMA members conducted earlier this year suggests that, although concerns over the long-term viability of physician employment have not dissipated (even as the employment trend accelerates), members are giving significant thought to how their physician strategies will need to change to adapt to value-based care. 

A New Path Forward?

When asked whether they believed their organizations will achieve a positive ROI after two years of physician employment, 76 percent of the CFOs and senior finance executives responding to the survey answered “no.” At the same time, 85 percent of respondents expected growth in physician employment to continue. Does this mean that our nation’s healthcare system is again on a financially unsustainable path to physician employment? Not necessarily. 

First, the survey asked whether a positive ROI was expected within two years. In many instances, the costs of acquiring a practice, upgrading IT systems, and other employment-related expenses will not be recouped in two years. Second, survey responses also suggest that physician employment is being driven by a long-term strategy focused on improving care coordination and, ultimately, laying the groundwork for population health management. 

For example, when survey respondents were asked what they viewed as the chief benefits of physician employment, improved coordination of care ranked highest, selected by 72 percent of the respondents—ahead of more traditional employment drivers such as improved market share. In addition, respondents predicted a substantial reconfiguration of the factors influencing physician compensation. Although productivity or volume was cited as the leading basis for incentives under physician contracts today, respondents predict that it will fall to third place in the list of priorities, behind quality and cost of care (or efficiency), three years from now. Meanwhile, physician panel size—a metric associated with population health management that is infrequently used in physician compensation today (cited by just 3 percent of respondents)—is predicted to be used by 16 percent of organizations represented in the survey in three years.

Physician employment is not the only strategy survey respondents are pursuing. Many hospitals and health systems also plan to pursue comanagement agreements, professional service agreements, and joint equity ventures to create, in the words of one respondent, “a multilayered approach with employed, contracted, and community-based physicians to transition from fee-for-service to value-based arrangements.” But it is clear that physician employment is a cornerstone of most organizations’ plans for a value-based future.

Factors for Long-Term Success

The survey respondents’ recognition of the need to reconfigure the bases for physician compensation and incentives as the system shifts to value-based payment addresses one factor that will help contribute to the long-term success of a physician employment strategy. But this is just one of many factors that will determine success. Other critical factors include the following. 

A clearly articulated strategy. The fact that many CFOs predict losses on employed physicians, at least in the short term, emphasizes the need to look at physician employment as a long-term investment to prepare for anticipated changes in payment and care delivery. In conversations with board members interviewed as part of HFMA’s Value Project research, it was clear that, in many instances, the long-term view is not being clearly articulated to governing bodies. If they have not done so, hospital and health system leaders should develop a clear strategy for physician employment (and other forms of physician engagement) that includes forecasted needs for primary and specialty services, trigger points for restructuring physician compensation as payment methodologies shift, and financial benchmarks that confirm the long-term success of the organization’s physician strategy or flag the need for that strategy to be reconsidered. This strategy should be clearly communicated to the board as well as to financial, operational, and clinical leaders to ensure consensus and commitment.

A culture of accountability. A recent article focusing on physician performance improvement noted that “to succeed under the new healthcare economics, hospital executives say, they must lean on doctors, who make nearly all the key decisions on what treatments, tests, and drugs patients get” (“Hospitals Prescribe Big Data to Track Doctors at Work,” Wall Street Journal, July 11, 2013). As hospitals increasingly gain access to data on physician practice patterns through electronic health records and other clinical systems, physicians are being held accountable for both the quality and cost-effectiveness of the decisions they make. 

Several organizations interviewed for the Value Project have successfully implemented programs that show physicians unblinded, comparative data on individual physician outcomes and costs. Although the move to unblinded data often meets initial resistance from some physicians, most who find themselves “outliers” in the data are eager to find ways to improve their performance. 

Physician leadership. A consistent message HFMA has heard from CFOs involved in the Value Project is the need for finance leaders to take a backseat and look to physician leaders to drive the clinical changes needed to negotiate the transition to value. Although improving the cost-effectiveness of care is imperative, the patient and the quality of the care he or she receives must remain the focus. Physician leaders who already have the trust of the medical staff are best positioned to deliver this message. In the words of one CFO, finance professionals need to take a “leap of faith,” trusting as well that improved quality will ultimately result in more cost-effective care.

Physician employment, in other words, should be seen as just one piece in the process of building a coordinated care network aligned around the common goal of improving value. Although there are no guarantees that employment will contribute to a successful transition to value, there are promising signs that hospitals are working to avoid the mistakes of the past. 

James H. Landman, JD, PhD, is director, thought leadership initiatives, HFMA, Westchester, Ill.

Publication Date: Sunday, September 01, 2013

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