MGMA In Practice blog

By Nick Fabrizio, PhD, FACMPE, FACHE
Principal, MGMA Health Care Consulting Group

With the trend toward integrated care continuing, perhaps a health system is eyeing your medical practice for partnership or ownership. There are several reasons why physician practices might want to form a collaborative relationship with a health system. But before your practice does, you'll want to be prepared.

If your practice hasn't yet integrated or is on the path to integration, here are 21 questions you should answer:

1. Why do you (your medical group and the hospital) want to integrate?
2. How many other physicians has the health system already approached in your specialty and other specialties?
3. How many physicians does the health system already employ or have a financial or legal relationship with?
4. How many physicians does the health system have a relationship with in your specialty?
5. How many months/years has the health system worked with those physicians?
6. What does the health system's medical staff plan look like: the number of physicians that work in the hospital, their specialties and specialties they're trying to recruit?
7. Is the health system successful operationally and financially? At physician recruitment and retention?
8. What is the scope of my power and authority as a medical practice administrator should we form a relationship with the health system?
9. How does the health system's administrative structure support medical group management? (Look at the organizational structure and the number of full-time-equivalent staff (FTE) members dedicated to medical group management.)
10. Does the hospital support several EHRs or practice management systems, or will the practice have to migrate to new systems?
11. How will the EHR be supported? Is there a hospital information technology (IT) staff dedicated to the medical group?
12. Who will handle billing and collections for the practice and how is their performance?
13. What do the financial and productivity reports generated by the hospital/billing company look like?
14. How will hospital staff support the practice (IT, billing, human resources, etc.)?
15. Will the medical group be charged overhead, for example, a percentage of collections or allocated FTEs?
16. Who will be the main administrative contact at the hospital? What is his or her level of decision making and other responsibilities?
17. Who will be the spokesperson for your group and the key negotiator? 
18. Is everyone in your medical group committed to proceeding with a negotiation and data exchange?
19. After integration, who will take care of the medical group's office (cleaning, maintenance, supplies, etc.)?
20. What is your medical group's plan for telling staff about the integration?
21. Do you know what will change right away in your practice vs. what will change in phases? (This includes benefits, compensation, total number of staff support, etc.)

As you can see, we have not even discussed compensation. Unfortunately, compensation is where most groups start. However, failure to address these issues will negatively affect compensation regardless of what the first year's integration looks like.

In addition to these questions, you can use this checklist I developed to ensure that you address the factors that contribute to long-term IDS success.

Is your practice pursuing integration? Leave a comment and share your experience.

If you're not part of an integrated delivery system, Donn Sorensen, MBA, FACMPE, an MGMA member and executive vice president, St. John's Health System, Springfield, Mo., has plenty of reasons why you should be. Given the pressures of the new healthcare reform bill, many physician practices are considering new affiliations or integrations to stay quality-focused and viable. If you're in that camp, what's your next move?

You've already discovered your niche and are aware of the do's and don'ts of creating a new leadership team. And you've probably heard about some difficulties of post-integration. Here are some high-level strategies to keep in mind for becoming part of a successful integrated delivery system, using Sorensen's experience at St. John's Health System and St. John's Clinic.

First, some background. St. John's Clinic is a 575-physician multispecialty group practice with 60 locations throughout southern Missouri, northern Arkansas and Kansas. It's integrated with a large Level 1 tertiary hospital and five regional hospitals composing St. John's Health System. St. John's Clinic was named a better performer in the 2009 MGMA Performances and Practices of Successful Medical Groups Report.

Listen to our podcast interview with Sorensen or read the interview below.

MGMA: What motivated St. John's Clinic to seek integration?

Sorensen: The case for integration is pretty clear and compelling. First are the needs of the community and the patients. They're asking for, and frankly deserve, integrated healthcare. The days of hospitals and multispecialty group practices fighting in steep competition have to be over. The second reason why you should integrate is coordinated care and services.

The fragmentation of healthcare, I believe, is one of the main dysfunctions in the American healthcare system today. Working in a large multispecialty group integrated with a hospital is the way to coordinate care, provide continuing services, reduce duplication and improve healthcare.

