Physician relationships are vitally important to any health system, and for many years health systems have pursued an employment model to align closely with physician groups. But the environment has changed, and this model is now coming under strain. The cost of employed physician groups is a large, growing, and ultimately unsustainable cost at many health systems.
This is a problem with many causes, but a significant factor has been opportunistic and siloed decisions for service-line growth that have not been system-driven. As a result, physicians and the services they provide have often been inefficiently deployed within the health system, diminishing the potential ROI of physician services to the system as a whole and even at the local practice level. Given the growing financial pressures that health systems face, they must rethink how they are deploying scarce financial resources and physician talent across the enterprise.
Organizations should undertake a structured, objective review of their employed physician portfolio and identify those physician practices that are most important to the health system and its long-term sustainability. They also should implement processes to ensure that additions to or expansions of existing service lines are viable, generating sufficient margins to contribute to the financial health of the system as a whole. Future investment, recruitment, and retention efforts should focus on these physician practices and service lines, with the understanding that it is no longer possible to sustain an employment model across the entire physician enterprise.
Productivity and viability
The primary data inputs required for review of the current employed physician portfolio and future opportunities are productivity and viability. Productivity data is particularly relevant to understanding the current status of the portfolio and opportunities for optimization. Viability data is important to charting the portfolio’s future direction. This discussion is focused on productivity and viability within a fee-for-service payment structure; similar considerations would apply in a value-based payment structure, especially with respect to primary care, but with potential variation in performance metrics and targets. In addition, in a value-based environment perspectives on specialty services might differ.
Productivity. Productivity analyses should be conducted across service lines but also at the individual practice level. The first analysis will offer comparative data on the relative performance of the health system’s service lines. The second analysis, however, will enable the system to begin to tease out factors that might be driving higher productivity at one practice over another.
An understanding of the factors contributing to variations in productivity will support efforts to improve productivity or restructure the service line. Are there opportunities to improve productivity by standardizing provider templates or better utilizing APPs within the practice? Could underperforming physicians or practices be more productive in a different location? These questions, in turn, may generate further opportunities to adjust employment needs or to consolidate practices if the system’s analysis indicates redundancies or unnecessary overlap in service locations.
The productivity analysis might also be framed in terms of patient access. Access is an issue at many health systems today, and productivity data is being used by some of our leading clients to support a broader conversation on increasing access to the physician enterprise.
Viability. A viability analysis is an essential prerequisite for any decision to expand an existing service line or add a new service, or to decide whether to maintain an existing service line going forward. The initial question is whether there is sufficient volume to support the decision, but that is only a starting point. Once a volume calculation has been made, additional questions include:
- Does the calculation include the full slate of physicians that will be required to support the service? For example, volumes may be sufficient to support one or two lead physicians, but three or four physicians may be required to meet coverage and call needs.
- Will the expected volumes also cover the expenses of any additional support staff that will be required?
- Even if the business case supports the decision to maintain, expand, or add a service line, will the health system be able to recruit the physicians needed to support it?
These analyses should not be considered a one-time look at the employed physician portfolio. Productivity should be continually monitored, in part to determine the success of any efforts to improve productivity and increase patient access, but also to monitor changes in performance that may be driven by any number of factors (e.g., new competition, new treatments or procedures). And a viability analysis should be built into decision-making processes across the health system’s service lines.
Factors to consider in making the difficult decisions that lie ahead
Productivity and viability are key data inputs for an employed physician portfolio review, but there are many factors that may have an impact on any final decision, and these should be incorporated into the review process.
The primary factor is the health system’s total value proposition and its strategy for creating competitive advantage within its market. Any restructuring of the physician portfolio must align with and further this strategy.
Additional factors include:
- Organizational mission and community needs
- Minimal volume requirements to support clinical quality
- Commitments to payers and network adequacy requirements
- Payer mix for the population served
A final, essential factor for ensuring a successful outcome to the portfolio review is leadership’s preparedness to make the hard decisions required to operationalize the recommendations generated by the review process. It is difficult to over-emphasize how hard some of these decisions—and the search for solutions—will be. Any decision could adversely affect the organization’s culture, provider relationships, or community access to services. If the portfolio must be restructured, physician practices that move out of an employment model may need support if they are to survive. There may be opportunities to partner with physician enablement platforms or design other creative solutions to provide this support, but these are decisions that will have to be made within the context of the health system’s resources and the essentiality of the services affected to the community.
Given the complexity of the issues leadership is facing, its approach will require balance, as well as a facilitated process that brings in multiple stakeholders with the appropriate expertise to support decision-making. But perfect answers are not required before decisions are made.
Former General Colin Powell specified a 40/70 rule for decision-making. If you have less than 40% of the information required to make a decision, you don’t have enough to act. But if you keep waiting to gather more than 70% of the information required, you risk acting too late. The problem many health systems face with their employed physician portfolio is immediate and growing. It is time to start homing in on the issue and making the decisions needed to set the system and its physician enterprise on a stable path forward.
