Physician Strategy News: May-June '07
Creating Synergy Among Your Strategies
Integrating Strategic and Physician Manpower Planning
Historically, hospitals have separated strategic planning, physician manpower planning, and physician strategy. Given the strategic importance of a strong physician base, it is our opinion that these issues should be integrated into one plan.
Physicians must be considered part of the overall strategy for a number of reasons. First, they compete with other priorities for resources. Recruitment plans often require millions of dollars of investment, which can have a significant impact on the hospital’s investment in other areas.
Second, the physician strategy is often a “make or break” element of other strategies. Physicians and their distribution impact the success of new ambulatory ventures. They affect a hospital’s ability to grow service lines (see “Case Study: Achieving Market Share Objectives”, Physician Strategy News, Jan-Feb 2007.) And, they are crucial to improving quality and building networks for the managed care market.
It is important to consider how to integrate these planning processes. By focusing your physician strategy and medical staff development planning on what is required to achieve long-term objectives, you will increase the likelihood that your objectives are achieved.
Integrating Physician Employment and Managed Care Strategies
For many hospitals, gaining leverage on managed care companies is a key challenge. Without that leverage, the insurers are able to dictate the rates, and will use that power to their advantage. Your physician employment strategy can help change the market dynamics, giving you two distinct opportunities to improve managed care rates.
Opportunity 1. The most effective approach is to build a physician group that is, by itself, a significant player in the market. That means numbers -- enough physicians so that insurers must have the group in their plan. We have seen primary care groups gain this leverage when they control 30-35% of the market.
Control of that percentage of the primary care physicians in a market will increase the flexibility of insurers. The insurer will not want to lose the contract with the physician group. That would require many members to switch PCPs – a tremendous source of dissatisfaction for insureds and HR directors, alike.
The second step in this strategy is to tie the negotiation cycle for the physician group to the hospital’s negotiation cycle. One insurance executive told us, “My worst nightmare is that the hospital and physician groups will tie their negotiations together.” We have been able to help that nightmare come true.
One client hospital owned 30% of the primary care physicians. Over two successive three-year negotiating cycles they were able to raise hospital and physician reimbursement significantly. Physicians in that group are now paid 30% above the community physician rates by private insurers. And that reality helps the hospital grow the group. New physicians can be incorporated and their pay increased based on those contracts alone.
Opportunity 2. Another benefit of physician employment is that hospital managed care staff can help the physician groups rationalize their contractual relationships. Many small practices have signed poor contracts. By helping the employed physicians understand their cost and profitability by contract, the hospital can have a significant impact on the group’s profitability. And by giving them the security of an employed relationship, you can help the groups become more aggressive about fixing problem contracts.
While Opportunity 2 will potentially yield some dollars, the real money is in Opportunity 1. And in markets where physician reimbursement is very low, aggregation of practices to achieve greater market presence is often the only legal way to gain the leverage needed.
