Physician Practice Revenue

Optimizing a Physician Practice Acquisition

March 6, 2018 10:12 am

Health systems that take a deliberate, strategic approach to acquiring physician practices have the best chance of being successful.

As the healthcare marketplace becomes more competitive and organizations strive to deliver greater value, many hospitals and health systems are looking for ways to enhance their market position. Some are choosing to make acquisitions with the thought of driving market share or expanding services, either geographically or by service type. It is becoming more common for these larger entities to seek out physician practices. In fact, according to a recent study by the American Medical Association, there are—for the first time—as many hospital-employed physicians as there are physician-owned practices.

Unfortunately, many health systems that purchase physician practices do not have a defined strategy for ensuring the acquisitions will help enhance the business of the overall organization. To ensure the acquired physician practice will perform optimally and be competitive in the marketplace, the health system must gather information up front, formulate a plan for the acquisition and transition, and continuously monitor key operational metrics. 

As with any investment, a health system purchasing a physician practice should make sure it protects the value of both the enterprise and the acquired practice while ensuring the purchase will enable it to achieve efficiencies.

Although physician practices can be integrated into health systems in various ways, there are a few best practices that can make for a smoother experience than might result if these practices were not adopted.

Determine What the Practice Brings to the Table

First and foremost, the health system must assess the strengths and weaknesses of the practice. Ideally, some of this will assessment will be performed before the acquisition to see if it is worth the investment. However, even if a health system has an idea of the practice’s existing value, it should still do a deep dive into operations once the purchase has been made. This information can help guide how and when the health system weaves the practice’s business functions into the larger enterprise. Some practices could be ideal candidates for quick assimilation, but others might need time and work to fit in with the larger organization.

As part of the initial purchase agreement, the practice likely has shared its accounts receivable (A/R), health plan mix, and payer contracts. The acquiring health system also should look at operating margins, billing costs, and the amount of revenue actually collected as a percentage of allowed (i.e., the amount that the practice is fully entitled to receive). Other areas to examine include cash flow, productivity, schedule optimization, and care costs. The practice’s quality scores, if available, also could enhance the understanding of the value the practice could bring to the health system.

This deeper analysis has several objectives. 

First, it’s essential to review everything from coding to charge capture to billing to patient collections to make sure the practice is consistently identifying and collecting all revenues from both insurers and patients.

Second, the practice should be responding to denials and engaged in proactively avoiding them. For example, a high number of eligibility-related denials might highlight improvement opportunities on the front end to more reliably verify coverage, estimate patient responsibility and determine whether a prior authorization or referral is necessary.

The health system also should assess the technology in the practice, addressing questions such as the following:

  • Does the practice use clinical automation tools such as e-prescribing, computerized physician order entry (CPOE), and electronic health records (EHRs)? 
  • Does it employ a practice management system? 
  • Are its revenue cycle tools automated?

If the practice is not using the tools the health system expects the practice to use going forward, the health system should ascertain why: Is it because the practice is hesitant to embrace automation or because resources to purchase these solutions simply weren’t available before the acquisition? A practice that is amenable to using technology but has not had the chance to do so will approach automation differently from one that has resisted the move from paper.

If a physician practice does use automated solutions, it should be prepared to demonstrate how it uses those solutions, and to identify features it doesn’t use. If the technology is unknown to the health system, or the practice is not well versed on all its software’s features, some staff training may be necessary.

Once a health system has completed a comprehensive assessment, the next step is to compare it with the overall health system’s performance with regard to A/R, key performance indicators (including, for example, those related to cost to collect, clean claims, denials, and patient collections), and technology. This step will help the health system identify target areas for change as the transition moves forward.

Evaluate the Health System’s Integration Maturity

Once the physician practice’s current state has been fully assessed, the health system should determine its own readiness to assimilate the practice. A health system with more experience acquiring physician practices likely will need less time to do so than an inexperienced health system because it likely will have a system in place for folding the practice into the overall organization. Questions the health system should ask during this phase include the following:

  • How many physician practices has the health system integrated?
  • Do the metrics point to smooth integrations? 
  • What did the health system struggle with during previous acquisitions? What did the physician practices struggle with? Will these challenges be concerning when onboarding the new practice? 
  • Has the health system incorporated practices that involve the same or similar specialties? An approach that works with one specialty might not with another. 
  • How well are existing integrated practices performing? Have they improved their performance since joining with the health system?

