Becker's Hospital Review

28 Physician-Hospital Relationships FEature Strategic Physician Onboarding: 7 Tactics for Minimizing Losses on Employed Medical Practices By Sabrina Burnett, Vice President, and Cami Hawkins, Managing Associate, Health Directions  H ow much money do hospitals lose on employed physicians? According to the New England Journal of Medicine, operating shortfalls range from $150,000 to $250,000 per provider during each of the first three years of employment. But for many hospitals, these initial losses are just the tip of the iceberg. Mistakes that occur early in the physician employment process can add to hospital costs while decreasing long-term revenue. For example, poor financial modeling can mask future problems with practice expenses. Missteps in contracting and billing can reduce practice payments. Misaligned incentives can permanently suppress practice revenue. All told, these early mistakes can swell the total cost of physician employment. Hospitals that pursue even a modest employment strategy can easily lose several million dollars per year. How can hospitals avoid excessive financial losses? The solution is to create a comprehensive physician onboarding process that proactively addresses the main causes of high costs and low revenue. The following seven tactics will help hospitals minimize losses by effectively integrating newly employed physicians. 1. Measure twice, employ once Many hospitals today are on a practice acquisition "spree," employing practices they do not need and making financial commitments they do not yet understand. These acquisitions are expensive in terms of both upfront investment and future operating costs. They also carry a steep opportunity cost since they take capital away from other growth projects. To avoid wasting money on unnecessary acquisitions, start by developing a sound physician strategy. Most hospital planners focus on high-end specialties such as cardiology, neurology and oncology, but it is also important to build the primary care base that will feed these services. Once your strategy is set, insist that all potential acquisitions align with defined strategic needs. For every promising acquisition target, develop a financial pro forma to model the practice's performance under hospital ownership. The pro forma should take into account productivity, expenses, compensation, payor mix, current contracts and existing staffing. Include a network allocation to cover hospital administrative overhead. Use industry benchmarks, such as data from the Medical Group Management Association, to identify opportunities for improvement and cost control. A realistic pro forma will enable the hospital to forecast an employed practice's expected net operating income — or its potential losses. 2. Maintain the link between productivity and pay Private practice physicians are accustomed to a lean organizational structure. Joining a large health system with complex demands can reduce physician productivity. To maintain productivity once employment begins, develop compensation plans that incorporate performance incentives. For example, tie physician salary to work RVUs and include bonuses for meeting quality metrics aligned with value-based care programs. Alternatively, engage physicians under a provider services agreement. A PSA allows a hospital to collect revenue for an independent practice, pay its salaries and reimburse its operating expenses. Productivity expectations can be built into the compensation agreement. A PSA is often preferable when full acquisition would require purchasing a physician's office building. It can also make sense for a physician who would prefer a trial employment period before signing a long-term contract. 3. Establish and optimize payor relationships Newly employed physicians need to be credentialed with several payors. Unfortunately, most hospital employees are unfamiliar with physician credentialing. A hospital system in the Southwest experienced this problem with a multi-specialty spine practice it acquired in 2011. Administrative staff spent a full year attempting to credential the physicians and non-physician providers

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