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Even though more than half of all physicians are now employed or contracted by hospitals, many health systems find that physician-hospital alignment remains elusive. The problem stems from both the past and the present.
For one thing, long-standing adversarial relationships between physicians and hospitals continue to haunt many communities. “Depending on whatever has occurred in the town you’re in, there is generally a lot of history on both sides—doctors walking out of meetings, administrators not following through on things they said they would do, and the list goes on and on,” says John Mehalik, MS, MD, an orthopedic surgeon in Fort Myers, Fla. “There’s typically a little bit of bad blood there.”
To complicate matters, much of the physician- employment surge of recent years was driven primarily to bargain for better rates with payers and increase hospital revenues. “A lot of it was based on really maximizing fee-for-service and putting heads in beds,” says Cliff Deveny, MD, senior vice president of physician practice management at Catholic Health Initiatives. “You saw a lot of specialists being hired to capture their ancillaries and move them to provider-based reimbursement.”
However, with the rapid move away from volume-driven health care, health systems now need physicians to share their new goal of decreasing utilization. Physicians who were once considered heroes for the revenue they brought to the hospital may now be viewed as threats to shared-savings contracts.
Thus, health system leaders must find ways to structure symbiotic relationships with physicians, whether they are employed by the system or independent, even as health systems navigate the transition from volume-based success to value-driven delivery. “What we’ve seen is that one alignment plan does not work for everybody,” Deveny says. “Alignment strategies really need to be consistent with the strategic plan of the organization and need to be consistent with its overall mission.”
Lee Memorial Hospital, one of four acute care hospitals operated by Lee Memorial Health System in Fort Myers, Fla., boasts that its joint replacement program ranks among the top 5 percent in the nation, according to HealthGrades. Kevin Newingham, the system’s vice president for strategic services, attributes much of that success to a three-year-old co-management agreement with 24 orthopedic surgeons from seven different practices.
In a co-management arrangement, a hospital pays a group of physicians to help manage a service line. The agreements, which typically involve a fixed management fee and incentives for quality improvement, patient satisfaction, and/or cost reduction, must be carefully set up to avoid violations of federal anti-kickback and other laws.
Laying out the structure. Among other benefits, the orthopedics co-management arrangement at Lee Memorial ended years of wrangling over implants and supplies that Lee Memorial makes available to the surgeons.
“Once the co-management agreement was in place, we could sit down in an open environment and really debate the pros and cons, with the health system sharing its economic dilemma with us and us sharing our clinical dilemma with them,” says John Mehalik, MD, a partner in the Orthopedic Center of Florida and Lee Memorial’s medical director of the orthopedic service line. “The good news is that we still have an enormous choice as surgeons, but working with the health system, we were able to work directly with the vendors to get some of those costs under control.”
Improving first-case on-time starts. That has helped produce a healthy ROI for the co-management arrangement, even after Lee Memorial pays physicians for general management services and incentive bonuses for performance. In addition to saving $1.5 million on implant costs in the past three years, co-management is responsible for reducing the readmission rate for total knee replacement patients by 25 percent, say Mehalik and Newingham. In addition, first-case on-time starts have risen to more than 90 percent and the hospital’s physician communication score on the HCAHPS patient satisfaction survey has improved.
The surgeons co-own a limited liability corporation that contracts with Lee Memorial for specific services, including medical direction, protocol development, staff education, input into strategic and operational plans, clinical oversight, and community outreach.
A leadership council comprised of four surgeons and four health system representatives oversees the co-management agreement. The agreement provides a base management fee and opportunities for surgeons who are shareholders to earn a clinical incentive fee tied to the hospital’s performance on first-case on-time starts, appropriate antibiotic administration, wrong-site surgery, patient satisfaction, and other measures. The limited liability corporation distributes its profits to surgeons who are shareholders.
