Becker's Hospital Review

76 Executive Briefing Influencing the Specialty Physician Group's Volumes There are two major ways to influence a specialty physician or group's volume: 1. Recapture the patient relationship 2. Use payor relationships to channel patients with economic incentives Recapture the Patient Relationship Decades ago, the patient was as tied to the hospital as he was to the physician. Today there is often little patient connection to a specific hospital, especially within ambulatory services, which account for nearly 97% of all healthcare activity. However, two trends can be used to the health system's advantage: 1. Demand for and ability to coordinate care is increasing. 2. The relationship between the physician and patient is declining. Health systems are coordinating care better in part because of the proliferation of primary care employment. Coordination improves care and has the added benefit of channeling referrals to a set of physicians or group. To access these referrals, specialty providers must be in-network and can be partially influenced by the health system. In the last five years, most health systems have focused on moving their employed primary care providers from aggregation to assimilation and integration. 2 As a result, the average total in-network referral rates by employed primary care providers exceed 75% making it a reasonably effective tool for influencing specialists. It is, however, an expensive approach to influencing volumes with subsidies of more than $100,000 per provider per year. Additionally, the employment model's effectiveness is declining as the physician-patient relationship weakens. Easy access to basic clinical information, alternative channels of care and the increasing desire to have services delivered how, when and where the individual wants are reducing patients' dependence on a specific physician relationship. A large (20%) and growing percentage of the population has traded the traditional physician-patient relationship for the convenience and access urgent care offers. 3 Evidence of this trade-off is seen in the growth of urgent care centers compared to traditional primary care practices. Virtual, retail, concierge and other segmentation channels are attracting patients and serving as a substitute primary care channel. 4,5 Health Systems that want to influence specialty physician volumes are using both primary care employment and alternative channel development to recapture the patient relationships. Develop Payer Relationships An alternative to capturing the patient relationship is to use economic incentives. This typically amounts to buying volume through narrowed insurance networks. By negotiating the hospital costs in exchange for payor-channeled volumes, the health system can exercise control over its specialty providers through the narrowed network referrals. While in theory, the health system could develop the payor relationship through reducing total cost of care, this either directly or indirectly usually becomes an issue of unit pricing. As a result, the health system must balance the pricing leverage it has with the excess fixed capacity it could fill in the short-term. Influence the Specialty Physician's Business Model A second way to effect physician alignment change is to influence the specialty physician's business model. This could occur in at least three ways: 1. Change the revenue per unit of work 2. Monetize value already created but not yet monetized 3. Shift the payment mechanism Changing the Unit Price By virtue of their size and large fixed-asset base, health systems can impact pricing for the physician and ambulatory platforms. Historically, the health systems have worked with insurance negotiations to benefit the hospital and inpatient service pricing model. Given the ability for smaller firms to be more competitively nimble, there is logic to maintaining the strongest pricing where there are the largest barriers to entry. Nevertheless, in an age where health systems are actively working to integrate the continuum, it is becoming less important where the profits are taken in the continuum. As such, insurer negotiations could be structured to better benefit specific parts of the continuum, thereby creating incentives for private practice physicians who operate in that area to integrate and capture better pricing. More traditionally, the health system's clinically integrated network can create better pricing considering the scale and scope of services it offers the market. In either case, the health system often has some indirect influence over the revenue per work unit created by the specialty physicians. 2 Aggregate, Assimilate and Integrate — Successfully Building an Employed Physician Group" Kate Lovrien and Luke Peterson, Becker's Hospital Review, May 7 2013 3 Health System Growth Using Urgent Care" BHR Staff, Becker's Hospital Review, December 11, 2017 4 New Research Demonstrates Virtual Care's Impact on Patient Acquisition, Return on Investment" PR Newswire, April 18, 2018 5 The Virtual Primary Healthcare Revolution: What Health Systems Need To Know" Jon Pearce and Luke Peterson, Becker's Hospital Review, February 3, 2014

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