The quest is on for the managers of physician practices in Massachusetts to start seeing profits. In the past several years, large and small hospitals alike embarked on an acquisition frenzy, scooping up medical practices and employing physicians.
Today, more than half of the state's physicians are on a hospital payroll, having eschewed the traditional route of independent, private practice.
Unfortunately, hospital administrators are finding they got more than they bargained for. They continue to invest in practices that they say become less productive and less profitable after acquisition. Ask hospital administrators who have begun to manage a cadre of physician practices and most will likely tell you that performance is falling below marketplace norms for private practices.
Indeed, industry estimates indicate only a small number of hospital-owned physician practices throughout New England have healthy bottom lines.
Allegations are beginning to fly, with hospital administrators contending doctors become less productive once they are salaried and physicians accusing administrators of inept practice management.
While there may be a grain of truth to both allegations, the primary issue lies elsewhere.
Immediate action
Faced with the challenges of entering a new business in unfamiliar territory, many hospital administrators must first create a legal entity to own practices and develop a corporate infrastructure to manage them, a highly-politicized undertaking.
They then proceed to develop large-scale support systems, most notably management information systems (MIS), to link practices, ensure potential economies of scale and manage the Goliath they have created.
Many of these investments will ultimately reap long-term profits. But, as the tide of red ink threatens to become a flood, the need for immediate action takes precedent.
Successful institutions have learned that the key to turning around declining profitability is disarmingly simple: Volume and revenue emanate from the exam room.
All cash in any physician practice results from a doctor providing care to a patient. Unfortunately, even as
hospital administrators are working diligently to build infrastructure to support their practice
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acquisitions, any patient in a hospital-owned primary-care practice can tell you that institutions have neglected to invest where it matters most: the doctor's office.
Indeed, it has become awfully difficult for patients to access their doctors. Patients miss appointments because they get snarled up in hospital registration. If they can get through the telephone's incessant busy signal, they can't schedule a physical exam in under three months and can rarely be seen for a cold until after it has passed. Patients cool their heels in waiting rooms. And when they do see their doctor, he or she appears harried and
rushed.
Keys to success
What does it take to drive performance in hospital-owned practices? As more institutions develop a track record of success, or failure, consensus is beginning to emerge. Successful hospitals have begun by executing these top strategies for success:
Ö Acquire and encourage entrepreneurial leadership on every level.
Managing physician practices for profit is a new business strategy for hospitals. It requires talent, vision and more than a little assertiveness to initiate new ways of doing business. The status quo doesn't work. A hospital that delivers predominantly inpatient care, and possibly conducts teaching and research activities, is a world away from the hubbub and intensity of a neighborhood medical practice that provides a spectrum of preventive and
urgent care.
Hospitals historically mine their own departments for practice management talent, relocating clinical or administrative personnel who may have done an exceptional job in the laboratory or finance but may not have skills transferable to their new environment.
Successful institutions are scouring the marketplace for individuals who have had the profit-and-loss responsibility for managing successful, lucrative businesses. It is an essential track record to jump-starting a new line of business.
Ö Monitor and measure daily performance on the practice level.
As in every service industry, physician time cannot be inventoried. People who manufacture goods can mark down items that don't initially sell and still receive something for their labor. But each week, day or hour that a physician does not spend seeing patients results in lost revenue. Hospitals can't stumble in their quest to measure and report accurate, timely practice information that can be used to make mid-course corrections.
First-quarter data delivered in the third quarter doesn't help practice managers meet weekly production quotas. And it angers physicians, who can't make positive behavioral changes that ultimately
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affect the amount of cash they receive in bonus.
Without sound performance monitoring, lousy decisions can go undetected. Consider the practice that decided to close on Thursdays to catch up on paperwork. Or the practice that routinely cancelled physician sessions due to administrative and research commitments. Both organizations experienced 20 percent capacity declines before attracting the attention of hospital administrators.
Managing a medical practice profitably requires timely insight into daily operations.
Ö Re-engineer office operations to deliver high-quality, streamlined, patient-focused care.
Hospitals intent on reaping economies of scale by utilizing existing systems are finding that physicians and patients are crushed under the weight of tremendous bureaucracy. Lengthy patient-registration processes delay patients and push physicians behind schedule; far-flung laboratories close early while the practices remain open; computer crashes leave practice staff unable to schedule or refer patients for hours or days.
While administrators try to keep production high, the unintended side effect in these practices is usually an oversupply of physicians. Many times, restructuring operational processes to smooth patient visits results in fewer providers managing larger groups of patients.
Ö Offer physicians appropriate incentives.
The Health Care Advisory Board, a national health care research-and-development organization, recently published a two-page overview titled "461,760 Possible Combinations for Compensating Physicians."
The irony is not lost on hospital administrators searching for the one magical formula that will motivate physicians, reap profit and maintain quality of care. Successful hospitals continue to tinker with compensation and incentive systems, determined to find the right balance. They also are looking to the future, developing compensation guidelines to reward physicians for effectively managing a growing, capitated panel.
Patients first
There's more than profits at stake as administrators, doctors and consultants continue the ground-breaking work of reengineering hospital-owned practices.
Ensuring that new systems, policies and procedures are in place, agreed to by each party, improves efficiency,
promotes harmony and above all safeguards the service held sacred by all: enhanced patient care.
JAYNE OLIVA is a principal with Burlington-based Croes Oliva Group.
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