Hospital Acquisition Avoidable for Urology Practices

Josh Halverson

Many community-based medical practices are being acquired these days by hospitals that are working to build a steady stream of patients and grow market share.

In many cases, the practices go along with the trend because they don’t consider themselves entrepreneurial and believe that acquisition will make their futures more secure.

But hospitals are facing a number of challenges to sustainability themselves, and there are strategies besides absorption that private practices can utilize to prepare for successful futures, said Josh Halverson, of ECG Management Consultants in Plano, Texas, in an address to urologists at LUPGA’s annual meeting November 8.

As they acquire practices, hospitals are especially interested in adding high-revenue services, primarily “hearts, heads, and cancer,” to help subsidize some of their other, lower-revenue service lines, and they may see adding a prominent cardiology group practice, for instance, as a way to do that, Halverson said. Consequently, more than half of US physicians were employed by hospital systems or integrated delivery systems as of 2011, according to an article published in the New England Journal of Medicine (2011;364:1790-1793).

But hospital sustainability is facing some challenges—first among them an overall change in strategy.

“Hospitals historically have been glorified hotels; hospital administrators have been trained to optimize their bed capacity,” Halverson said. However, the business model to keep the beds as full as possible is fundamentally changing.

Now, hospitals that previously had little financial incentive to monitor what happened to patients after discharge are being penalized for readmissions. Some will lose up to 3% of their Medicare reimbursement totals in 2014 if they have too many patients readmitted within 30 days, Halverson explained. He added that there are incentives for all providers to keep less-acute patients out of the hospital, and that accountable care organizations and risk-based budgeting systems are moving in.

Hospitals Lose Money on Physicians

As models shift, the amount hospitals lose when they acquire physicians is growing, Halverson said. Making the transition from private practice to hospital management takes time, and those early years result in lost revenues for hospitals.

About 4 years ago, the loss per doctor absorbed by a hospital was $140,000, Halverson said. Last year, that loss had grown to $180,000 per physician. Healthcare systems are struggling with these losses as they add thousands of physicians, he said

In the past, the strategy had been that the losses would be offset years later by additional patients. But hospitals are not seeing the revenue streams they had anticipated when they contracted with those physicians, Halverson said, putting intense pressure on them to recapture the losses.

“The first place they go is physician compensation,” Halverson said.

Meanwhile, hospitals are operating in a period of uncertainty regarding reimbursement as insurers consolidate. Hospitals are also being forced to update facilities and services to raise patientsatisfaction scores. They have to spend more money to avoid readmissions just to retain their previous level of reimbursement.

In addition, profit margins are being compressed for previously high-profit specialties such as cardiology, Halverson said.

“The first place Medicare is looking in terms of reimbursement changes is in cardiovascular care. Medicare has significant incentive to reduce the utilization of cardiovascular services,” he said.

Practices move toward shared governance

So how do practices stay independent in such an uncertain climate? Halverson described three models:

• Federated (pod-based): These practices have limited central government and management, and shared services.
• Integrated: These groups have strong central governance and management and shared services without true financial integration.
• Multi-specialty: With a common governance and management, these practices are characterized by centrally controlled policies and finances.

Practices are moving away from the federated model, Halverson said, because it’s expensive without much coordination of government and management. The market is showing that integrated multi-specialty group practices with a shared vision are the most likely to be successful under a value-based reimbursement structure.

Halverson listed some characteristics of high-functioning practices:

• A strong vision or culture binds members together.
• Members delegate decision-making to a governing entity accountable for making the best decisions for the group.
• Decisions are made with a principle-based approach.
• There is a clear line between governance and management.
• The right people are in the right jobs and are accountable for making decisions.
• Performance measures are clearly defined, routinely reported, and monitored regularly.
• Skill gaps are addressed through training and mentorship.
• Members of the leadership team are professionally trained in management, operations, and strategy.
• There are opportunities for advancement for high performers, and low performers are reassigned or eliminated.
• Business practices are reviewed routinely.
• Physician compensation is recognized as the biggest expense of the group.
• Compensation is tied to the economic realities of the practice.

Medical groups with these qualities, and who succeed in managing patient populations together, will have a strategic advantage in an uncertain future, Halverson said.