Unlike some other alignment strategies, surgeon fees are not bundled with hospital fees in a co-management arrangement. Surgeons are paid on a fee-for-service basis; however, a co-management arrangement that improves hospital efficiency may also increase a surgeon’s income.
“If my turnover time is 10 minutes or 15 minutes faster in the operating room, it allows me to do one more case per day,” Mehalik says. “That improves my efficiency by 14 percent.”
Addressing geriatric fractures. A big win in 2012 was the launch of a geriatric fracture program, which Mehalik likens to stroke programs that have been established at many leading hospitals, ensuring high-risk patients receive immediate, evidence-based care. “As soon as a patient hits the emergency room with a certain diagnosis, there’s a protocol established,” he says. “Everybody knows what the order sets are going to be. Everybody knows what the pathway is going to be. Everybody knows what the timeline is going to look like, and everybody can work efficiently towards that.”
Research has shown that geriatric fracture programs can have enormous impact on patient mortality, patient satisfaction, length of stay, and other measures (Kates, S.L., et al., “Comparison of an Organized Geriatric Fracture Program to United States Government Data,” Geriatric Orthopaedic Surgery & Rehabilitation, September 2010, vol. 1, no. 1, pp. 15-21).
But building a program requires a multidisciplinary effort that includes emergency department leaders and staff, admitting physicians, and others outside the orthopedics service line. Because of their co-management role at Lee Memorial, physician leaders were able to complete the research, team-building, and protocol development in a single year, much more quickly than would have otherwise been possible.
Now that the program is in place, the surgeons’ 2013 performance metrics include the readmission rate for geriatric fracture patients.
Building a foundation. Despite his enthusiasm for the alignment model, co-management is not easy, Newingham says, because hospital staff members and independent physicians typically have entrenched ways of interacting. Building trust, new processes, and new levels of authority and responsibility requires an administrative champion, a strong physician leader, and input from operational leaders from the outset.
“It’s easy for organizations embarking on this type of a strategy to underestimate the challenge. We certainly underestimated it,” he says. “We have made a lot of progress, and it’s been very rewarding to see changes emerge, but the old adage that ‘culture eats strategy for lunch’ is certainly true.”
Mehalik recommends co-management as an alignment strategy not just for orthopedic programs but for many other areas of health care. “If we cannot get to a state where physicians and the hospital systems are working together to make sure that the care is efficient, affordable, safe, and satisfying down the road, we are not going to get the job done,” he says. “I think, really, this is the foundation on which the future of health care is going to be built.”
Geisinger Health System, a Pennsylvania integrated health system that has pioneered ways to deliver high-value care, attributes its success, in part, to its pay-for-performance formula. More than 800 Geisinger physicians receive a base salary that is about 80 percent of their expected total compensation. The other 20 percent—paid in two installments each year—reflects physicians’ individual performance on specialty-specific cost and quality goals that reflect Geisinger’s priorities (Lee, T.H., et al, “How Geisinger Structures Its Physicians’ Compensation To Support Improvements In Quality, Efficiency, And Volume,” Health Affairs, 2012, vol. 31, no. 9, pp. 2068-2073).
Reviewing two approaches. In place for nearly a decade, the pay-for-performance system has been well received by its physicians, and Geisinger has increased clinical service revenue by more than 10 percent annually since 2002. According to the Health Affairs article, “…clinicians find Geisinger’s compensation reasonable and fair because the number of physicians employed by the organization is increasing and the physician turnover rate is low.”
Additionally, health plan claims data suggest that Geisinger-employed physicians have improved quality and efficiency faster than other physicians in the health plan’s networks.
While pay for performance is a straightforward alignment approach, it is not one that is easily adopted in all health systems. The 11-hospital New York City Health and Hospitals Corp. (HHC), the nation’s largest public health system, recently introduced pay for performance to nearly 3,500 physicians through its physician affiliation contracts with New York University School of Medicine, the Mount Sinai School of Medicine, and the Physician Affiliate Group of New York (PAGNY).