MGMA: What did the timeframe look like?

Sorensen: It's a journey and a continuous process of integration. It is not a "now you're integrated" kind of a thing. It's moving down the continuum or a hierarchy of deeper integration.

MGMA: What do you think integration is not?

Sorensen: What integration is not is simply employing doctors. Or having physicians as a subordinate to the hospital. It is not an independent physician association, a physician-hospital organization, network, joint venture and it's not a transaction. It's a partnership of sister, equal corporations: the hospital corporation and the clinic corporation.

MGMA: What are some legal advantages to integration?

Sorensen: An easier, more compliant means of moving money between the corporations. Being an accountable care organization [ACO], taking care of a receiving bundled payments.

MGMA: How do you know when integration is a success?

Sorensen: The success of integration should be in several categories and each of the categories you need to measure, trend and goal set. They should be around physician satisfaction and engagement, employee satisfaction, patient satisfaction, improved quality and other targets as well as business performance.

MGMA: What are some of the biggest challenges of restructuring the governance of the clinic?

Sorensen: The challenges of integration generally are around trust - if there's a history of trust breaches, trust in sharing leadership. Also, they take the form of understanding the difference between separate but related corporations. The clinic and the hospital are separate, but equal. What parts then are separate, what parts are related?

Change itself can be a challenge for organizations.

MGMA: What advice would you give a medical group practice that's thinking of integrating with a health system?

Sorensen: The case for integration is huge. We all have to be prepared to meet true, high-quality improvements and reductions in costs in the very near future [due to healthcare reform]. The important thing for medical groups to think about is hitting those targets.

MGMA: What are your thoughts on healthcare reform?

Sorensen: The law of the land now is the new healthcare bill. While much of it may be disappointing to people, the fact of the matter is there is ACO language in that bill, which does necessitate the need to be in and form high-quality, world-class multispecialty groups integrated with a hospital. That is the true and only way that we can fix the healthcare problem in this nation and be prepared to respond to the ACO language that will be enacted (in one form or another) in 2012.

Our overall success story is the fact that we are hitting the quality markers that are coming from CMS, and reducing healthcare expenditures. That is a direct outcome of being integrated. And that will be, ultimately, the result of the ACO legislation.

Are you a successful integrated group? Share your story in the comments.

By Vincent Lynn, account executive, Health System Relations
MGMA Business Development

Practice administrators of hospital-owned groups know that explaining net operating loss to the hospital can be stressful. "Why are you losing so much money?" is a not-so-subtle question that Christine Gilbert has heard before. Gilbert, an MGMA member, serves as administrative director at St. Anthony Health Centers in Denver.

As she describes it, an integrated group practice is like a farmer out in the country growing corn for the big city; its value to the system is undeniable but it still needs a subsidy.  According to a 2006 article in the Academic Medicine journal written by staff from The Ohio State University Medical Center (OSUMC), losses of $30,000-$100,000 per physician per year are not uncommon for hospital-employed primary care doctors.  But the hospital and group side of the organization may not fully understand why.

1. Changes in accounting
   
   Changes in accounting are the most common reason with the biggest financial impact for first-year discrepancies among groups transitioning to hospital ownership. Specifically, subtracting ancillary services from the group's bottom line accounts for a huge revenue loss. According to the 2009 MGMA Cost Survey, primary care practices with ancillary services received $146,116 more in medical revenue per full-time-equivalent (FTE) physician than practices without ancillary services. This number jumps to $573,589 more per FTE for surgical practices. 
   
2. Additional costs of being owned by a hospital
   
   New electronic health record (EHR) systems and additional staff requirements can add up very quickly on the liability side of the ledger. These costs are generally mandated by the hospital and most likely benefit your practice in the long run. However, if your superiors' background is hospital only, he or she may not know that some of those costs were avoidable in a private practice setting.  If that's the case, make sure to back up your claim with hard numbers. 
      
