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Making Physician Practices Profitable
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Stopping Silent PPO's
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Hospital Affiliated Practices: How to get out of the red

Of the three major business alliance strategies pursued by medical group practices - partnering with a hospital, aligning with other entities through a physician practice management company, or creating a physician controlled network, the first has the least impressive track record. A recent survey showed that hospitals were losing an average of $53,971 annually per full time equivalent in acquired primary care groups. A number of hospitals owning single and multispecialty groups lost more than $100,000 per physician per year.

One of the reasons for these losses is that centralization of billing turns out to be inefficient. Another is that shifting laboratory and ancillary services from the physician practice to the acquiring hospital sometimes increases price and lowers quality. Ancillary services can provide 15 to 30 percent of a practice's income.

Another reason, as hard as it is to believe, is that some large health systems have entered into payor risk contracts without informing the physicians. Physicians need to know the details of any such contract and should be involved in the contracting process.

Technology upgrades and methodology changes create challenges. Adapting to the acquiring organization's methods of capitalizing costs and assigning administrative costs can add new expenses.

Post acquisition higher pay scales and new benefit packages for support staff may make a significant dent in the acquired practice's financial performance. In addition, the time spent learning new administrative procedures reduces support staff productivity. The acquisition also may require new hires, reassignment of current staff, and the purchase of new equipment and materials that do not produce corresponding increases in revenue.

Physician compensation methodology is another reason for hospital losses. Nearly three-quarters of hospital-owned group practices pay their physicians a mostly guaranteed income, versus about one-quarter of physician-owned groups. Many hospitals offered these guarantees sensing, correctly, that doing so would encourage physicians to sell their practices.

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Solutions For a Floundering Hospital-Affiliated Practice

1. Revise the Hospital-Physician Contract

Involve physicians. The contract should recognize physicians as key stakeholders. Physicians who are allowed to influence a process will make it work.

Use incentives and share control. The contracts of successful organizations with group practices as part of their structures reflect the incentives of physician empowerment and professional pride, coupled with financial incentives. The contracts delegate responsibilities and share control to support a turnaround effort. Be sure to have counsel review the contract for compliance with HCFA's Physician Incentive Plan regulations.

Update Pension Arrangements. Employers, recognizing the need for flexibility, are converting to cash-balance pension plans. The wave of the future, cash-balance plans, allow workers to take their money with them from job to job and allow the money to be paid out before age 65. IBM and AT&T recently converted to cash-balance plans.


2. Encourage a Physician Network Separate from the Hospital

Hospitals would do well to consider making it easy for physicians to set up their own network. Financial self-sufficiency sharpens motivation and positions billing closer to physicians resulting in a higher collection rate. Hospitals can, through the Beautyman Alvstad's Hospital Economic Profile Policy, coordinate the physicians economic incentives with those of the hospital.

By assisting physicians in setting up their own network, hospitals can engender the requisite emotional loyalty to accompany the coordination of financial incentives.


3. Decentralize Physician Billing

Another helpful measure is to locate billing personnel near physicians and to have billing personnel report to physicians, including weekly A/R status printouts. Also tie a portion of physician and billing personnel compensation to collections, provided physicians are allowed to review and approve payor contracts.


4. Negotiate Payor Contracts with a Modified Messenger Model

We have found particular success in negotiating payor contracts where we handle the contract negotiations for several hospitals or practices of the same specialty in the same geographic area.

We address each provider's contract separately and confidentially. No information is shared between or among providers. Where we count as our clients a sufficient number in a particular area, we do this work on a fixed fee basis. Each practice makes its own decision and can choose whether to rely on our recommendation. We find the payors tend to be more reasonable when they know they have to go through the same portal, particularly where they have to do so to access a specialty in an area.

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Beautyman Associates Prevails Against HMO's

We have been campaigning on the litigation, regulatory, and administrative fronts to overcome HMO abuses. On behalf of our clients, we have recently:
  • Sued and obtained $1.8 million plus attorneys fees from an HMO.
  • Met with the Attorney General's office to discuss HMO abuses.
  • Filed complaints with the Department of Insurance and the Department of Health.
  • Prepared letters to Congress and state legislators and regulators.
  • Submitted to HCFA proposed revisions in the laws.
  • Augmented our database to compare and track reimbursement rates.

    OF NOTE:

    Aetna increased its premiums 7%, and its operating profits 15%, while decreasing reimbursement to providers.

    Capital Blue Cross added $11.2M to its unallocated reserves in 1998.

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Supreme Court Opens Door Wide for RICO Suits over "SILENT PPO

A common HMO ploy is to ask a provider to sign a contract agreeing to a significant reimbursement discount for the enrollees of the HMO and its affiliates. The HMO then goes to self-insured employers, who would normally pay the providers' full charges, and offers claims administration services to those employers. The HMOs then pay the providers the HMO rate, but bill full charges to the self-insured employers.

A silent PPO is a contracting entity that negotiates discounts with providers but sells access to the discounts to other, non related parties after services are provided to individuals covered by the non related parties' insurance policies. HMO contracts usually contain so-called 'all-product clauses' which permit these abuses. All-products clauses in health insurer contracts were banned by Nevada's insurance commissioner last fall, and Illinois, North Dakota and Texas have bills in their legislatures to prohibit such clauses.

An 1800-Physician IPA in Kentucky recently terminated its contract with Aetna U.S. Healthcare over this issue. The Physicians Inc., an IPA in Louisville, terminated its Aetna group contract rather than agree to an all-product clause, which would require the physicians to participate in all of the managed care plans offered by Aetna in their market.

The U.S. Supreme Court recently approved a class action for treble damages under RICO for concealing discounts. Justice Ruth Bader Ginsberg, writing for the court, said Congress, in the McCarran-Ferguson Act, never "intended to cede the field of insurance regulation to the States."

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$22.8M IN PRIVILEGES DISPUTE

A hospital sought to end two physicians' privileges so it could enter into an exclusive contract with another group. A jury awarded the physicians $22.8M against the medical center for violating the Medical Staff Bylaws and interfering with the patient and referring physician relationships established by the doctors over 14 years. Draft Bylaws carefully!

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