How Is Your Hospital Managing Costs Across Its Physician Enterprise?

From Our Sponsor Kaufman Hall

Identifying costs across the care continuum is critical.

The challenges of managing costs across integrated healthcare delivery models that include physician enterprises are substantial. As the focus on the cost of care and new payment structures continues, healthcare organizations must have an accurate understanding of costs as patients move through the care continuum. This necessitates that data be gathered from all aligned providers, ranging from employed to private physicians and across all delivery settings.

Integrated healthcare systems have opportunistically acquired physician practices, recruited key specialists to round out service line and network requirements, and developed a wide range of integrated physician relationships. There has been little investment in cost management and cost identification with decision support tools to fully understand the long-term financial performance expected from these practices and the impact they have on health systems’ overall financial performance. In addition, an inclusive effort to involve physicians in identifying solutions, implementing systems and processes, and effectively monitoring performance has been absent in many cases.

Several factors have challenged a more comprehensive view of costs at the physician enterprise level.

Governance and management. Acute care governance and management is often quite different than what is common for physician enterprises, and these differences may persist after integration. Each entity is often focused on achieving its individual goals and lacks both line-of-sight and ability to influence other entities within the larger enterprise.

Information systems. Fully integrated information systems across the care continuum are relatively new to health care, and their implementation is expensive and time consuming. Many physician enterprises are still on disparate systems or are early in realizing practice management value, which is focused on medical group operations and not designed to provide decision support information.

Data and sharing of information. Data gaps are real, particularly with respect to physicians who are not employees of the integrated provider. Also, there are often data gaps with actionable cost information. When available, there is often a tendency to not share data and information across the care continuum. And when sharing does occur, information is often limited to direct patient care issues and frequently does not include financial and cost management information.

Financial performance expectations and commitment to improvement initiatives. Hospitals continue to lose money on employed practices. Between 2016 and 2017, integrated health systems saw their median operating loss per physician increase approximately 15 percent, from a median loss of $211,961 up to a median loss of $243,918 (Gooch, K., “Operating loss per physician grows to 17.5% of net revenue: 6 AMGA survey findings,” Jan. 8, 2018). With employed physicians requiring a substantial “investment per physician” to achieve break-even financial performance, it may be difficult for administrators and physicians to understand what financial stability and success looks likes given practices’ dependence on subsidies.

The Path to Improvement

While physician practices have not traditionally been targeted by commercial cost accounting and DSS software vendors, largely because of the highly fragmented market, many contemporary decision support and cost accounting systems provide solutions that can meet the needs of integrated healthcare providers across the care continuum.

Certain approaches can help extend cost management, cost accounting, and decision support to physician practices and advance healthcare systems’ abilities to manage costs across their enterprises.

Inclusive project governance or steering committees. These structures require participation from physician enterprise or practice management leaders to ensure rollouts of new systems and processes. These leaders are critical in supporting not only projects, but also serving as champions for the change management processes necessary to achieve successful cost management.

Executive level sponsorship and project management. Executive-level participation on a regular basis is an important element of success and is most effective when combined with rigorous project management techniques and controls.

Leveraged areas of synergy and commonality. When developing cost management initiatives and patient level costs, areas of synergy and commonality must be leveraged. Commonalities do exist, such as patient demographic data, payer information, certain clinical data, and financial data such as general ledger and payroll information. Staying focused on the common goals and similarities of the data rather than continually emphasizing the differences can be helpful in achieving successful integration.

Agreement that a single system is not a show-stopper. Getting entities on a single, hospital-based electronic health record and practice management system should not be a prerequisite for achieving a new standard in physician enterprises. The goal is to combine disparate data into costing and decision support systems.

Cost management efforts with patient-level cost accounting. Performing cost management and patient level accounting at the same time is both efficient and effective and allows for better monitoring and assessment of cost management initiatives through the trending of patient level costs over time within decision support systems.

Training across multiple levels. Training is often overlooked when extending cost management, cost accounting, and decision support systems to physician practices. Training may include educating “hospital experienced” personnel on practice management and medical group operations. Conversely, training medical group leaders and managers on cost management, cost accounting, and decision support is also beneficial.

While not the silver bullet for all physician enterprise cost management challenges, a decision support system with meaningful cost information that includes acute, sub-acute, and outpatient services, including medical practices, should be a top priority for senior leaders of integrated delivery organizations. Cost accounting and decision support capabilities are particularly necessary when developing meaningful strategic, operational, and financial plans to achieve value and cost management goals. Integrating the physician enterprise into this process provides an opportunity to assess costs and establish goals in an inclusive manner.