Executive Vice President
Executive Vice President,
Steve Moore, MD
Senior Vice President and
Chief Medical Officer
Catholic Health Initiatives
Senior Leadership Editor
Vanguard Health Systems
HEALTHLEADERS: Acquisition of physician practices has ebbed and flowed for hospitals and health systems for years. Why is it ramping up this time?
MIKE MURPHY: One of the key drivers this time around is the fact that physicians are creating the demand for employment due to the changing economics around their practices and their concerns about being included in a new system of care as a result of healthcare reform. Health systems are approaching employment of physicians from a healthy level of conservatism.
STEVE MOORE: We're seeing two or three pressures driving this. One is office-based procedural reimbursements being gutted in the specialty markets over the past three or four years—similar to where the primary care market has been going, in that primary care reimbursements have been ratcheted down significantly to the point where you just can't see enough patients.
CLAYTON HARBECK: The complexity of managing a physician practice has increased exponentially in just the past five years, partly because a much larger percentage of revenue is coming directly from patients. Because it's more difficult to collect from patients than payers, physicians are driving less money into their practices. So they're looking for help from health systems.
KENT WALLACE: The retail marketplace is changing for consumers. But the consumer is driving the access. People want to access their primary care differently. Physicians feel like they have to be aligned with somebody. We're seeing that on the primary care side, but cardiology is probably the most impacted product line right now. Orthopedics is also heading in that direction. But alignment is what begins to create the desired effect, which is efficient care, better-quality care, and cost savings. When you get that alignment, it's amazing what can happen from a care standpoint.
MOORE: But we run a great risk once we've reduced those costs and standardized. If we're hiring folks into a fee-for-service model to leverage provider-based reimbursements, at the same time there's this schizophrenic change in how we're going to be reimbursed in the future. We're taking quite a risk on both sides of those equations as we move those folks in.
HEALTHLEADERS: Are you buying in to the practice acquisition trend?
WALLACE: You need to start with relationships, whether you're doing some basic MSO services, whether you're doing disease registry to get your pay-for-performance dollars, but you want to start to have a relationship particularly with primary care physicians. It may move to an employment situation. But you have to be careful. Sometimes the physicians hospitals strategically acquire are the docs that walk into the CEO's office and say they're getting tired of the hassle and would like to slow down a little bit. That's not a good strategic investment.
MURPHY: Our major focus is on primary care; however, much of the demand is coming from the specialists due to the economic challenges from within their practices. As a physician alignment strategy, specialists are attractive given the amount of care they provide within the health system today. However, as we transition from a fee-for-service to a value-based system of care, acquiring too many specialists could potentially create a future risk. How the timing of this strategy plays out varies in each of our markets.
MOORE: From a strategic perspective, we're looking at three phases of healthcare delivery. The first is in the acute care facility in the future; we're looking at lower reimbursement, and we're looking at an opportunity to have better quality and higher efficiencies. So the physician strategy we have to pursue is around employing hospitalists, intensivists, and then developing some sort of management model with our subspecialties to start to get at the utilization that is driving our costs. The next piece is around bundled payments and readmission reductions, which are going to be big parts of this as we move forward, and only a few of our markets are competitive there. We're actually looking at trying to put providers into nursing homes now.
WALLACE: And as you transition, you may need to add a physician assistant to a care team. You may need a nutritionist. But right now it's not being paid for. That's a problem for a lot of physicians. Too, a lot of physicians are practicing at the lowest level of their license, and I don't know if we've done that to physicians or if the payment system has done it. If primary care physicians were rewarded for medical home management, I think you'd see some significant savings because they're the key.
HEALTHLEADERS: Is providing those team-based incentives, for now, up to you?
MURPHY: Health systems are responding. To manage population and value-based care, as we deal with the physician shortage, we are transitioning to a model that increases the size of the primary care team through more physician extenders and health coaches, an essential part of patient-centered medical homes. Some of the most successful practices that are managing under incentive-based care models have an 8:1 ratio of extenders to physicians. This has created a far more effective way to treat chronic disease and improve patient satisfaction. Also, many payer incentives are now supporting this team-based care.
HARBECK: We're seeing an awakening among hospitals that the foundation for team-building will be the patient-centered medical home. We're unaware of any medical home pilot that has provided team-based incentives for physicians and failed financially. But there are costs to developing a medical home. Some of our hospital clients are organizing their employed physicians and driving them through the registration process with NCQA or Bridges to Excellence. Then hospitals are going back to payers and renegotiating contracts to reward positive patient outcomes.
HEALTHLEADERS: But that doesn't mean you have to own the physician practice, right?
WALLACE: I don't think it requires ownership. What it does require is an enlightened physician group to understand the information that's going to be required. Managing physician practices is one of the most challenging things that a health system can do. Most system people are not prepared to manage physician practices. Under fee for service, you are really rewarded for your inefficiencies. I've got hospitals right now that are dropping their readmission rates 10% or 15%. They are penalized now for that. But the things that make sense for population management eventually will make financial sense.
MURPHY: There are many other options to aligning with community physicians beyond employment. The goal is to achieve clinical integration. However, many specialists, including cardiologists, orthopedists, pulmonologists, and urologists, are seeking assistance from health systems due to changing economics around specialty care. Health systems are forced to consider employment as a means to provide the level of inpatient acute care needed for their communities. The challenge is that the cost burden shifts to the hospital with potentially little additional revenue to offset this cost.
MOORE: If you have a diminishing fee-for-service environment, you'll actually want them all to go over to your competitors because essentially you're going to implode. The quality of care that's delivered is inversely proportional to the number of specialists per population. It's directly proportional to the number of primary care physicians per population. If you look at the procedure volumes and hospitalizations per thousand, you require far greater primary and extender populations than you do specialty.
HEALTHLEADERS: What are the keys to making a transition to owning physician practices successfully?