HHC intends to reward physicians with up to $59 million in incentive payments over three years if physicians lower readmission rates, improve care coordination and preventive health services, decrease emergency department wait times, improve communication with patients, and run more efficient operating rooms. The pay-for-performance program is designed to correlate to federal and state initiatives—penalties for high readmission rates, value-based purchasing, and patient-centered medical home criteria—that will influence HHC’s financial success.
Addressing the barriers. Luis R. Marcos, MD, CEO for PAGNY, said he thinks the pay-for-performance concept will eventually work but cultural barriers will be significant. Physicians who work at HHC hospitals have never had pay tied to productivity or any other factor, and many derive professional satisfaction from their hospital’s mission.
“I personally believe it is reasonable, and human beings do respond to incentives in their behavior and in their work,” he says. “But, in this culture, ‘bonus’ is a word that people react to negatively because it is considered that physicians here take care of patients regardless of their ability to pay and ‘bonus’ is applicable to the private sector.”
Assuming the performance standards are met, the financial incentives will be awarded to the three affiliates, which will decide how to distribute the money among their members. While emergency physicians and surgeons will be able to directly influence the pay-for-performance metrics, many others will not. “If I’m a radiologist or a pediatrician working in a clinic or a pathologist,” Marcos says, “I’m going to get the money as well, but how do I connect my work with the performance indicators when my department is not even involved? I would say that about 70 percent of the physicians will not see a connection between what they do and the money they are receiving.”
He believes some physicians will be uncomfortable receiving financial incentives when other members of the care team are not eligible. “When you get some incentive money based on the performance indicators and the nurses around you don’t, sooner or later that will have to be explained,” he says.
And one more barrier to physician acceptance: The pay-for-performance incentive program replaces the cost-of-living adjustments that HHC has previously made to physician salaries. Thus, a physician’s base salary, which influences his or her retirement benefits, will not increase over time.
Despite the challenges ahead, Marcos, a physician at NYU Langone Medical Center, believes HHC is right to pursue pay for performance. “It’s the way to go, but the devil is in the details,” he says. “It’s going to take time and a lot of good communication and teamwork.”
UnityPoint Health, a system of 29 hospitals and more than 288 physician clinics, took a broader approach when it developed its physician alignment strategy four years ago. At that time, UnityPoint (formerly Iowa Health) employed more than 900 physicians across the state, but there had been no attempt to create a cohesive group.
“We had some physicians sitting in isolated practices, some within medical groups employed directly by the hospitals, and some in medical groups that were separate corporations underneath the system or the hospitals,” says Alan Kaplan, MD, president and CEO of UnityPoint Clinic. “There were no expectations of cultural fit or performance—only of employment.”
Outlining the steps. When UnityPoint leaders decided to form an accountable care organization (ACO), its executives recognized that it could not succeed without bringing those physicians into alignment with the goals and vision of the system.
A four-component strategy was devised:
Move from hospital-centric to patient-centric and physician-driven. Physicians are now embedded in every level of governance, starting with the system’s board of directors. These physician leaders represent the patient care decision makers.
Create a physician leadership academy. In the past three years, about 75 physician leaders have graduated from the academy, which requires completion of 118 hours of on-site sessions and online courses and partnering with administrators to carry out a project that supports the health system’s strategic plan. “Those graduates have filled all of the leadership spots in regard to the ACO, medical group leadership, and quality improvements,” Kaplan says. “We don’t pay recruitment fees for physician leaders—we just grow them inside.”
Develop a physician practice alignment approach. UnityPoint is transitioning employed physicians from what Kaplan calls “aggregated practices” into a strategically and operationally aligned medical group.
Create a clinically integrated network. The goal is for employed and independent physicians to work together on quality issues and participate in value-based contracts. This is still in the development stage.
Forming a single cohesive medical group. While the four components work together, “the employed physicians are the big story,” Kaplan says.
