Using employed physicians as a competitive weapon involves developing strategic plans to leverage employed physician groups to increase hospital revenue and market share. Key strategies include managing referrals within the employed group, developing primary care and specialty care networks, improving care processes, pursuing clinical integration and risk-based contracting opportunities, and focusing groups on quality and cost metrics. Success requires investing in physician leadership development, marketing the physician brand, and ensuring cultural and operational alignment between the hospital and employed physicians.

1. Using Your Employed
Physicians as a Competitive
Weapon
HSG Webseries
March 21, 2012
LOUISVILLE KY | WASHINGTON DC
www.healthcarestrategygroup.com

2. Presenters
David’s primary focus is on strategy development, physician alignment, business
planning, medical staff development planning, and growth strategies for hospitals and
physicians. He draws from 15 years of experience with Norton Healthcare in Louisville, KY
where he served as COO, VP of Managed Care and Quality, CP of Physician
Services, and Administrator of the Brown Cancer Center.
David is a fellow in the American College of Healthcare Executives. He holds a Master's
Degree in Health Administration from The Ohio State University and a Bachelor's Degree
from Virginia Polytechnic Institute.
David Miller | Partner | 502.814.1188 | dmiller@healthcarestrategygroup.com
Travis’s practice focuses on helping hospitals and health systems with physician alignment
issues through strategic planning initiatives, such as Hospital Strategic
Planning, Employed Physician Group Strategic Planning, Physician Alignment
Planning, and Service Line Planning.
Travis holds a Master’s of Business Administration from Vanderbilt University, and
Bachelor’s of Science Degrees in Finance and Business Management from the University
of Tennessee.
Travis Ansel | Manager, Strategic Services | 502.814.1182 | tansel@healthcarestrategygroup.com 2

3. Our Mission
To be Leaders in Hospital/Physician Integration
3

4. About HSG
• Average growth rate of 25% over past four years
• 73% of 2010 revenue was generated through repeat business
Named to 2010 and 2011 Inc.
Magazine’s list of fastest growing
privately-held companies in the
US for past 2 years
Recognized as one of the top-50
fastest growing privately-held
companies in the Louisville
metropolitan area for past 4 years
4

5. Agenda for Today
• State of the Market
• How Employed Physician Groups
Contribute Value
• “Weaponizing the Group”
• Requirements for Success
• Case Studies
5

6. Initial Contributions from
Employed Groups
• Protection of existing volume and referral
sources
• Ability to recruit new physicians
• Serve community need
• ED and hospital coverage
6

7. State of the Market
Growing Physician Networks
• Rapid growth in
last half-decade
• Employment an
expectation for
new grads
• Healthcare
reform driving
many hospitals to
vertically
integrate
• Lack of vision for
employed groups
an issue, leading
to problems
7
Source: 2012 AHA Hospital Statistics

8. State of the Market
Growing Physician Networks
• According to Merritt Hawkins (Dallas-based recruiting firm):
– In 2003 14% of placements were hospital positions
– In 2006 43% of placements were hospital positions
– In 2010 50+% of placements were hospital positions
• Reasons:
– Declining reimbursement and incomes
– Uncertainty of health care reform
– Clinical integration - ACOs, Medical Homes, Bundled Payments
– Cost of electronic health record
– Quality of life
– Security
8

9. State of the Market
Physician Practice Financial Issues
• Average of $212k loss per employed physician
• Hospitals with financially successful groups
experiencing losses at <$100k/physician
• Downstream gains in hospital revenue are
variable
9
Source: 2011 MGMA Cost Survey

10. State of the Market
Lack of Strategic Focus for Employed Groups
• Issues
– Lack of strategic vision
– Recruitment into group done haphazardly
– Lack of solid governance structure
• Collection of practices with no physician leadership
– Not tied to hospital strategy, including service lines
– No plan for mutual success for hospital and group
• Referrals poorly managed; not staying within group
• Leads to:
– Lack of downstream revenue to hospital
– Inability to leverage group to compete in marketplace
10

