In recent years, hospital systems have been buying up physician practices, expanding their networks and preparing for managed health approaches to reimbursement. With meeting cost and outcome goals as the long term objective, hospitals are coping now with the inevitable shocks to the revenue cycle that result from these acquisitions.
In 2012, the median loss for a hospital acquiring a physician practice was over $175,000. Those losses could have a chilling effect on physician practice acquisitions this year and next, as hospitals and healthcare systems look for faster ways to increase revenues. But don't expect acquisitions of private practices to stop. Hospitals simply have too many reasons to continue acquiring them.
Why Hospitals Are Acquiring Private Physician Practices
For one thing, the Affordable Care Act has offered healthcare systems new opportunities to integrate with physician practices and participate in alternatives to traditional fee-for-service reimbursement - alternatives which could prove more profitable. Accountable care and bundled payment programs within a strong physician network makes the shift away from fee-for-service payment models more viable.
Additionally, healthcare systems are moving away from acute care toward outpatient care. This contributes to the top line (more patients) and the bottom line (due to the ability to bill at higher rates). Medicare payment rates are significantly higher for office visits than for the same procedures performed on an inpatient basis, and though some in Washington are questioning the continuation of this particular hospital windfall, it still informs some practice acquisitions.
Although the long term prospects for profitability are greater for hospitals and physician practices that are integrated, getting there can play havoc with the revenue cycle. For example, hospital revenue is still mostly generated from performing (rather than preventing) procedures, and integrated hospital-physician systems can successfully avoid many unnecessary procedures.
For a hospital's value-based contracts, it's good news, but in most cases, healthcare systems are operating both with fee-for-service books and with value-based contract books. The burden of managing two different payment models can slow the revenue cycle and make it more inefficient.
Preventing Problems With Acquisitions
One problem healthcare systems that acquire private physician practices must plan for and cope with is credentialing of the physician with payers. Even if the physician already works with the same insurers as the hospital, when a hospital acquires a practice, the physician must be re-credentialed under the hospital's tax identification number, and this can take weeks.
What often happens is during this period, when credentialing hasn't been transferred, the physician's bills are held in a pending file and are not submitted until the transfer is complete. Clearly, this is disruptive to cash flow, increasing accounts receivable days and causing revenue cycle inefficiency.
There may be no way to prevent such problems, but hospitals can take steps up front to ensure that all controllable aspects of the revenue cycle are working at maximum efficiency. For example, the acquiring hospital should thoroughly review a practice's coding and billing expertise before the purchase.
Another key issue is the practice's electronic medical records (EMRs) and billing software. Should the practice, once acquired, stay with its current systems or integrate with the hospital's? If a practice has a smoothly integrated EMR and Practice Management system, it may be wise to stick with it for the immediate future. But if the practice uses paper records or has fragmented systems, moving to the hospital's systems right away may be advisable, despite the hit to the revenue cycle.
Hospitals Look to Avoid Issues That Plagued Previous Acquisition Pushes
Twenty or so years ago, hospitals acquired a lot of private physician practices, and in many cases they realized huge losses. Back then, however, compensation, billing, and reimbursement systems were far less sophisticated and efficient, and this time around hospitals believe they can avoid many of the problems that past rounds of acquisitions brought about.
Nonetheless, every time a healthcare system acquires a physician practice, it has to upgrade IT infrastructure, assume costs of maintaining equipment and office space, and take on the responsibility of pay and benefit packages. Technology helps improve the efficiency of these processes, but hits to the revenue cycle are still expected with acquisitions, and hospitals must take time to evaluate options for revenue cycle management when they acquire practices to prevent long term problems.