During a two-year process, UnityPoint created a single new medical group, transitioned physicians to a single compensation plan, and created and implemented a pay-for-performance system.
To start, dozens of disparate medical groups sent representatives to a meeting with Kaplan and a consultant—and no other UnityPoint executives. “We brought everyone in through a senate model so that the biggest group of 300 physicians did not overwhelm the little groups of 10 physicians or 50 physicians,” Kaplan says. “We sat as equals. Instead of deciding which group we were going to merge into, we used a blank piece of paper to create the medical group that we would all aspire to be part of.”
That approach was key to success because representatives at that meeting became advocates for the new medical group. “When they went back to their respective organizations and their partner said, ‘I’m not moving in with Medical Group X. I don’t even like them,’ their own partner would say, ‘This isn’t Medical Group X. This is our organization. I helped craft it,’” Kaplan says.
On Jan. 1, 2012, a total of 540 physicians merged into a new group, which is called UnityPoint Clinic, and another 300 have signed letters of intent to join in the next few years. The medical group has its own board of directors and delegates on the UnityPoint board.
Hitting quality targets. To reinforce the importance of a fresh start, UnityPoint physician leaders and system executives were invited to a two-day culture retreat where they went through a facilitated process to articulate the organization’s values. The values—patient-centric, integrity, pursuit of excellence, partnership, and community stewardship—are used intentionally to reinforce a new culture and a new way of interacting. “If we’re in a governance meeting and we’re not quite sure where to go with an issue, it is easy to bring conversations back to the values: ‘Is this about patients first, or not?’ Then, we can move down the line,” Kaplan says. “It has been a huge help in governance, management, and leadership.”
Today, UnityPoint is responsible for 223,000 patients covered by four separate ACO arrangements. The alignment strategy proved itself in 2012—the first year of the system’s agreement with Wellmark, the Blue Cross and Blue Shield plan in Iowa—when UnityPoint hit all the quality targets needed for financial success.
“The only reason we were able to do that is because we had one quality department and one governance structure and line management so we can deploy a strategy,” Kaplan says. “If we were a bunch of different medical groups, we never would have gotten everyone on the same page to make that happen.”
At Catholic Health Initiatives, the second-largest faith-based system in the country, Deveny believes that appropriate physician-hospital alignment supported by transparent performance measurement can help hospitals navigate the transition from volume to value.
Speaking at an American Health Lawyers Association event, Deveny said many physician alignment initiatives are doomed from the outset. Hospital executives are not comfortable sharing power and control with physicians, do not manage physicians appropriately, and are not sure what they want from physician alignment.
“Is it all about the downstream revenue? Is it really about having a cost center and meeting the budget? Or should we be making a profit on this?” he says. “There is still a lot of uncertainty as to what the value proposition is going forward.”
Common mistakes include using a single compensation model for all physicians—a surgeon and a palliative care physician require different pay structures—and hiring or contracting with physicians without sufficient due diligence.
Perhaps the most common mistake, he says, is the failure to delineate in writing what the health system expects from the physician and what the physician can expect in return. “The elephant in the room is really around accountability,” Deveny says. “You are joining our organization, and here’s what we expect.”
Lola Butcher is a freelance writer and editor based in Missouri.
Interviewed for this article (in order of appearance):
T. Clifford Deveny, MD, is senior vice president for physician practice management, Catholic Health Initiatives, Englewood, Colo.
Kevin Newingham is vice president-strategic services, Lee Memorial Health System, Fort Myers, Fla.
John Mehalik, MS, MD, is partner, Orthopedic Center of Florida, and medical director of the orthopedic service line, Lee Memorial Health System, Fort Myers, Fla.
Luis Marcos, MD, is medical director for affiliations, New York University School of Medicine, and acting CEO, Physician Affiliate Group of New York.
Alan Kaplan, MD, is president and CEO, UnityPoint Clinic, Des Moines, Iowa.
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