3. Referrals and downstream revenue
   
   Unfortunately, there's no simple answer to quantify your medical practice's downstream revenue to the hospital. Tracking hospital admissions helps, but it doesn't capture the full picture.  Schneeweiss et al famously wrote¹ in 1989 of the multiplier effect where they observed for every $1 billed by a primary care practitioner, $6.40 is created in downstream revenue to the sponsoring institution. However, this claim will not carry much weight unless you have data to back it up. OSUMC pinpointed five revenue streams to more accurately track the downstream revenue its primary care network was generating.

1. Revenue for network-physician attended inpatient admissions (patient was discharged by physician)

2. Revenue from network-physician ordered outpatient tests/procedures (test/procedure was ordered by physician)

3. Revenue from specialist attended inpatient admissions (as a result of referral from physician)

4. Revenue from specialist ordered outpatient tests/procedures (as a result of referral from physician)

5. Revenue from specialist professional fees (as a result activities from iii and iv)

*Revenues from 1-4 attributed to the hospital, revenues from 5 attributed to the specialist

With a complex algorithm and full access to the hospital's financial records, OSUMC discovered that its primary care clinics had a net operating loss of $8.3 million. However, the revenue generated from inpatient admissions in streams 1 and 3 equaled $157 million. The outpatient testing and procedures in streams 2 and 4 generated another $97 million. Lastly, another $50 million was generated from specialist professional fees.

For the $8.3 million OSUMC invested in their primary care network that year, it generated more than $300 million in gross revenue. Overall, OSUMC found that in 2003/2004 for every $1 invested in its primary care network, it received $6.30 in downstream contribution margin (read the article for more detail).

Even if you don't have access to the hospital financial records to perform a similar analysis, you can be confident of your practice's numbers when you understand the dynamics of what your practice's net operating loss means.

Once you have a good understanding of the forces causing net operating loss, concentrate on areas you can control to minimize that loss. These areas differ by practice but include billing, collections, patient flow and staffing. 

"Salary and benefits are priority number one," says Gilbert. Other areas that she focuses on are clerical and medical expenditures and accounts receivable. "Nothing costs more than reworking a claim that isn't clean." (MGMA members: Click here to get your free toolkit for filing clean claims.)

Other suggestions for proving your worth? Share them in the comments.

Notes

1. Schneeweiss R, Ellsbury K, Hart LG, Geyman JP. The economic import and multiplier effect of a family practice clinic on an academic medical center. JAMA. 1989;262:370-75.

When they're not busy collecting data, they're analyzing it. The MGMA Surveys department often fields queries about benchmarking from a wide range of medical practice specialties and sizes. Requests from practices that are part of an integrated delivery system (IDS) are increasing, and so is the benchmarking data MGMA captures each year.

This year, we're tailoring our surveys to capture even more IDS data. In the meantime, you can find 2.2 million IDS data points in current MGMA surveys. The fastest way to find information specific to IDS-owned practices is explore the tables indicating "ownership type."

For example, hospital-owned practices compensate physicians a greater percentage of professional collections in both primary care and specialty care categories, according to the MGMA Physician Compensation and Production Survey: 2009 Report Based on 2008 Data.

Primary care physicians in hospital-owned practices were compensated 4.5 percentage points more of their collections than those in not hospital-owned practices (53.5 percent to 49.0 percent of professional collections). This gap was even wider for specialty care physicians, who earned 77.5 percent of professional collections in hospital-owned practices but only 68.5 percent in not hospital-owned practices.

Other IDS info in MGMA surveys

In addition to physician compensation, you can find IDS data in our other major reports.

Physician Compensation CD & DataDive Report

• 51 tables
• 1,491 rows of data
• 123,753 data points
• Includes IDS data analysis, such as: In 2008, specialists reported virtually the same compensation to work RVU ratio in hospital- and not-hospital-owned practices, $51.21 and $51.08, respectively.

Management Compensation CD Report

• 52 tables
• 5,869 rows of data
• 487,127 data points
• Includes IDS analysis, such as: Physician CEO/presidents in hospital/IDS-owned practices earned 12.8 percent less in 2008 ($333,608), correcting from a near 50 percent increase in 2007.

