Use these tips to secure physician practices
October 1, 1997 3 minutes read
Use these tips to secure physician practices
Physician productivity key to reaping dividends
(Editor’s note: Last month Managed Care Strategies looked at success strategies a Massachusetts integrated delivery system has used to build its physician network and maximize its purchases of physician practices. This month, we feature comments from consultants who have put together successful physician-hospital partnerships.)
Purchasing a physician practice is standard fare these days for health systems looking to expand their physician network. But once you’ve made the investment, how can you ensure that it continues to pay dividends? Managed Care Strategies asked several consultants who have implemented physician acquisitions for hospitals for tips on maintaining physician productivity after a practice is acquired.
One key piece of advice is to implement some sort of bonus program to supplement a straight salary package for physicians. In the past, it was common for hospitals buying a practice to pay physicians a flat salary, usually similar to what they had been making prior to the deal, plus a bonus to entice the physicians into selling. "This is a big mistake, and one that will not cut it today," says Mary Kilmer, BSN, MBA, President of Terrace Group, a consulting firm in Chicago. "When you know you are going to get a certain amount of money no matter what you do, there is a tendency to not work as hard. This is nothing against physicians. It’s just human nature."
Instead, Kilmer advises setting up an incentive program that promotes the goals the hospital has set for the practice. For hospitals new to managed care, the financial incentive might be based on more traditional factors, such as the number of office visits a doctor has in a given period or how much time the doctors are available to see patients.
Health systems with more experience in managed care and in more advanced markets may want to base pay on a blend of quality outcomes and the cost per case or the cost per member per month. "These are the ultimate measures of success in a true managed care market," Kilmer says.
Financial incentives can also cover aspects like physicians’ ability and willingness to follow clinical pathways and protocols, willingness to participate in the development of such guidelines, and ability to meet established customer satisfaction guidelines, Kilmer adds.
Decide governance during negotiations
Oftentimes the hospital acquiring a practice will be larger and more sophisticated than the medical group being purchased. Does this mean the hospital will have all of the answers? Not by a long shot, says Richard Carpe, CPA, Health Care Financial Advisors senior director for the Newport Beach, CA, office.
"Don’t let arrogance get in your way," he advises. "If you enter the process with a willingness to take the best from both sides, you are going to be much more successful. Don’t assume that just because you are bigger that you have all of the answers."
A battle for control can also sink a deal faster than anything. Early in the negotiation process work out governance issues and develop a mechanism for conflict resolution for both the deal-making process and life after the deal is completed, Carpe says.
"One of the biggest things you need to decide is organizational consensus," he says. "If you don’t have that, the acquisition can take forever if it happens at all."
The rapid growth of physician practice management companies have added a new and often unwanted twist for hospitals looking to put together a base of primary care physicians. Traditionally, the management companies and hospitals have been competitors. But that may change in some markets, says James Vaughn, MBA, a principal at Cain Brothers in New York City.
In areas where management companies have secured a significant portion of the available physicians, "hospitals may want to consider partnering with these management companies," Vaughn says. "In the past they have been more competitors than colleagues, but I think it is possible for the two sides to break through those barriers and work together."
In some instances, it may become the best, if not the only option a hospital may have. "From what I see, [physician practice management companies] are only going to get stronger and hospitals may have to work with them," Vaughn says.
Mary Kilmer, President, Terrace Group, Chicago. Telephone: (630) 655-6324.
James Vaughn, Principal, Cain Brothers, 452 Fifth Ave., 25th floor, New York, NY 10018. Telephone: (212) 869-5600.
Richard Carpe, Senior Director, Health Care Financial Advisors, 1601 Dove St., Suite 210, Newport Beach, CA 92660-2441. Telephone: (714) 261-6482.
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