11. State of the Market
Lack of Operational Capabilities
• Issues
– Limited management capabilities and limited management
infrastructure
– Poor billing, collections, and accounts receivable management
– Physician compensation models lacking proper incentives causing
productivity issues
• Leads to:
– Losses on practices which are difficult to “turn around”
– Board questions and concerns
– Need for significant assessment of groups to define corrective actions
11

12. State of the Market
Physician Practice Financial Issues
Hospital Revenue vs. Average Practice Loss
Average Annual IP/OP Minus 50% Hospital Avg. Practice Loss per
Specialty Net Income
Revenue per Physician* Variable Cost FTE**
Internal Medicine $ 1,678,341 ($839,171) ($254,103) $ 585,068
Family Medicine $ 1,622,832 ($811,416) ($143,776) $ 667,640
Hematology/ Oncology $ 1,485,627 ($742,814) $10,340 $ 753,154
Urology $ 1,382,704 ($691,352) ($246,294) $ 445,058
OB/GYN $ 1,364,131 ($682,066) ($226,667) $ 455,399
Neurology $ 907,317 ($453,659) ($204,678) $ 248,981
Total $ 8,440,952 ($4,220,476) ($1,065,178) $ 3,155,298
• Bottom-line:
– Physicians are seeking employment, if they do not find employment with you
then they’ll find it elsewhere
12
– If this happens then hospital revenue is at risk
Sources: * Merritt Hawkins 2010 Physician Inpatient/Outpatient
Revenue Survey ** MGMA 2011 Cost Survey
(Hematology/Oncology taken from MGMA 2010 Cost Survey

13. State of the Market
Payment Reforms Impacting Strategy
• Fee-for-service transitioning to quality and value focus
• Self-Insured employers focused on lowering costs are pursuing
direct contracting or other risk-based models with providers
• CMS focused on reforming healthcare through payment reforms
and incentives
– Shared Savings Program (ACOs)
– Pay for Performance
– Value-Based Purchasing
– No-Pay/Adverse Events
– Bundled Payments
• Implications
– Hospital/physician relationship must become closer
– Success will require physician leadership and engagement
– Employed groups well positioned to respond 13

14. State of the Market
Looking for Value
CEOs asking:
“How do we produce value
from these groups?”
14

15. State of the Market
Looking for Incremental Value
• Help respond to the evolving market
• Manage quality/care processes
• Increase clinical capabilities
• Provide medical staff leadership
• Build service lines
• Grow regional presence
• Improve hospital financial position
• Build a group culture that aids in meeting our mutual
objectives
15

16. “Weaponizing the Group”
• Referral Management / Control
• Primary Care Strategy
• Regional Specialty Strategy
• Care Process Improvement (Core Measures and
Readmissions)
• Clinical Integration
• Direct Contracting/Assuming Risk
16

17. “Weaponizing the Group”
Referral Management / Control
• Define and measure the problem, both referrals
and dollars
• Assign accountability to the physician advisory
board
• Systematically address problems:
– Gaps in specialties
– Gaps in skills
– Gaps in quality
– Gaps in service 17

18. “Weaponizing the Group”
Referral Management / Control
• Create “preferred” lists of providers that group
will support based on quality of care, customer
service
• Tie to compensation????
18

19. “Weaponizing the Group”
Primary Care Strategy
• Define PCP base required to drive
business to key profitable services
• Define and locate primary care physicians
in outlying areas to draw volumes
• Aggregate PCPs together and potentially
with ancillary service centers
19

20. “Weaponizing the Group”
Primary Care Strategy
• Define strategy to tie PCPs and
employers
• Must have robust hospitalist program to
support PCP growth
• Must support through a marketing
strategy
20

21. “Weaponizing the Group”
Regional Specialty Strategy
• Focus on strategic specialties
– Profitable
– Differentiated capabilities
• Use employed specialty physicians to
target outlying regions
• Compensation plan needs to incent
business development
21