Cost Survey CD & DataDive Report

• 1,155 tables
• 19,262 rows of data
• 1,598,746 data points
• Includes IDS analysis, such as: Total general operating costs in IDS practices, increased from 26.9 percent of total medical revenue to 40.3 percent in 2008.

Medical Directorship and On-Call Compensation Report

• More than 200 data points related to medical directorship duties and on-call compensation
• Includes colored IDS graphs, snapshots and analysis, such as: In 2008, in both hospital- and not-hospital-owned practices, general surgeons reported $500 per day in compensation for on-call coverage, while neurosurgeons earned more than $2,000 per day in hospital-owned practices vs. $2,125 per day in nonhospital-owned practices.

Physician Placement Starting Salary Report

• Nearly 250 data points related to the starting salary
• Includes colored IDS graphs and analysis, such as: In 2008, there appeared to be a widening gap between hospital/IDS-owned general surgery ($300,000) and physician-owned general surgery practices ($245,000) in first-year compensation of physicians in a new practice.

Performance and Practices of Successful Medical Groups Report

• Sets the "gold standard" for medical practice performance by illustrating the activities of high-performing groups
• Includes three performance categories:
• o Profitability and Cost Management
• o Productivity, Capacity, and Staffing
• o Accounts Receivable and Collections

New IDS and hospital medicine data in 2010 MGMA surveys

This year, MGMA is offering the expanded Hospital Medicine Supplement, in collaboration with the Society of Hospital Medicine, with the MGMA Physician Compensation and Production Survey Report. This supplemental survey will collect additional data regarding financial support for hospital medicine groups.

The Cost Survey, which launches March 1, will have an expanded IDS survey supplement this year, as well. This includes additional questions related to the Joint Commission on the Accreditation of Healthcare Organizations, electronic health record systems, the Physician Quality Reporting Initiative and clinical integration, to name a few.

MGMA analysts will provide you with three complimentary data points, even if you have not purchased or participated in the survey reports and need an IDS benchmark. (Survey participants receive the results for free.) Call us today at 877.275.6462 ext. 1895 or e-mail us.

For about 20 years, MGMA member Tom Hutchinson, MSPH, FACMPE, managed private, for-profit medical group practices in Washington. As the practice administrator, he was involved in every aspect of the group: from human resources to the revenue cycle. All domains of the Body of Knowledge for Medical Practice Management became his bread and butter.

About two years ago, Hutchinson applied and began working for PeaceHealth, a non-profit integrated delivery system (IDS) with clinics in Washington, Oregon and Alaska. Many practice administrators might find themselves in Hutchinson's shoes, but not by choice. If an IDS is buying your practice, or your physicians are thinking about selling, rest assured, one lesson Hutchinson learned is that your skills as a private practice administrator come in just as handy in a hospital-owned health system.

"I wouldn't have been able to bring the same background or knowledge [to an IDS] had I not worked in private practice," he says. "In a larger organization you get specialized because of the nature of it. [In a private practice] you're not an expert on everything, but you have to make it work."

Jack of all trades vs. specialization

In a health system, administrators are no longer responsible for everything they might have done in a private practice. Hospitals have their own finance and human resources departments, shifting the administrator's responsibilities to mostly front office and back office operations.

But if you merge with a much larger group or take a job with an IDS, knowledge of the pieces and parts of the group's business will help you see the bigger picture of the system. Hutchinson's job is to standardize procedures, such as the revenue cycle, among the six medical groups owned by PeaceHealth. "The major thrust of a practice administrator's job is the revenue cycle, when you get right down to it," he says. "When you're working for a private group that's what you do." Now he continues to apply the same knowledge but on a larger scale, with occasional business travel among the groups.

Hutchinson notes that some of his colleagues who have shifted into running a hospital-owned medical practice often feel unfulfilled because their duties have been scaled back. "In some ways it feels better to be in a private practice because you know everything that's going on," he says, "but on the flipside, you have all the headaches and stress. You get no relief." Depending on your personality and the work you enjoy, you may consider for a role with the IDSs' corporate offices, like Hutchinson.