After completing the self-analysis, if a health system determines that its integration efforts are “a work in progress,” it might be wise to slow down or delay incorporating the new practice into its organization until after the kinks are worked out of the process. If, however, existing and newly assimilated practices are running smoothly, then a more aggressive integration strategy may be advantageous.

Ensure a Common Language

One quick way to align a practice with the rest of the health system is to double check that its definitions and descriptions of revenue cycle metrics and KPIs are the same those used by the rest of the organization. This conformity enables apples-to-apples comparisons, thereby allowing the health system to benchmark performance between practices and across the enterprise.

A crucial step in establishing this consistency is to consider using a single electronic data exchange (EDI) partner for all ambulatory practices. Doing so allows the data to be integrated into a single location, creating a common data repository, so the health system can analyze and report information more effectively. By leveraging this kind of technology—particularly something that seamlessly works with nearly all practice management systems—organizations can compare performance across entities and pinpoint improvement opportunities while leaving the decision to change more complex technology solutions, including practice management systems and EHRs, until a later date. 

Determine Whether the Practice Fits With the Larger Business Office Strategy

Many organizations—especially larger health systems with multiple hospitals and numerous physician practices—are committing to a strategic approach to their revenue cycle. Depending on the organization, this approach may be a centralized methodology that combines hospital and physician practice operations into a centralized billing office, or it could be a decentralized methodology in which all billing remains separate across the different entities.

Both methodologies have their advantages and disadvantages. However, when looking to onboard a new physician practice, it’s possible to find that neither approach is ideal. In such situations, it may be better to employ a hybrid model in which the health system leaves much of the practice’s billing processes and technologies in place while combining a few choice areas.

An organization may use this hybrid strategy as a stop-gap measure while it assesses the advantages of integrating the practice into health system billing operations. For example, an organization may use a centralized, highly efficient prior authorization or scheduling process while leaving all other processes in place locally. Or it may keep the hybrid approach indefinitely.

The fact is, not every newly acquired practice will fit neatly into a centralized or decentralized model, and pursuing a hybrid of the two may be the smartest option. This may be especially true if the practice is a unique specialty or has a different patient population or plan mix from the rest of the organization. A hybrid model can buy the health system some time to determine the best way to weave the practice into the larger organization’s billing operations while sustaining the practice’s performance.  

Set Expectations With Staff

Communication is a vital component of any successful integration, and as health system  decides whether and how to bring a new physician practice into the fold, there should be robust communication between the two entities. For instance, once the practice assessment is complete, the health system should share those findings with the facility and discuss what they mean in the context of integration. The end goal of these communications should be to create a shared vision in which both the health system and physician practice understand what the next steps are, how those steps were determined, and what the benefits are for all parties involved.

Note that if a health system opts to knit the physician practice’s business functions into a centralized business office, there may be concern among practice staff about the effect on their jobs and future with the health system. Health system leaders should be transparent about what integration means for staff to assuage any fears. For example, having the entity’s billing team join the centralized business office may require them to work in a different building or across town. They may be retasked to a new role or function. Whatever the plan, staff should have clarity so they can proceed with their jobs without having to worry about whether they are at risk.

Monitor Performance

No matter how it chooses to incorporate a physician practice into its organization, a health system should consistently monitor practice performance to determine whether to continue on the initially adopted path or consider a change in strategy. Organizations should collect  standard metrics (e.g., days in A/R and days in A/R > 90) and operational metrics and productivity measures on an ongoing basis. Operational metrics may include things like clearinghouse and payer first pass rates, denial percentages, and patient collection rates. Productivity measures might include patient encounters per physician and gross charges per physician.

It is important for the health system to collect these metrics and to benchmark them both over time and relative to the corresponding metrics of other practices in the health system. If an practice is performing better than the rest, it is worth exploring the reasons why. Conversely, if a practice that is underperforming, there may be a need to change the assimilation stretegy.

It Takes a Commitment to Detail

Acquiring a physician practice can be a valuable step in expanding a hospital’s or health system’s market presence. Organizations that are intentional in how they onboard a practice—understanding the practices’ existing position; appreciating the maturity of their own integration efforts; standardizing metrics and terms; deciding whether a centralized, decentralized, or hybrid approach to the business office makes the most sense; and pursuing robust communication and performance measurement throughout the process—can be best assured of success in preserving the value of their investment and realizing efficiencies across the enterprise.

Ken Bradley is vice president of strategic initiatives at Waystar. Twitter: @Ken_Bradley


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