ED physician groups undergo growing pains; Will they mature?
An interview with Ronald Hellstern, MD, Chairman of the Board, Medical Edge Healthcare Group, Dallas, TX.
[Editor’s note: Single-specialty emergency medicine groups are evolving. But what are their chances under managed care? How will they survive competition and their relative lack of entrepreneurial experience? This month, The Managed Care Emergency Department talks to a proponent of the group practice model. Ronald Hellstern, MD, serves as chairman of the board of Dallas-based Medical Edge Healthcare Group, a 22-hospital group practice that includes Metroplex Emergency Physician Associates, a 195-physician group, as well as operating divisions devoted to geriatric, urgent care, and nursing home-based medicine.]
MCED: What is the present state of emergency group practices? Can the emergency medicine group thrive under managed care?
RH: Unless there is an extraordinary commitment by emergency physicians to understand managed care, in most cases the answer is no. Physician groups are progressively being challenged by hospitals and managed care organizations to deliver more business-like practice management and managed care contracting expertise.
This means that a medical group needs a high level of billing, risk-management, malpractice, and medical information systems expertise. For a small, four- or five-member group practice, this is a financially impossible task.
MCED: Why can’t these groups acquire the expertise?
RH: The average group practice today consists of four or five physicians who typically contract to provide services to one hospital. Each member of the group generally wears a different business hat and performs that function part-time. This is fast becoming an archaic model. The problem with physicians sharing these roles is that they’re not particularly good at them.
And while they’re dividing up these functions among themselves, each member is taking home a large share of the 10-12% of the group’s operating margins as profits while not reinvesting in the practice’s infrastructure. In truth, they’re giving themselves a higher hourly rate rather than investing in the necessary billing and information management systems that will result in the efficiency expected by hospitals and payers today. You have to invest in the infrastructure to keep the practice growing.
So there is almost zero growth-potential for these groups to develop. No physician, no matter how well-intentioned, can wear those hats well. They’ll either have to secure the outside expertise to become more businesslike and sophisticated or face the loss of their hospital contract. Unless emergency physician groups run themselves like a business, hospitals will have no choice but to bring in the large, practice management firms.
MCED: How are groups presently carving up their margins?
RH: Recently, we were called in by a group practice that was faced with the loss of its hospital contract. We were asked to assess what the members could do to save it. Our first question was how much the group was investing in preserving the contract.
Sixteen percent of a group’s revenue is typically its gross margin. Twelve percentage points of that is spent on managing the practice with the hope that there will be 4% left over as profit.
We asked: "What are you reinvesting to cover overhead?" The answer was 2.5% If you’re only devoting 2.5% of revenue to managing the practice and taking the other 9.5% home in the form of higher pay, you will eventually lose your contract. You won’t be competitive with what other practices may be able to deliver in terms of management sophistication.
MCED: Then what’s the solution for these groups?
RH: Larger, multi-hospital group practices do a better job overall than the independent, five-physician group. For one, they tend to possess and retain the necessary specialized talent in areas such as billing, managed care contracting, risk management, and clinical information systems.
True, operating margins tend to be smaller for these companies, ranging between 3% and 5% of revenue. But, the differences are offset by the greater efficiency and productivity resulting from the group’s investment in essential infrastructure.
In contrast, small, independent group practices depend greatly on hospitals that are lucrative. Due to their limited management sophistication, they can’t adequately address the full spectrum of need in emergency medicine and are, by necessity, forced to cherry-pick where they work and under what conditions.
MCED: On the subject of hospitals, what should be the terms of the relationship between the emergency physician group and its hospital? Should their reimbursement interests be the same?
RH: Yes. One of the problems in emergency medicine is that most emergency department physicians refuse to recognize that they are, in fact, vendors for the hospital. The roles are blurred between house-based physicians and those in private practice. The significant difference is that most house-based physicians are perceived to bring new patients to the hospital whereas private-practice doctors have a choice whether to refer patients or not. To the extent that you bring new business to the hospital, you are a vendor.
To succeed, you have to act like a vendor, which means you need to partner up with the hospital and share in its financial interests. When the hospital participates in a managed care plan, the group has to follow suit, or sooner or later there will be a major train wreck between the two.
MCED: And what should be the basis for that partnership?
RH: Obviously, we should be open to managed care contracting. But what we’ve learned about contracting is that the secret to making a relationship with a hospital and a health plan work isn’t necessarily rooted in the amount of reimbursements.
Everyone is focused on percentage discounts off the fee schedule. The issue isn’t the number of dollars involved but more practical concerns such as:
• What should be the definition of a true emergency?
• What are the rights of the health plan to deny a claim?
• Are the carve-out provisions in the contract fair and reasonable?
• Does the appeals process benefit providers?
These are issues, incidentally, that many small group practices lack the management resources to effectively assess. The secret to managed care contracting, therefore, lies in the nature of the relationships created among the medical group, the hospital, and the payer, not just in the dollars that are at stake.
MCED: What keeps hospitals and physician groups from developing such partnerships?
RH: Hospitals are trying to get their patients treated beneath a fixed financial threshold. But the individuals who can best control those utilization decisions are physicians. Hospitals believe that if physicians can manage their own resources effectively, hospitals can significantly gain in the process.
The problem is that many emergency physician groups, even in South Florida and California where managed care markets are the most evolved, are still facing discounted fee-for-service. They’re not capitated, while many hospitals, even in poorly developed managed care markets such as Dallas and Ft. Worth, receive a global payment for each patient.
Therein lies the rub: The emergency physician, who is by nature a house-based provider, is contracted under discounted fee-for-service, but the hospital is capped. The payment disparity discourages medical groups from managing resource utilization because there are few incentives to do so. Doctors feel they won’t get any more money for controlling their own resources.
MCED: So what’s the solution?
RH: What needs to happen is that emergency physicians’ dollars and the hospital’s capped dollars need to linked in a risk-sharing relationship. Perhaps, the physicians’ dollars can be divided in some ratio so that 20% will be placed at-risk in a manner similar to a withhold. In this way, if they manage their resources appropriately, physicians can have the opportunity of getting a large part of that pool. If you don’t do that, there is no reason for a physician group to be concerned about the hospital’s interest other than the fear of losing its contract.
MCED: How can you achieve this shared interest?
RH: One way is to ask physicians to the negotiating table. Unfortunately, too many hospitals cut deals with managed care plans for fixed dollar amounts per visit. Emergency physicians aren’t even asked to the negotiation table. Only after the hospital deal gets cut, the managed care plan comes to the physicians with a separate offer of 130% of Medicare rates, when their existing rate is 200% above Medicare.
When the medical group refuses, the health plan reports to the hospital that the physicians are uncooperative. Hospital management is then forced to put pressure on the medical group by threatening the loss of their contract. Physicians and the hospital should jointly negotiate what’s going to happen with regard to the hospital fee and the doctor’s fees together.
It’s absolutely crazy that you wouldn’t bring the physician groups in early during the managed care negotiations process. I doubt that hospitals would consider doing that with any other group on the medical staff. But they seem to have no compunction about doing this with emergency physicians.
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