Find your niche in the system

To discover if an IDS is right for you, try the following:

• Research the IDS you're interested in, paying special attention to the core mission and values because not all health systems operate the same. One of the major draws for Hutchinson was the not-for-profit environment and mission of his health system. "We provide services for the community where there's community need," he says. "In a for-profit private practice that really isn't the focus."
• Use your network to learn what work life is like inside the system. Friends at PeaceHealth helped convince Hutchinson that the job was right for him.
• Do you enjoy connecting the dots and working in large teams? Working for an IDS is challenging because it requires a broader perspective of how the parts fit into the whole. But it can also give a greater sense of accomplishment when progress is made.
• Do you like to focus on one or two things or do you like to juggle many things at once?  If you're burnt out with too many balls in the air, specializing in an IDS may be just the thing for you.

Hutchinson says one of the problems in an IDS is that it can become too segmented, creating a challenge to rally everyone together toward the same goal. But overall it's worth a look as the next move in your career, especially as more and more independent practices join IDSs.

Note: This is part 2 of our 2-part series spotlighting MGMA members' healthcare organizations and H1N1. Read part 1 about medical practices.

With flu season starting early this fall, we wondered how MGMA members across the country are preparing not only for Influenza A and B, but also for H1N1, or swine flu. Since we published our last blog, five more states reported widespread flu activity, bringing the total to 46 states affected by the pandemic.

Here's how two medical executives from integrated delivery systems prepared their organizations.

Marshalltown Medical & Surgical Center, Marshalltown, Iowa

Last spring, Marshalltown had the highest number of H1N1 cases in Iowa. "This fall, we've taken a little bit different approach because we're not seeing the high numbers of ill individuals that we did earlier this year," says Jill Villalobos, RN, MGMA member and director of medical clinic operations.

As part of a hospital-owned health system, the clinics have followed the hospital's lead with Level 1 Protective Access. This means the only open entrances to the clinics and hospital are through the emergency room doors and the main front entrance. In the spring, screeners at each entrance stopped everyone to determine if they had flu-like symptoms. Patients with symptoms were sent to the hospital's emergency flu center and seen via teleconference by the hospital's ER physicians.

This fall, at each entrance patients with flu-like symptoms are instructed by sign to put on a mask and inform the receptionist. In the clinics, these patients are immediately taken to a designated exam room and seen by their regular provider. "So far it's worked," says Villalobos. "It's made patients in the clinics happier because they can stay in the clinic and see the physician they're used to seeing. And physicians like treating and seeing their patients rather than referring them."

So far this fall, the health system has seen about 30 confirmed cases of influenza A, which Villalobos says is probably H1N1. The emergency flu center is prepped and ready to go, should the cases increase.

St. Patrick Hospital and Health Sciences Center, Missoula, Mont.

One of the challenges of creating any emergency preparedness plan is making sure you cover all your bases. For MGMA member Amy Shoales, FACMPE, FACHE, director of quality, risk management and compliance, physician services, her lenses for flu preparedness are three: in-patient, out-patient and clinic perspective.

To get all members of the health system on board, a core group meets once a week to review the latest flu activity. Staff from storage and distribution, nursing, clinics, occupational health, radiology, the operating room, infection control and the emergency room comprise the group. "Infection control gives guidance per the CDC [Centers for Disease Control and Prevention] on next steps for testing and treatment of confirmed/suspected cases so we can all move forward on the same methodology to protect not just patients but visitors and staff," Shoales says.

Steps they've taken to prevent cross-contamination include:

• Pulling magazines from the waiting rooms
• Wiping down all high-touch areas twice a day, including the exam rooms after every patient leaves
• Flagging patients with flu-like symptoms before arrival, giving them masks and escorting them back to an exam room as soon as possible
• Implementing sick waiting areas in all clinics, even specialties

In their morning staff communication e-mail, there's always an update on the H1N1 and flu activity levels, and Shoales says if an employee experiences symptoms, they are not permitted to come to work until they are cleared by occupational health.

The health system is also actively involved in the county's health emergency alert team, comprised of all emergency response services in the county, the hospital and the clinics.

How are you handling patients with flu-like symptoms in your health systems? Leave a comment and tell us.

