Thinking bigger (MGMA annual meeting)

Physicians are increasingly finding themselves affiliating with hospitals as a means to stay competitive. But doctors wonder how these new ventures will affect their medical practices.

By Victoria Stagg Elliott — Posted Nov. 22, 2010

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Whenever the organizers of the Medical Group Management Assn.'s annual conference opened the doors to sessions on physician-hospital integration, a large crowd was always waiting. Hundreds of managers of small and large medical practices, along with hospital administrators, listened intently and took copious notes.

One such manager was Zvi Weinman, the administrator for Central Bucks Specialists in Doylestown, Pa. He wanted to know what many other of the small practices that belong to MGMA wanted to know: What is our practice supposed to do in an age when so many trends appear to be pushing it toward closer alignment with a hospital -- up to and including selling out to one?

"What other options are there for us to maintain reasonable clinical and administrative independence?" asked Weinman, whose practice has seven gastroenterologists and nine cardiologists. "We love the hospital, but we want to stay independent of it as well."

Weinman had just walked out of a session titled "Walking the Tightrope Together -- Structuring and Valuing Hospital-Physician Ventures," one of many physician-hospital relations sessions at the MGMA's Oct. 24-27 meeting in New Orleans.

Experts advised practices to choose hospital partners carefully. Physicians need to evaluate how their practices will be managed and how to prepare for the possibility that finances will be less rosy after affiliation, at least in the short term. However, many experts at the MGMA meeting said pressure to consolidate is building.

Declining reimbursements, increasing expenses and preparation for the implementation of health system reform have many medical practices and hospitals thinking about how to go beyond their own walls. How can they work together and stay in business? Can small practices thrive financially without selling?

Marc Halley, president and chief executive officer at The Halley Consulting Group in Westerville, Ohio, covered some of this ground during his presentation, "Can't We All Just Get Along? Physician/Hospital Integration."

"We know two things for sure," Halley said. "Reimbursement will go down, and the cost of doing business will go up. ... Primary care physicians are consolidating. Hospitals are consolidating. Payers are consolidating. Multispecialty groups are consolidating. Everyone is trying to get bigger."

Learning from history

Those considering integration want to avoid the mistakes of the mid-1990s, when hospitals bought practices outright for what are now viewed as inflated prices, and some physicians became employees. Many deals unraveled as finances didn't work out and physicians chafed under hospital management.

"Hopefully, we have learned from that," said Forrest "Dean" Danner Jr., vice president and chief operating officer at Aspirus Clinics in Wausau, Wis., speaking on a panel during a practice manager open forum. "I see that hospitals are really understanding that to be successful, they have to have physicians at the table as collaborators, not as competitors."

Practices are being bought once again, but the price is the fair market value of hard assets. Goodwill -- the value of assets, such as a physician's name and reputation -- has little, if any, value. Employed physicians usually have some form of compensation based on productivity, but employment is not the only affiliation arrangement or offer. Hospitals also are establishing joint ventures, co-management agreements, medical directorships, professional services arrangements and payment for call.

"Physician and hospital integration is likely here to stay this time," Halley said. "I don't think we're going to see this coming apart like we did in the late 1990s."

Experts say the key is to choose partners carefully and align in a way that works for all parties concerned.

Checklist for successful integration

The first step for medical practices is to consider which hospital to align with, if there is more than one local choice.

Experts recommend taking a close look at each facility. What is the hospital's financial health? What is the hospital's strategic vision, and how does a practice fit in with it? Will the practice's physicians be able to contribute to strategic planning? Is there high turnover among hospital executives? What is the reputation of the hospital among the physicians in the community and patients?

"You need to know something about your hospital and how they manage these things before you sign up," Halley said.

Another issue to consider is how a practice might fit in with an accountable care organization. An ACO is an organization of group medical practices, networks of individual practices, hospitals and others that join together to manage a large patient population of Medicare beneficiaries. An ACO must run for at least three years and care for at least 5,000 patients. Although details are still in development, those who are part of an ACO can get paid bonuses from the Centers for Medicare & Medicaid Services for meeting and improving upon quality benchmarks and for generating savings for CMS.

Many institutions are seeking closer affiliations with physicians to establish ACOs. If an ACO affiliation is a practice's goal, experts recommend that physicians investigate the hospital's ability to track the health of populations, and whether the practice's information technology can work with the hospital's system effectively.

Does a hospital "have a culture of population health management?" asked Don Fisher, PhD, president and CEO of the American Medical Group Assn., which represents large multispecialty practices. "You are not going to be able to be very successful if a hospital cannot look at the bigger picture."

If the medical practice is giving up some management duties to a hospital -- whether it's through joining a hospital-run independent practice association, joining an ACO or selling the practice completely -- then experts said practices need to consider how they will be managed.

Will the practice's current staff stay on? Will the hospital control scheduling, billing or other administrative functions? Experts say many strategies that work for hospitals are not as effective for physician practices. For instance, some hospitals have imposed hiring freezes in response to the economic downturn, but experts say this strategy often can backfire in a physician practice.

"The worst thing you can do at a medical practice is put in a hiring freeze," Halley said. "The first thing we do is add support staff. Physicians should not spend 15 minutes using a fax machine. Have someone else do that, and let the doctor see two more patients."

A changed financial picture

Otherwise financially healthy practices that agree to an acquisition by a hospital may be faced with the shock of being in the red, particularly right after the deal is done. Differences in how income and expenses are allocated can make it appear that a practice is losing money, even if the same number of patients are being seen.

