INSIDE THE CURRENT ISSUE

August 2008

Clinical Business Strategies

Search for the Holy Grail:

Hospital-physician alignment takes on new urgency

by Nick Sears, M.D.

My crystal ball predicted that physician reimbursement would be a pivotal issue in 2008, and it was eerily correct. As you may remember from my previous columns, Congress delayed a deep Medicare pay cut for physicians at the beginning of this year and was expected to do so again before July 1. But brinksmanship in a divided Congress prevailed and an eleventh-hour reprieve did not occur, surprising even the Centers for Medicare and Medicaid Services.

In fact, CMS is holding Medicare claims delivered on or after July 1 with the idea that Congress will act in early July to stave off the 10.6 percent pay cut. We will see. But regardless of how the latest skirmish works out, long-term pressure on physician pay will continue. This fact will have major ramifications for patients, who may be hard-pressed to find doctors to care for them, as well as for the physicians themselves.

Indeed, with practice management expenses continuing to escalate in the forms of salaries, information technology, rent, insurance and other costs, reduced Medicare reimbursements could have a significant impact on physician income.

It’s no surprise, then, that physicians are looking for other sources of revenue to sustain current levels of income. Although CMS has expanded its nascent pay-for-reporting program, the Physicians Quality Reporting Initiative, physicians cannot expect the bonus payment for PQRI participation to help their financial situation much. The reporting bonus is very small and won’t come close to making up for the potential loss in the professional services component if the 10.6 percent cut holds.

As a result, an increasing number of physicians may find that hospitals offer them the best hope of finding viable financial solutions.

Hospitals to the rescue?

Savvy administrators have long recognized that physicians are just as much customers of the hospital as the patients that occupy the beds. While they wish to please the doctors with equipment, supplies and accoutrements that enhance the clinical and practice environment, CEOs also are hamstrung by declining revenues and rising costs.

Unlike CEOs in other fields, where standardization of supplies and processes helps control costs, the hospital CEO typically yields to the demands of the physician so as to please the customer. Hospital administrators are recognizing the need to become better aligned with their physician staff so that physicians and hospitals work together as partners. The current financial landscape requires that physicians and hospitals help one another with their respective challenges. This paradigm has re-energized efforts to gain more effective physician-hospital alignment through joint ventures, special contracts, co-management agreements and physician employment.

Back to the future we go

While this all may sound familiar, given the many efforts made in the 1990s to align hospitals and physicians, today’s financial pressures give both parties reason to work out some of the problems identified the first time around and try again. Specifically, hospitals need to develop performance incentives that ensure that physicians have a financial stake in improved efficiency and throughput.

In this regard, material managers have an important role to play. Knowledge is power, and transparency is the key to helping achieve effective physician alignment. It is crucial for hospitals to find ways to engage physicians with the overall operational issues facing the institution—and to demonstrate how both physicians and hospitals will benefit from a closer working relationship.

For example, the financial advantage of standardizing implant device procurements is easy to show. Of course, physicians have preferences and must be involved in any standardization decisions. By presenting physician leaders with historical information about the utilization and price points of various implant devices, materials managers can educate them about the financial opportunities of standardization and build consensus for the hospital’s strategy.

This requires that material managers use patience, planning and communication skills. But as the problematic nature of reimbursement continues to escalate, I think the time has come for hospital and physician leaders to put aside their differences and work together to help each other from a clinical and financial perspective. Many may ultimately find that they have few other options.

Nick Sears, M.D., is Chief Medical Officer for MedAssets Inc. He is a board-certified cardiovascular surgeon with more than 20 years of experience as a cardiothoracic surgeon and physician executive.