By Vincent Lynn, account executive, Health System Relations

Note: This is the fourth post in a series about integrated delivery systems (IDSs). Previously, we outlined four post-merger health system challenges and how to solve them.

Since the 1990s, physicians whose medical practices have integrated with hospitals have established a delicate social compact based on a shared, genuine interest in the quality and continuous improvement of patient care. But that environment has unfortunately changed into a "What's in it for me?" battle.

A misalignment of financial incentives is straining this interdependent physician-hospital relationship: Physicians rely on hospitals to provide inpatient and outpatient facilities, and a referral and coverage network; in return, physicians have helped hospitals meet accreditation, legal and community service obligations.

According to the authors of Aligning Hospitals and Physicians: Formulating Strategy in a Changing Environment, a white paper published last fall by The Governance Institute, and to which MGMA contributed, despite both parties' mutual interest in providing quality patient care the two are at odds due to separate revenue streams. Health insurers and the government pay both parties separately, meaning that cost-cutting or revenue enhancement usually benefits one at the expense of the other. For example:

• Physicians are rewarded when they own or co-own outpatient centers and specialty hospitals and perform lucrative procedures in their offices, while hospitals lose these revenues.
• Hospitals need physician collaboration to control costs, but federal law limits hospitals sharing in the financial gains of these efforts.
• Hospitals are recruiting physicians to meet hospital and community needs, but independent practitioners see this as unfair competition that will reduce their own revenues.

Looking for alignment

Fortunately, both physicians and hospitals are looking for ways to better align their interests. And today's alignment doesn't necessarily mean employment of physicians by the hospital or a hospital-owned medical group. According to the white paper authors, "Behavior, rather than structure, defines whether a hospital or health system and a physician or physician group are aligned."

Alignment, whether with an employed, contracted or independent physician, should have these characteristics:  

• Physicians and the hospital adhere to common values and visions, and avoid conduct that damages one another.
• Physicians engage in leadership roles in organization-wide strategic planning and participate in programs to increase hospital efficiency.
• Physician compensation is based on their productivity and achievement of shared hospital/physician economic and quality goals.
• Physicians and the hospital help each other comply with quality and safety standards and implement best practices.
• Patient management occurs seamlessly across the continuum from physicians' offices to the hospital.
• Physicians keep patient referrals within the system as much as possible.

As part of its research, The Governance Institute interviewed leaders of health systems at various stages of alignment with physicians, resulting in eight case studies that provide lessons learned for current or future integrations. If hospitals and physicians are to move toward greater alignment, concluded the authors, they will need to alter hospital-centric thinking; draw lessons from failed hospital efforts to employ physicians; and stop thinking about alignment as a one-size-fits-all program.

Get a free copy of Aligning Hospitals and Physicians: Formulating Strategy in a Changing Environment

Is your practice considering an employment model or other relationship such as a joint venture, professional services contract, medical directorship or physician-hospital organization? Request a free copy of the white paper and be well on your way to enhancing your health system.

By Vincent Lynn, account executive, Health System Relations
MGMA Business Development

Note: This is the third post in a series about integrated delivery systems (IDSs). Previously, we described how to create a new health system leadership team.

It's no secret that more and more groups are joining the integrated delivery system (IDS) model, but what happens after all the research is done, the decisions made and the contracts signed?  Even in optimal agreements, integration causes major changes for both parties involved. Here are four common post-integration issues that occur in successful arrangements and how to address them:  

1. Harmonizing work cultures
   This is probably the most common issue after any type of merger, and although it's a long-term transition, you must actively manage it.
   
   From the group's perspective: Establish common work-culture expectations acceptable to both parties. Get buy-in from everyone in the group, from receptionists to physicians. It's important that all employees participate in the process, especially those who have long tenures at your organization, because they may think the changes don't apply to them. Open, honest and regular communication will solve and/or prevent these issues.
   
   From the hospital's perspective: Your representative and the physician group's leader should meet regularly to resolve any discrepancies or issues that arise in the new work culture. The group leader can help you understand the compensation arrangements, the practice's finances and even more important, the human factors: how the physicians interact with one another and their staff, staffing ratios and workplace attitudes.
   
