Employment of Physicians
As noted in the Strategies for Physician Engagement and Alignment report, many health systems are focused on physician practice acquisition and direct employment of physicians (or use of a foundation model in states that ban direct physician employment). The trend toward physician employment has several implications: Specialists’ referral bases are increasingly comprised of employed physicians. Referrals are also increasingly made by other healthcare professionals (e.g., physician assistants and care coordinators) who are also employed by health systems. The percentage of physicians in clinically integrated networks (CINs) is also climbing. As a result, these two processes are becoming more coordinated, with many common issues and approaches, and a significant overlap in key decision-makers. Some CINs carefully balance the number of board members from independent practices, employed practices, and faculty practice plans based on the make-up of the CIN. Recruiting for employed physician groups often emphasizes the ability and inclination of a physician to collaborate. Employment is not alignment. A common refrain among systems that are pursuing physician employment is the caution that employment is not equivalent to alignment. Healthcare Strategy Group, which is sponsoring this Value Project topic, has identified eight functional areas, identified in the graphic below, that together define a high-performing employed physician network. Based on these eight areas, Healthcare Strategy Group has developed 67 Tips for Developing a High-Performing Physician Network, available on the Healthcare Strategy Group website, as well as a free tool—available below—that enables health systems to assess the state of their employed physician network. Health systems can access a free tool that enables them to assess the state of their employed physician network on the Healthcare Strategy Group website at. Tool: HealthcareStrategy Group’s Physician Network Diagnostic Tool Compensating employed physicians. Physician compensation will need to adjust in sync with changes in payment models and other strategies. As a system accepts more risk-based payment, for example, incentivizing physicians based on quality and cost-efficiency goals will become more important. If a system accepts capitated or global payments for managing the health of a population, the size of the patient panel a physician and his or her team is able to manage can become a significant factor in determining the physician’s compensation. Shown below is an example compensation approach, provided courtesy of the Healthcare Strategy Group, for a health system with a growing number of employed physicians in a market that is still mostly fee-for-service. The example is for employment of a primary care physician; in practice, the terms of compensation agreements will vary according to market conditions and physician specialty and in all instances must be vetted for fair market value and commercial reasonableness. Tool: Example of aPhysician Compensation Agreement Next Page Home Previous Page
Determining Options
Health systems and physician groups have a range of options. The tool below displays a range of approaches in terms of degree of integration as well as degree of change in terms of physician autonomy. Tool: Physician – Health System Alignment Options As health systems move from fee-for-service towards value-based payments, their physician relationships tend to move higher on the integration scale displayed in the alignment options tool above. Both employment and clinically integrated networks are increasing rapidly in popularity. Bundled payments are also common, both through the Center for Medicare and Medicaid Innovation’s bundled payment program and with commercial insurers. For many health systems, bundled payments are a key step along the journey. As one academic center CFO noted, “This allows us to start looking at data and talking costs with our physicians for the first time.” Next Page Home Previous Page
Market Assessment
Both health systems and medical groups should assess and understand the local physician market to determine their best options. Ten questions for assessing a local physician market are: What is the physician supply/demand balance in the market by specialty? What types of care are delivered within the market, and what is referred out of the market? Where do cases that leave the market go, and why? What are the referral patterns within the market? For example, do referrals go freely across system lines, or is “leakage” being reduced? Are referrals influenced by narrow networks, clinically integrated networks, or some groups (for contractual reasons or other factors) not accepting some payer categories? Are some groups deemed to be of higher quality than others? What is the growth or decline in the patient population? How are patient demographics changing? How are physician groups likely to respond to the changes? Are physicians in some groups doing significantly better or worse financially than the market as a whole? How easy is it to recruit physicians to this market? Where does the market stand now in terms of these indicators: •Medicare cost per member per month? •Commercial costs per member per month? •Physician group revenues per RVU, per specialty compared to national benchmarks?
Medical Group Perspectives
A medical group’s perspectives on physician alignment and engagement opportunities can differ significantly based on the group’s demographics. Demographic categories include the group’s ownership status, type of group, performance and experience, and personality. Common traits within these categories are shown in
Health System Perspectives
Most health systems’ key initiatives depend on the involvement of its physician groups (both employed and independent). This tool illustrates the steps in the journey toward population health management and health system sustainability can be made without direct physician involvement.