"In some organizations, the doctors become the bad guys who are creating the loss," said Robert Bohlman, an MGMA principal consultant. "If you have a situation of adversity, it is not going to work."

If a practice ends up in the red after an acquisition or other affiliation, experts suggest analyzing practice finances line by line to determine where money is coming and going and compare it with previous data. "You need to step back and look behind the numbers to understand the reasons behind the change," Bohlman said. This information also must be used judiciously to avoid conflicting with antitrust and self-referral laws.

The most important thing for physicians to realize, however, is that closer affiliation, especially an acquisition, will involve change, even if this is not obvious at the outset.

"The greatest white lie a hospital executive can say is, 'Nothing will change.' Everything changes," Halley said.

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Push for EMRs intended to help small practices

The challenge of installing electronic medical record systems has been mentioned as one reason solo or small-practice physicians are selling to hospitals and merging with other groups.

Government officials who are working to implement these aspects of health system reform say this is not the intended goal, and they cite data that find practices with these systems do better financially.

"The demise of small practices has been predicted for 30 years. It doesn't seem to have happened, and we're not expecting that," said David Blumenthal, MD, the U.S. Dept. of Health and Human Services' national coordinator for health information technology. "Thousands of small practices have made this conversion. I have visited small practices with electronic health records, and they are being used to good effect. Clinicians are very satisfied with them."

The move toward EMRs also has been mentioned as a reason that some physicians approaching retirement do so earlier than planned. Dr. Blumenthal said adding an EMR may make a practice more attractive to a hospital or a younger physician taking over. He spoke during two sessions at the Medical Group Management Assn. meeting in New Orleans.

MGMA data released at the meeting found that practices implementing EMRs benefit financially. Independent single and multispecialty practices with the computer systems earned $49,916 more medical revenue per full-time-equivalent physician than those with paper records, according to "Electronic Health Records Impacts on Revenue, Costs, and Staffing: 2010 Report Based on 2009 Data." Those owned by hospitals or run by integrated delivery systems earned $42,042 more.

"While the implementation process can be very cumbersome, these data indicate that there are financial benefits to practices," said William F. Jessee, MD, MGMA's president and CEO.

Numbers were not broken down by practice size, but they changed over time. Practices with EMRs in use for at least five years had operating margins 10.1% greater than those in the first year of implementation. This may be because information technology costs are highest in the first year, but money spent on medical record and transcriptionist staff decreases over five years.

Although significant financial benefits were associated with EMRs, challenges such as demonstrating meaningful use remain.

The potential of improved financial performance should be an encouragement for many organizations to purchase and use EMRs, Dr. Jessee said. Physicians adopting the technologies may earn up to $44,000 in Medicare incentives or nearly $64,000 in Medicaid incentives, funded through the Health Information Technology for Economic and Clinical Health Act, part of the 2009 economic stimulus package.

"However, while these incentives can defray some of the implementation costs, qualifying for them by demonstrating meaningful use of the EHR is expected to be challenging for many practices," Dr. Jessee said.

Having more practices get electronic systems may be restrained by potential Medicare cuts. A survey released at the meeting found that 45.3% of practices probably will delay the purchase of EMR systems if Medicare cuts go through -- a 23% cut on Dec. 1 and an additional 2% on Jan. 1, 2011. In the wake of the June 1 cut of 21% that briefly went into effect before it was reversed and turned into an increase of 2.2%, 37.3% delayed the purchase of EMRs.

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Business tips

Sessions at the MGMA meeting addressed ways to help physicians increase their bottom lines. Among the topics:

Smoothing customer service. Implementing protocols and scripts for how staff converse with patients may improve satisfaction with the practice.

"No one has discretion as to how many leads are connected to someone's chest for an EKG. We have clinical protocols in that situation," said Meryl D. Luallin, a partner with SullivanLuallin, a consulting firm in San Diego. "You need to have protocols on the service side as well."

The protocols can instruct staffers to ask patients making an appointment if they know where the office is or have special needs. Other protocols can address how patients are greeted when they arrive and how they are alerted when they need to move from the waiting room to an exam room. In addition, staffers can be given a list of recommended topics for small talk with patients.

"There's nothing wrong with scripting. These are social niceties," said Luallin, who assesses practices as a "mystery patient" as part of her consulting work.

She cautioned against using "have a nice day" as part of the script ending a visit. This may be viewed as insensitive if a patient has just received bad news. "Take care" is a safer option.

Managing waste disposal. Medical practices may be able to save money by thinking about how trash is handled.

"You can improve your operation's performance if you get a better handle on waste and ultimately save money," said Linda Lee, DrPH, director of operations for WM Healthcare Solutions in Houston.

Lee estimated that 20% of waste that is now designated as hazardous can be placed with normal trash or recycling in some offices. This may include paper towels, gowns and exam table coverings.

Improving physician recruitment. Facilities are recruiting through a wide variety of methods, including social media and online advertising. All listings should direct potential applicants to a single website run by the institution, including information relevant to physicians.

This makes physician job listings easier to maintain and makes it more likely that doctors will go directly to the most relevant information.

"You want to engage physicians, and it's much easier to change that on the spot in real time," said Allan Cacanindin, vice president of client marketing at Cejka Search, a health care executive and physician search firm in St. Louis. "You want to provide information about why a physician wants to join your organization."

Cacanindin suggested including keywords that make it more likely that such listings will appear when certain terms are typed into an Internet search engine.

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External links

Medical Group Management Assn.'s 2010 Annual Conference, New Orleans, Oct. 24-27 (link)

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