Hospital-integrated medical groups exceeding benchmarks

By Lisa H. Schneck, MSJ

"Manage the practice. Don’t let the practice manage you." That, in a nutshell, is the prescription for success in running a medical group, according to Gina Volmert, MGMA member and president, GroupOne Healthsource, Jefferson City, Mo. At a recent MGMA meeting, Volmert and representatives from three organizations described how they met and exceeded operational benchmarks set by the Medical Group Management Association (MGMA).

"Clearly," Volmert says, "to make a practice profitable and keep the physicians happy, you have to have cash. Cash is king." In the 1990s, medical group operations focused on an ownership model. Hospitals and large health plans bought up physician practices and attempted to centralize operations and control resources, revenue and governance. Today, Volmert asserts, the large-scale failure of that approach has led to new ways for physician groups to practice and profit.

She and her associates described three strategies that medical organizations used to establish both independence and earnings.

‘Poster child of what not to do’Lake Regional Health System, a part of Lake Regional Medical Management, Osage Beach, Mo., "was the poster child of what not to do when a hospital or medical system gets into purchasing physician group practices," says Kevin McRoberts, senior vice president of business development for the health system. "In the ’90s, we lost our shirts. We reacted to the onslaught of managed care and regional competitors by buying up physician groups. We were losing $120,000 to $150,000 per physician per year. We had to ask ourselves, ‘Do we divest [the physician groups] or stay in the game?’

"Lake Regional Medical Management had purchased physician practices and guaranteed income to their doctors without incentives to work effectively or efficiently, McRoberts says. Administrative functions were centralized by the health system, taking the load — and the operational focus — away from the practices. Because of that, the "physicians checked out, and we rendered the staff idiots — we thought they didn’t need to know anything," McRoberts says. "We basically destroyed what was there.

"To get physicians to retake ownership of their practices, the health system leadership developed a collections-based compensation model based on MGMA standards, McRoberts says. Faced with a bar to hurdle, some physicians stayed in the system and some left. "The folks who stayed with us exceed the MGMA national physician compensation average of $140,000 — our average physician is paid about $160,000 from our production model, and some family practitioners even make more than $200,000.

"The chart below summarizes Lake Regional Medical Management’s success story and gives GroupOne’s grades for performance. But McRoberts cautions, "You never stop improving, and you never stop working toward a better solution." Volmert says that the key in this scenario was moving physicians to production-based compensation and paying close attention to cash flow — including up-front collection of patient copayments. She notes that MGMA benchmarks, while valuable, "may not fit your organization. You have to examine your practice’s payers and negotiated fee schedule, and determine an expected reimbursement rate. Focusing on what is actually collectible can go a long way in physician relationships.

"Keep physicians happyWhat does it take to make physicians successful after their practices are divested by a health system or medical group? How do you keep them happy so that they stay in the community?

These were the questions Tuality Health Alliance, Portland, Ore., a not-for-profit, community-based organization with 21 employed physicians and 150 affiliated physicians, faced when deciding on the model it would use to recruit, retain and develop physician practices. GroupOne’s Carey Gates, director of operations, and Gerardo Martinez, senior consultant, described the challenges Tuality faced and overcame.

"Our goal was to keep the doctors motivated, keep them happy, keep them in the group," Gates says. Martinez adds, "So by the end of the physicians’ two- to three-year guarantee period, they would see that they’re in a better place and want to stick around."

Gates says, "The No. 1 priority was implementing technological solutions for the physicians to level the playing field in the community."

"We found ourselves looking to a practice management solution to reduce inefficiencies caused by manual record-keeping processes," Martinez says. "Using electronic formats for clinical and administrative functions helped change our mindset." Tuality turned to an integrated practice management and electronic medical record (EMR) solution to assist in this process. "The software helped us find variances in collections, ensuring that the practices garner all the income they earn," Gates says.

He continues, "Our strategy was to support the use of technology and push the practices toward an independent model. This encouraged relationship building — doctor to doctor and doctor to hospital. The organization said to its physicians, ‘We want to set you up to be successful and communicate effectively with the hospital so it’s easy to practice in your facilities.’

"The chart below shows the components of Tuality’s model, with GroupOne’s grades for performance.

Embracing technological solutions Laredo (Texas) Internal Medicine Associates has two internal medicine physicians and an otolaryngology specialist. Divested by a hospital, the practice had to make the transition to an independent practice association. As part of this move, "we found ourselves embracing technological solutions to achieve efficiencies," says Arturo Martinez, MD, one of the group’s internists." We had to adapt our mindset to streamline complicated workaround solutions required to manage paper records and cope with limiting technology."

Feeling forced by competition to streamline operations and move to a paperless environment, Laredo Internal Medicine Associates also turned to the latest frontier — a paperless workflow, practice management and EMR solution to enhance practice efficiencies. The approach reduced overhead by 25 percent and increased patient volumes by 20 percent.

The results startled and pleased the physicians. Smoother operations allowed the group to reduce its staff by three full-time employees and shorten the time to close the office by 30 minutes each day. Remarkably, technology reduced coding denials from 72 percent to 2 percent in just 60 days."If we are going to survive and succeed, we have to be comfortable with the technology that is out there," notes Eric Sloman-Moll, MD, the group’s ear, nose and throat specialist.

The chart and grading system summarize Laredo Internal Medicine’s success.

Volmert recapped the strategy that all three organizations pursued: "Regardless of what model you’re in, strive for the closest you can get to an independent model. Move to an independent mindset, regardless of the level of integration in the health system. Centralize for efficiencies. Let the doctors make decisions about things that affect them, and let them feel the consequences of those decisions. Focus on operations, regardless of what kind of organization you have."

Lake Regional Medical Managment success story

Component Results Grade
Compensation model Productivity-based, 1- to 2-year net income guarantee A+
Overhead Exceeding MGMA benchmarks, performing 44%-48% A
Billing/Collections Centralized, outsourced management, 95% net collectiion rate, FY 2003 profit center A
Compensation salary Exceeding MGMA benchmarks, physicians are at and supporting $140,000 A+
Financial viability 2002 plan was exceeded, profit/break-even A
Productivity Exceeding MGMA benchmarks, bonus structure above 4,800 visits, all established physicians at bonus level A
Financial reporting Monthly reporting with quarterly group results, central business office expense allocated to health system, doctors allocated a percentage of collections A-
Governance Physician advisory board involved in all decisions A

Tuality Health Alliance success story

Component Results Grade
Compensation model Income guarantee, 2-3 years, loan forgiveness and 60 days' worth of current A/R for staying in the community, production relative value until bonus A+
Overhead Implement workflow and electronic medical records products, centralized many administrative functions A
Billing/Collections Centralized, hospital billing center C
Network Strong participation of physicians A+
Financial viability FY 2002 exceeded budget (acceptable loss) A-
Payer contracting Single signature on all major payers in area, centralized credentialing A+
Governance Weak infrastructure, decision-making lacks physician involvement C
Group purchasing Malpractice discounts 20% A+

Laredo Internal Medicine Associates success story

Component Results Grade
Compensation model Productivity-based compensation plan - "eat what you kill" A+
Overhead 25% reduction in 60 days, supplies, charting (eliminated), overtime (eliminated), staff reduction A
Billing/Collections Outsourced for internal medicine, otolaryngology done in-house, reduced coding denials, charge capture, slower payment initially due to enrollment issues and claims formats B
Compensation (salary) Improved from group practice A+
Financial viability Invested in technology, hands-on budgeting - physician involvement A
Payer contracting Credentialing a bigger challenge than expected C
Financial reporting Outsourced, weekly involvement A-

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