The Challenges of Integrating
Physician Group Operations
Presented by
Gary Ermers,
Associate Director of Healthcare Consulting
David Bundy,
President and CEO of Dean Dorton Allen Ford
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Why we did the study:
Dean Dorton Allen Ford created this report in response to a
clear need. Nearly every health system and hospital our
healthcare team has interacted with has recently acquired
physician groups, is actively seeking to acquire them, or both.
Yet, nearly every health system and hospital with integrated
physician groups is realizing substantial operating losses from
those groups.
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Who were the participants?
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Most of the participants were in
Kentucky and Indiana
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The Survey
• Every hospital in Kentucky
was invited to participate in
this study through an email
request via e-newsletter
• The survey had 30 questions
and was taken using Survey
Monkey
• The survey was broken down
into 4 sections




Background
Structure
Operations
Opinions
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Some questions from the survey
• Length of time Hospital has
employed physicians
• Types of physician specialties
employed
• Employed physicians organized
in a separate group
• Physician compensation
• Average annual loss per
physician
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Analyzing the data
Once we received all the responses, we analyzed the
answers from each as it related to the question…
“What is your
average annual
loss per
physician?”
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41% of all respondents reported that their average annual loss
for hospital-owned physician groups is greater than $100,000
87% of all respondents reported a loss
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Some other stats from the study
When it came to losses…
• The size of the hospital
didn’t matter
• The more physicians
employed, the more likely
operating losses became
• Hospitals reported that physician groups operating
as separate legal entities had the highest losses
• Length of contracts did not impact results
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Some other stats from the study
• Less than a quarter of respondents reported
that their hospital had a unique board of
directors that oversaw the operations of the
physician group(s)
• 69% of the respondents reported utilizing
productivity based compensation measured
by RVUs
o 67% of hospitals using RVU-based
compensation also experienced the highest
losses
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Does every physician group
acquisition need to have a positive
bottom line to be beneficial to
hospitals?
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Not necessarily….
But hospitals need to
manage these practices as
effectively as they can.
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Hospitals benefit from
the tradeoff of
additional revenue
streams to the hospital
for losses on employed
physicians; as
compensation criteria
changes, that tradeoff
becomes less sustainable
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Why are hospitals
losing money on
physician groups?
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• Employing specialty and sub specialty
physicians to meet needed service gaps
• Employing whomever is available, not
necessarily following a strategy
• Employing for clinical quality support of
other providers and the hospital
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Compensation model does not
drive profitable results or includes
unaligned incentives
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Compensation models
• The model needs to incentivize volumes
of patient delivery and the payor mix;
physicians work harder and smarter with
correct productivity goals
• Negotiated compensation is not realistic
to actual market forces; minimum base is
too high, productivity incentives are too
rich, or additional non-productivity
compensation builds up.
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Compensation Models
•
Pure productivity based
compensation without
regard to actual collections
and cost often result in
unfavorable financial
results
•
Discipline to communicate
and adjust annual plan for
lower results, including
terminating
underperformers, is
sometimes lacking
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Understanding operations
•
•
Operations can become disjointed or hospital-centric.
The business of physician practices differs from the
hospital.
Integration of computer systems for EHR, billing, and
practice management
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Understanding operations
• Meaningful Use and clinical data
reporting
• Duplication of functions and staff occurs
as practices get added rather than
accomplishing economies of scale
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Hospital Experience
• From Me Too to Mission Critical
• Overstated Downstream Impact
• Competitive Market and
Defensive Reasons caused over
value/pay
• Relying on Hospital Based
Reimbursement is risky
• Availability impacted strategy
• Underperformance not
addressed
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Physicians Experience
• Administrative, management, and billing
functions less efficient than promised
• Confusing compensation model with data
integrity concerns
• Equity (Financial) issues and Quality issues
among employed physicians
• IT solutions lacking
• Decision rights and integration in Health System
confusing
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Successfully employing
physicians
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• Understand the goals of
the physicians selling
their practice.
 Recruitment and or
retirement issues
 Capital, IT, Investment
needs
 Administrative and
Regulatory burdens
• Understanding what the
group values will lead to a
more positive, transparent
agreement
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• Strategic Recruitment Program
• Effective/Efficient practice management
structure and support
– Data rich; Frequent reporting and tracking of
clinical quality, patient satisfaction, and financial
results.
• Physician Leadership development and
support, and governance structure in place
• Address different generational culture and
goals among physician group.
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Compensation plans
• Compliant. Stark, AntiKickback, OIG/CMS
• Design a compensation model
that aligns Hospital and
Physician goals with an
objective methodology for
calculating physician
compensation
• Transparency, understandability
and data integrity will engender
trust with the physicians
• Plans must evolve to align with
changing reimbursement systems
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Compensation plans
• Plans should reward
integration with the
system
– For example if leakage
occurs in diagnostic
testing consider leaving
minor ancillaries with
physician practice.
– Determine equitable
allocation of bundled
payments among practices
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Compensation plans
• Maximize revenue growth while
preparing for transition toward quality,
satisfaction, and population health based
system
– Incorporate Value Based criteria lightly, as
supplemental, to begin knowledge build towards
transition
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Compensation plans
• Capture all additional
revenue streams available
from payors for care
coordination, shared
savings, P4P, VBP, and
bundled payments.
– Include Internal savings
sharing as part of cost
responsibility built into the
plan.
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As with Hospitals, recruit the best
Physician practice management
• Experience and balanced approach are
key
• Benchmarking and data driven decision
making
• IT technology and resources
• Avoid overlay of excessive bureaucracy
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Keeping an independent mindset
• Employing doctors doesn’t mean you
have an integrated system
• It is just the beginning. Getting to a
true integrated delivery network is
the key to success under ACA.
• ACA is the key differentiator from
the 1990s when many hospitals did a
mere about face after incurring losses
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Healthcare reform is trying to line doctors
and hospitals up in one continuum…
these entities need to learn to work
cohesively and in a financially sustainable
model
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QUESTIONS?
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Contact Information
Gary Ermers,
Associate Director of Healthcare Consulting
859.425.7683
germers@ddafhealthcare.com
David Bundy,
President and CEO
859.425.7650
dbundy@ddafcpa.com
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