22. “Weaponizing the Group”
Care Process Improvement - Core Measures/Readmissions
• Employed physicians best positioned to impact
hospital care
• Define best practices within each specialty,
institutionalize with IT
• Handoffs of care also a key focus
– PCP to/from hospitalists
– PCP to/from specialists
– Standards of performance in these interactions
22

23. “Weaponizing the Group”
Clinical Integration
• Evaluate primary care models and leverage
those capabilities with employers
• Evaluate IT strategy
• Explore disease management capabilities
• Explore post-acute care relationships
• Evaluate impact of above on physician
specialty needs in employed group
• Assemble and start leveraging
• Co-management a good start 23

24. “Weaponizing the Group”
Direct Contracting / Assuming Risk
• Focus on employers, and the patients
that provide all of the profits for most
hospitals
• Self-insured employers are an untapped
market
• Ability to help lower costs will be the key
to retaining profitable commercial
volumes 24

25. “Weaponizing the Group”
Direct Contracting / Assuming Risk
• Engage and involve the physicians
– Medical directorships
– Care management opportunities
– Implement process changes
• Leverage physician expertise
• Engage employers in open dialogue
about challenges
25

26. Requirements for Success
• Culture
• Leadership
• Marketing/Branding
• Investment
26

27. Requirements for Success
Culture
• Everyone must understand the vision
• Benefits must be clear
• Bad actors and other roadblocks must be
eliminated…develop shared behavioral
expectations
• Focus, transparency, and accountability
are key
27

28. Requirements for Success
Leadership
• Develop a vision for what physician leadership
means
• Identify physician leaders
– Respected + capable
• Build a program with your vision in mind
– Education
– Interaction with executives
– Interaction with hospital board
• Continued planning for individual improvement 28

29. Requirements for Success
Marketing/Branding
• Leverage brand of group and hospital
– Common branding
– Not necessarily same name
• Must integrate with referral management
• Physician liaison bringing referrals to group and
hospital
• Targeting markets strategically to manage
payer mix and promote profitability
29

30. Requirements for Success
Investment
• Resources invested don’t stop at the subsidy
for the hospital
• EMR/Practice management systems
• Central billing infrastructure and personnel
• Administrative time for physicians
• Marketing
• Facilities
30

31. Case Studies
• Contracting for risk
• Managing referrals and improving quality
• Improving rates
31

32. Case Study 1
Chronic Care Initiative
• State-led shared savings program
• Management of chronic disease
• 16 primary care physicians out of ~50 in
employed group participated
• Built NCQA-certified patient-centered
medical homes
• Increased resources for care
management within the practice 32

33. Case Study 1
Chronic Care Initiative
• Generated payments of $50,000 per
physician in year 1
• PCMH model will be expanded within
group, and within general medical staff
• Can leverage into Medicare or private
payer ACO; direct contracting
• Point of differentiation in competitive
landscape 33

34. Case Study 2
Referral Management / Quality Focus
• CEO concerned about how to get group
to pursue strategies that will make the
health system successful
• Two approaches:
– Education of the physicians concerning
reform and changing market
– Working with a physicians Advisory Board to
develop a group strategy
34

35. Case Study 2
Plan Focus
• Keeping referrals in the group to:
– Build financial strength and
– Ensure consistent care
• Begin to create a group culture
– Empower the physician board
– Begin to build common behavioral
expectations
– Create a common vision 35

36. Case Study 2
Plan Focus
• Focus on quality
– Hospital core measures
– Best practices
– Handoffs of patients
• Define the group size
– What types of physicians
– In what quantities
– Where 36

37. Case Study 2
Plan Focus
• Primary care strategy
• Direct contracting/bundled payments
• Financial reporting within the group
37

38. Case Study 3
Rate Improvement
• Hospital built groups from 30 to 300
• In process, acquired about 30% of PCPs
• Insurers fear: the hospital system would
leverage PCPs in the negotiations
• Hospital system did just that
• Able to move the physicians rates from
105% of Medicare to 135%
38

39. Case Study 3
Rate Improvement
• Made intake of new physicians much
easier
• Built in cash flow bump of about 10%-
15% on each practice required
• More in some specialties
39

40. Questions
40