A Perspective on Hospital Acquisition Strategy

Written by on March 2, 2012 in Features - No comments

By Cameron M. Cox, III, President and CEO, Management Services On-Call (MSOC)

This is the second part of a two part series. The first part can be found here.

Undergraduate school, medical school, residency, fellowship and, subsequently, private practice all seem like logical steps in the life of a physician. For many years, this multi-step process worked without much effort and produced healthy financial results. In fact, many physicians paid money to become partners; some physicians sold their interests to junior partners; and others were so well-designed that the practice incorporated both junior AND senior partner levels within the organization. Though this world still exists in some cases, it is definitely becoming an endangered species as a recent Medical Group Management Association (MGMA) survey demonstrates: in 2001, less than 3 percent of physicians desired to be employed versus greater than 22 percent desiring employment in 2008.

As discussed in the first part of this article (see Med Monthly February 2012), owning an independent physician practice is no longer a simple business model. Historically, the primary “customer” was the referring physician for specialists. Primary care physicians still had to market to patients but the level of competition was typically low and thus a diligent, focused effort was not necessary for success. Expenses were not important except as they related to physician compensation models. Revenue generation was simply based on the concept of seeing more patients or doing more procedures. Many will argue that this is exactly why the industry is in the state that it is in today. Historical success was easy and did not require constant improvement in the “business” side of the practice.

This article will cover objective tools and ideas to consider with the goal of continued independence as an outcome. Physician practices that have a passion and desire for creating and maintaining their independence can potentially see a profitable return on their investment. A successful practice or business stems directly from the diligence of its owner(s). With declining reimbursement, increased competition and mounting regulatory policies, having the drive to succeed is essential. The four tools/ideas that can support this effort are:

  • Understanding overhead and its value to the organization
  • Employing physician extenders effectively
  • Embracing the many facets of technology
  • Developing a web purpose – not just a presence


Understanding Overhead and its Value to the Organization

Many physicians can immediately identify their respective overhead percentage. Unfortunately, physicians are familiar with this number because the focus is on compensation. The first step in understanding what overhead truly means is to uncover how overhead is created. Identification of dollars being applied to labor, marketing, development, clinical supplies, etc… is essential to understanding the return on the investment of each of these functions. As with any business, knowing the details of how an organization utilizes its resources is the first key to understanding its infrastructure. For example, according to Science Daily, the pharmaceutical industry spent almost 25 percent of their sales dollars on marketing in 2004. Regardless of the philosophy, the point to note here is the understanding of the return on the investment of these dollars. Knowledge of the amount spent and revenue generated enables the business to comprehend the effectiveness of the overhead. Similarly, comparing practice staffing levels with industry benchmarks also allows the practice to assess the investment to ensure it is generating its expected return. Many of these benchmarks are available through management associations and specialty societies, and are simple to use as comparisons to your practice. Effective use of overhead can generate higher levels of profitability, thereby driving improvements in owner compensation rather than letting owner compensation drive the overhead.

Employing Physician Extenders Effectively

Physicians have utilized physician assistants and nurse practitioners for many years. Specialties such as OB/GYN and orthopedics have embraced the use and value of placing physician extenders in active roles within the practice setting. These roles vary from setting-to-setting but are, nonetheless, essential to the success of a practice. The use of physician extenders can increase the productivity of the provider in many facets, allowing them to work “smarter” rather than harder. Specialists can focus on more “productive” work such as procedures or consultations while the physician extenders handle follow up care or post-surgical visits. Primary care physicians can potentially “extend” themselves among a greater number of patients with a physician extender that is effectively integrated into the practice’s health care team.

This simple business concept aligns organizational costs with organizational revenue. Some argue that care or quality is being sacrificed by not involving the physician in the whole continuum of patient care. There are a number of studies that demonstrate that the use of physician extenders does not sacrifice the quality of care a patient receives and, in fact, may increase patient satisfaction. Though philosophical conclusions may differ among providers, there is no doubt that the use of physician extenders is a concept that practices should seriously consider as both a cost and clinically effective resource within a practice’s health care team.

Embracing the Many Facets of Technology

Technology is nothing new within the clinical arena of the health care industry. Administrative and clinical technologies are becoming increasingly necessary tools for practices. Electronic health records (EHR), health information exchanges, Mobile Health (mHealth) and various other new communication modes can all be valuable assets to practices. EHR’s can become an easy tool for analyzing what a patient needs. Practice management systems deliver information about patient in a retrospective format. EHR’s can provide information to the physician to help them better understand their patients in a prospective manner. From a marketing perspective, a practice can mine their data to help their patients be more proactive about their health and assist them in promoting a healthier lifestyle. Realizing the paradigm shift of a paternalistic model of care to a facilitative model of care places more emphasis on the EHR as an essential tool.

The mobile health industry is growing at a phenomenal rate. Much of the growth is in the sector of remote patient monitoring. Much like the use of physician extenders, mobile health can ultimately allow the physician to be even more productive by having the patient actively engaged and allowing technology to provide data about the patient even when he/she is not in the office. Still very much in its infancy, mobile health has the distinct possibility of changing the health care landscape; and it has the potential to be a valuable means for the provider to render lower cost care to many patients.

Other aspects of technology that should be addressed center around the many forms of communications currently in existence. Face-to-face and telephone interactions are no longer the only ways to communicate with patients. Both of these methodologies are time and resource intensive. With the advent of secure email, patient portals and texting, communication can be delivered faster and to more patients without the usual expenses associated with physician-patient communication. The facilitative model of care encourages active communication between patient and provider. Leveraging new forms of communication that are preferable to the patient can be beneficial for both the patient and the provider. However, caution must be exercised when communicating electronically with patients as all e-correspondence is discoverable should you encounter a malpractice claim. Please keep in mind that a patient’s health records (e-PHI) are protected under the Health Insurance Portability and Accountability Act (HIPAA) Privacy Rule.

Developing a Web Purpose – Not Just a Presence

The final tool to discuss is simply the Web. A web purpose is the future for all health care practices. A practice’s website should be objective-oriented and focused on what patients are seeking. Many practices have a “billboard” on the Internet and falsely believe it can be called a web presence. Patients are consumers – use your practice’s website to promote education and commerce, to be insightful, simplistic and wanted.

Every practice’s goal should be to encourage patients to access their website to gain information about their health care. In addition, the practice’s website should simplify the patient’s life by providing convenient services such as electronic bill payment, the ability to view their statements and to see the physician’s schedule to make their medical appointments online. Keep in mind, the first practice to market these services will have an edge on all others. If a practice is not ready to deliver a web purpose, they should be developing goals and objectives to do so. Understanding and leveraging the Internet will enable practices to have a stronger web purpose within the health care space and build patient loyalty.

Independence is not effortless but it’s not impossible. The desire for continued success is imperative to create forward momentum for medical practices in the next decade of health care. There will be new competition, consolidation and new regulations. A practice that has an understanding of its internal operations can begin to deploy new technologies and resources to achieve success. There will not be a shortage of patients in the coming years. Utilizing the tools in this article and continuing to explore the new ideas on the health care horizon will only serve to heighten the likelihood for your independent success.

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