Assessing the Situation
A successful physician strategy is built upon an understanding of: Perspectives of the health system seeking to develop or refine its physician strategy Perspectives of the medical group and physician practices (both employed and independent) with which the health system seeks to engage Relevant market conditions As a starting point, it is important to understand the perspectives of both health systems and medical groups (employed and independent). Both perspectives are important, and although they share certain common goals, they are not the same. Tool: Examples of Common and Organization-Specific Goals
Seaside Medical Group Case Study
Issues addressed in this case study include: Moving a physician group from fee-for-service towards a value-based focus Addressing physician compensation changes in a medical group Forming a multi-organizational clinically integrated network (CIN) Sharing finances in a CIN Governing and managing a CIN
Mountain View Case Study
Issues addressed in this case study include: Physician governance within a health system Integrating physician practice and other components of the management team Experiments in identifying population segments and tailoring approaching and resources to these segments Managing the cost/benefit ratio as
Case Studies
The two case studies offered in this toolkit address increasingly common situations in physician relations. Both are composite case studies based on the experiences of several actual systems and medical groups. In both instances, the organizations are moving aggressively toward accepting and managing more population health risk: Mountain Health System seeks to take its multispecialty physician group to a new level Seaside Medical Group facilitates a partnership and clinically integrated network involving several other organizations
Moving Forward
Moving Forward The steps toward finalizing an acquisition or affiliation will differ depending on the degree of integration involved. A basic road map for moving forward is provided below. Initial Actions Engage legal counsel. Regardless of the degree of integration you seek, all acquisition and affiliation approaches can raise legal issues involving antitrust, fraud and abuse, and other state and federal laws and regulations. Approach/engage your potential partners. If your organization seeks to be acquired by another organization in a competitive process, it may engage an advisory firm that will seek detailed proposals from potential acquiring organizations. Less fully integrated affiliation models may be initiated through conversations between leaders of the potential partner organizations, often with the assistance of an advisory firm. Consider the need for a confidentiality agreement in early discussions with potential partners. Commit to going forward. If a merger is involved, the parties will likely sign a letter of intent or memorandum of understanding on the proposed merger. Depending on the size and market impacts of the acquisition or affiliation, a Hart-Scott-Rodino premerger notification filing with the Federal Trade Commission and Department of Justice may be required. The deal will not be able to close until the federally prescribed waiting period has expired or the government grants early termination of the waiting period. State/local laws and regulations may also apply. Due Diligence The degree of due diligence required will vary by approach. A merger will require the greatest extent of access to books and records to confirm the financial viability/desirability of the acquisition. “Cultural” due diligence is also important. If there are significant potential cultural incompatibilities between organizations, their chances of working effectively together, whether as a merged entity or as collaborative partners, can be significantly diminished. Internal Communications Rumors and gossip that can spread among staff in any acquisition or affiliation strategy can easily delay progress or derail the activity altogether. Once your organization has committed to moving forward, it is critical to inform staff on possible impacts of the acquisition or affiliation activity. The two PowerPoint templates below outline key discussion points in fully integrated and less than fully integrated acquisition and affiliation models. Tool: Communicating with Staff: Full Integration Tool: Communicating with Staff: Less than Full Integration Business Planning While due diligence proceeds, the management teams of the partner organizations should develop: Vision statement Organizational structure Capitalization plan Governance model (powers, roles and responsibilities, reserved powers, voting rights, etc.) Management structure (including, in the case of a merger, the transition team) Early initiatives and priorities Financial projections (including scenarios related to the rate of movement towards value-based payments) Final Agreement The partners should now be ready to negotiate their final acquisition or affiliation agreement. Use the following scenarios to see how different organizations might work through the steps toward an acquisition or affiliation. A stand-alone hospital determines its acquisition and affiliation approach An academic medical center aims for long-term sustainability A multi-hospital pursues a regional strategy and system-wide economies of scale