BestPractices’ Chief Medical Officer Interviewed on Physician-Hospital Alignment

Posted by BestPractices on April 17 2012

2 Pitfalls of Physician-Hospital Alignment

Karen Minich-Pourshadi, for HealthLeaders Media, April 16, 2012

With opportunities for healthcare mergers, acquisitions, and partnerships sprouting like so many April tulips, creating solid pacts that incentivize physician-hospital alignment is essential. However, it can be tricky to craft these agreements to achieve your strategic and clinical goals, while staying on the right side of the law, so tread carefully.

Two experts experienced in the ins and outs of physician-hospital agreements offer their insights on complexities to keep in mind. David Ping, senior vice president of strategic planning and business development at Health Quest, a three-hospital system in Lagrangeville, NY, and Kirk B. Jensen, MD, MBA, FACEP, who is CMO for physician staffing firm BestPractices, Inc., and vice president of physician services firm EmCare, Inc., say there are two big snares to avoid.

Pitfall #1: The gap between where your organization is today and where it’s headed. Healthcare still has one foot planted in fee-for-service and another in fee-for-value, so how can you balance these in an alignment agreement? It’s not easy, but let your strategy be your guide, suggests Ping.

Health Quest seeks to boost quality metrics. “We see the benefit as really getting the doctors involved now in the development of [quality] metrics [to track]. Ultimately that’s really going to be better for the patient and better for our quality,” he says. “But [focusing on quality] is really better for us on the value side rather than on the reimbursement one.”

While it may not always be possible to set up incentives that encourage better quality while hauling in greater fee-for-service revenue, Ping says, other prizes await hospitals that set up strong alignments now in preparation for the fee-for-value environment. They improve the odds of winning more physician referrals and increasing downstream revenue, and they should lead to higher-quality outcomes that will translate into value-based purchasing dollars, reduce 30-day readmission rates, and potentially improve patient satisfaction HCAHPS scores.

Ping adds that for Health Quest, getting proper physician-hospital alignment right is also a step toward an ACO and a “baby step toward working with our doctors on bundled payments. Also, we want to be sure they want to practice at our hospital and not at another.”

When drafting hospital-physician arrangements, Jensen says financial leaders should ask four questions:

  • Are the incentives truly large enough to drive the desired physician behavior?
  • Has the organization “seriously thought through ‘the law of unintended consequences’?”
  • Is the clinical and financial data accurate and transparent?
  • Do the goals align with the culture of the organization?

There are numerous physician-hospital alignment models that can be adopted, and which one is best will depending on the service lines it’s applied to, as well as the organization’s larger goals. Jensen recommends that leaders borrow a model from a similar-sized, successful institution, and then test and prototype it before full launch.

Health Quest uses three models for its alignment agreements:

  • Employment—for its 180-plus employed physicians, the organization starts with a work relative value unit (RVU) calculation coupled with quality and patient satisfaction score bonuses
  • Employment “lite”—a revenue expense approach with some incentives built in for patient satisfaction and quality
  • Non-employed physicians—a new approach, piloted just six months ago with 15 oncologists, that targets specific service lines for development as “institutes”

The leadership of each service line institute, consisting of a medical director from the hospital and the practice’s management, is charged with developing strategy and operational plans for the service line’s success. Physicians are paid a bonus based 70% on quality and 30% on patient satisfaction for five agreed-on metrics. The percentage of bonus paid to each physician is based on whether the participant reaches a baseline goal, a target goal, or a stretch goal.

“We used an outside [consulting] firm to do the valuation for our incentives, and we worked with the doctors to develop the five metrics being measured so they would be meaningful,” explains Ping.

Pitfall #2: The law. There are multiple regulatory and legal issues to watch when it comes to physician-hospital alignment agreements, so get your corporate attorney involved from the beginning.

“There’s the Stark Law, actually three separate provisions that govern physician self-referral for Medicare and Medicaid patients,” says Jensen. And, he says, don’t forget to keep an eye on the Physician Payment Sunshine Act-Section 6002 of the Patient Protection and Affordable Care Act—which will require docs to reveal payments from pharmaceutical firms, medical device makers, and other companies.

However, Jensen says the rule that should concern hospitals the most is the federal anti-kickback law and regulatory safe harbors.  This can get you in trouble with regulators and possibly sour a deal. That’s because the compensation of the physician sellers cannot be in excess of fair market value (FMV). Although the physician sellers may feel they are worth a certain amount—which they might have even earned as an owner—FMV calculations might result in a lower level of compensation.

“When it comes to compliance with fair market value, we made sure we went to an outside consultant for our incentives and for the medical directorship positions,” Ping says. FMV compensation was also an issue with Health Quest’s service line institutes for non-employed physicians. “We developed job descriptions for each of the medical directorships and interviewed all of the candidates,” and opened participation in these institutes to any physician on staff or who had privileges and appropriate credentials, he says. “Actually, it would be best for patient care if all the doctors in the area are in the institute.”

But, I asked Ping, what if everyone physician hits the incentive bonus stretch goal target and receives the
maximum payout?

“That would be great for our patients, but it could be financially challenging. So we planned for it in our business plan. Even if the FMV says the incentive rate should be 15%-25%, if the business model only supports 5%-10%, then we’ll go with that,” he explains.

For financial leaders working with physician-hospital agreements, Jensen offers a final note ofprudent advice: “Be fair.” That’s a good way to begin and end any agreement between physicians and hospitals.

Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media. She may be reached at

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