May 20, 2008

Contact

Robin Walters Business Development Manager Halley Consulting Group 614) 238-065 rwalters@halleyconsulting.com

Kristen Ross R/P Marketing Public Relations (419) 241-2221 kross@r-p.com

 History Repeating Itself with Hospital and Physician Integration 

Halley Consulting Group offers solutions to common practice acquisition issues 

May, 2008 – Westerville, Ohio – When it comes to hospital/physician integration, the old adage “history is destined to repeat itself” is true. 

The trend for hospital and health systems to acquire physician practices and create networks is once again gaining national momentum.  However, according to Marc Halley, president of Halley Consulting Group, a nationally recognized practice management and consulting firm, hospitals and health systems are duplicating some of the same mistakes made in the ‘90s.

“Administrators are not applying some of the lessons learned about hospital and physician integration from 15 years ago,” said Halley, who has more than 25 years of healthcare consulting experience in multiple markets and who recently published a book on the primary care – market share connection.  “Leading healthcare organizations understand the critical importance that primary care physicians have in generating market share – and revenue.  But there are multiple challenges that we need to overcome.”

 Fortunately, healthcare leaders are learning to overcome some of the previous pitfalls of physician practice integration and are achieving a sustainable advantage in the market place.

The first step is recognizing some of the most common mistakes that healthcare organizations continue to make when seeking to integrate with physicians:

• Pay too much – While the bidding wars for primary care practices are not as prevalent as they were 15 years ago, the tendency for healthcare organizations is still to offer too much money for physician practices, especially in the area of specialty practices nowadays.
• Over build – Hospitals and health systems sometimes ignore basic principles of supply and demand, mistakenly thinking that if they build it, patients will come.  
• Establish unrealistic productivity incentives – Healthcare organizations continue to struggle with finding appropriate incentives to reward quality and productivity.  The end result is that some employed physicians don’t work as hard as their private practice peers, yet continue to earn the same salary.
• Increase occupancy costs – By overbuilding, occupancy costs skyrocket without adding additional primary care physicians to the practice. Growth of primary care physicians is important because, as relationship builders, they drive business for healthcare systems via referrals to specialists and hospitals.      
• Disengage the providers from governance – As physicians integrate with hospitals and health systems, they are all too willing to disengage from governance when in fact they should be more involved in the partnership.
• Provide inadequate management experience – Often times hospital administrators with little experience in managing physicians are put in charge of a physician network.  The end result is that the physicians are managed more like a hospital department than a separate and unique entity. 
• Use inadequate systems and management tools – The methods for how to best benchmark and assess success are challenging and the physicians in the network often don’t trust the numbers.
• Misunderstand the “retail” side of the healthcare business – Primary care practices are often not strategically placed throughout the service area to gain more referrals.  History has shown that primary care physicians “capture” 2,000 to 5,000 patients and that those providers refer patients to the hospitals and specialists of their choosing.
• Count on “making up” losses – Losses are compensated elsewhere within the healthcare organization rather than working to minimize and control the losses at the source.   
• Lack of accountability – No one wants to be responsible for losses.  There needs to be a process put in place to ensure accountability.

Hospitals are not the only ones reliving past dilemmas – physicians are experiencing similar challenges on the road to successful integration.  Physicians try to totally abandon the business of healthcare.  They become employees rather than partners and there is no shared vision; as a result, productivity and, potentially, quality of care falters. In some cases, physicians simply choose the wrong hospital as a partner.

The good news: these potential challenges can be overcome.

Halley stresses the importance of understanding the theory of business.  He says it is important to recognize that this process goes beyond integration.  Ultimately, for hospitals, it is all about referrals. “You can’t leave referrals to chance,” Halley adds.  “That means making sure that you have the right physicians in the right locations actively connecting with patients, with your hospital-based specialists and even with your hospital CEOs.”

The process of getting physicians in the right locations is a concept that Halley Consulting Group identifies as “retail” or “demand chain” strategy. Primary care physicians serve as relationship builders with the patients and provide referrals to specialists and hospitals. For a hospital to ensure continual business via in-patient admissions, it is vital to engage with strategically placed employed and affiliated physicians throughout the hospital or health system service area in order to maximize market share. 

“Sustainable performance lies in capturing and retaining market share, not in hospital or specialty throughput,” says Halley.

Success starts with a shared vision between the healthcare organization and physician practices based on critical success factors such as how to preserve and enhance clinical quality, customer service, physician productivity and financial performance.   It is then critically important to have relevant tools and models that measure success.  As part of this you want to evaluate revenue factors such as volume/capacity mix, payer mix, fees, customer service, physician productivity, coding and documentation, accounts receivable management and service mix.  In addition, you want to be sure to hire qualified administrators who understand that hospital-owned medical practices are not like a department of a hospital.  Ultimately, it is important to establish a culture of accountability between physician practices and healthcare organizations. 

About Halley Consulting Group

Halley Consulting Group is a nationally recognized physician practice management and consulting firm that provides the strategy and performance improvement for practice integration that enables hospitals to achieve a sustainable competitive advantage.  By applying proven principles, tools and

infrastructures, Halley Consulting Group helps clients maximize market share and realize the operational potential of the medical practices they own and operate.  Marc Halley, the firm’s CEO, authored The Primary Care – Market Share Connection: How Hospitals Achieve Competitive Advantage, and the Halley team jointly authored several chapters in The Business of Healthcare.  The firm’s newest manuscript, a physician practice start-up manual, will be released through Greenbranch Publishing later this year.  For more details go to www.halleyconsulting.com.