Becker's Hospital Review

Sign up for the COMPLIMENTARY Becker's Hospital Review CEO Report & CFO Report E-Weeklies at www.BeckersHospitalReview.com or call (800) 417-2035 8 Key Issues for Hospitals and Health Systems in 2013 (continued from page 1) hospitals and health systems, and nearly 80 percent of all physicians have some sort of financial relationship with hospitals. There is also increased consolidation among payors (although a great deal of this consolidation has already happened over the last 10 years). This has resulted in several key payors existing in most markets. Finally, payors are increasingly re-entering the healthcare provider business, either as a hedge against provider market power in certain markets or in an effort to attempt investment in areas outside of insurance. 1. Physician alignment The healthcare industry saw a wave of physician employment by hospitals back in the 1990s, and hospitals are again pursuing employment of physicians as a core strategy. Employing physicians tends to work in a fee-forservice environment and should also work as hospitals move forward into an ACO managed-care type of environment. The downside to a physician employment strategy is that it is expensive for the hospital, and there are increasing anecdotal discussions about the losses per physician that systems suffer as they employ physicians in larger numbers. Here, the average productivity of the employed physicians seems to be declining. Initially, as hospitals began to again employ physicians, there had been great focus on hiring the most productive physicians. Now it seems as though many hospitals have an "all in" strategy and have hired with less focus on the most productive physicians. Thus, the average productivity per physician has regressed to a more average level. This means the losses on professional fees are more significant, and it is harder to "make up the numbers" on the technical side. There are, of course, serious legal issues with attempting to make up the financial losses on the technical side. 9 a. Other physician financial relationships Many systems, in contrast to a direct-employment strategy, focus on entering into co-management, joint ventures, call coverage, medical directorships and other financial relationships with physicians. Increasingly, hospitals are concerned about not having financial relationships with their admitting physicians. Many hospitals examine a top-25 admitter analysis or use a similar means to assess how dependent they are on their key physicians. Here, they examine whether or not key physicians are "free agents." b. Decreasing technical fees It has been estimated that hospitals receive five to 10 times the technical fee revenues as the amount they invest on the professional employment salary side in certain physician specialties.1 For example, the average orthopedic surgeon may have a salary of $400,000 to $450,000 and generate $2,117,000 in revenues. However, as the physician employment boom has expanded, this number is likely becoming much lower on average.   c. Hospital-owned practices Successful hospital-owned physician practices mix a pro-physician autonomous culture with great competency in the way that the practice handles its affairs. The hospital also must make sure that it pays physicians fairly. This does not mean that the hospital must be the highest-pay alternative for a physician. d. Physician shortages The financial sustainability of the employment model will play out over the next several years as hospitals face changes in revenues. However, for a variety of reasons, including that there are likely to be significant physician shortages in many markets, physicians may retain significant market power in connection with their relationships with hospitals and other entities. This Principle Becker Hosp Review Ad 7.5x5_Layout 1 6/21/12 9:21 AM Page 1 It is a matter for Principle. Healthcare and Seniors Housing Valuations Principle Valuation's experienced professionals have a long history of providing valuations in all economic climates. That's why owners and lenders turn to us with confidence for advisory and valuation services for real estate, businesses and equipment. • • • • • • • Purchase price allocation Financing - conventional Financing - HUD 232 and 242 Insurance Impairment Fixed asset reviews Equipment inventory/valuations • • • • • • • Real estate tax analysis Building life studies Market studies Stark compliance Cost segregation studies Expert witness testimony Physician practices 230 West Monroe • Suite 2540 • Chicago, IL 60606 312.422.1010 • info@principlevaluation.com www.principlevaluation.com

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