2. Significant others in the workplace
   Lots of workplaces employ married couples or significant others (e.g., a practice administrator who runs her physician husband's business). Before integration, this may not be a problem. But after merging with a health system, this relationship can muddy personal vs. professional decisions and lead to staff distrust.
   
   From the group's perspective: Expect and be prepared for changes in staffing that wouldn't have occurred before integration. On the flip side, new professional development and job opportunities may arise for members of the group.
   
   From the hospital's perspective: Take a close look at the working vs. personal relationships in the group and determine how they will best serve the new health system. It may be necessary to reassign the significant other as appropriate, bringing in an interim administrator to transition the role.
   
3. Unexpected delays and surprises
   Always expect some unplanned events after integration. For example, the payer mix may change with the newly acquired patients (e.g., more Medicare and less private-payer coverage than expected). Another surprise may come in the form of red ink if the hospital does the billing and collections for the group(s). 
   
   From the group's perspective: Most hospital administrators don't know how to run a physician practice, so it's up to the group to communicate exactly how any post-integration changes will affect the group's bottom line and why. Stay current on the latest integration- and IDS-specific issues by networking with your MGMA peers as well as taking advantage of MGMA's customized resources for integrated systems.
   
   From the hospital's perspective: Know the current payer mix and, on a monthly basis, run a ZIP code analysis from your practice management system to understand where your patients come from. Tie this information back into patients' insurance plans and monitor monthly. When hospitals take over the billing and collections from a group, decreased collections usually result. (Find out why.) Make sure to take this into consideration before integration and it shouldn't be a major problem.
   
4. Lack of attention to building a new patient base
   One of the main reasons to integrate is to acquire a large network of providers and patients. But don't make the assumption that the patients will come with the providers. Some patients may have negative impressions of one of the organizations in the new system.
   
   From the group's perspective: Clearly communicate your expectations for marketing efforts post-integration. Ensure that you understand what the system expects from your group regarding marketing to your existing patient base. In joining a health system, your group gains some of its marketing services.
   
   From the hospital's perspective: Help the group(s) with their marketing and public relations efforts, and educate the community of patients on the changes in your business. This is a balancing act: Too much promotion of the newly integrated practice can create the perception that your hospital has an unfair competitive advantage and seeks to push other organizations out of business. MGMA consultants have had to mediate issues with physician practices left out of an IDS, particularly in rural areas. Be aware of the marketing issues that arise from lack of involvement, as well as over involvement, in marketing. 

You can learn a lot can about riding a bicycle by reading, but until your foot hits the pedal there is no way to know what will happen. We're interested in your experience with integration issues – before and after. Share them in the comments.

Note: This is the second post in a series about integrated delivery systems (IDS). Previously, we addressed why medical practices bleed red ink following integration.

No medical group practice is immune to integration. Some physician practices are joining IDSs, also known as hospital health systems, while others – usually smaller groups – are combining to form multispecialty practices to compete in the new marketplace. Given the realities reflected in MGMA's recent study on medical practice challenges, remaining a small, independent group is no longer feasible in many markets. But organizational changes aren't the only change – the leadership team must also merge to support the new structure.

So, what happens to the leaders of the medical practice - the administrator and physician team - after integration?

According to Nick Fabrizio, PhD, FACMPE, FACHE, when an IDS has experience managing a physician practice, the operations of the group and physicians' involvement in planning and delivering  healthcare won't change.

Unfortunately, that's not always the case. This shift in ownership may lead physicians to think they can step back from the business of medicine and let the hospital take care of nonclinical operations. "This is a bad idea," says Fabrizio, a principal consultant for the MGMA Health Care Consulting Group and co-author of the new book Integrated Delivery Systems: Ensuring Successful Physician-Hospital Partnerships. "At a minimum, there has to be a physician leader and they must still be involved with the operations of the group" for the merger to do well.

Fabrizio's book emphasizes the importance of the new leadership team – and who's involved: "Physician practices cannot be successfully managed as another hospital department is managed ... IDS leadership should obtain buy-in from those physicians who will help the organization achieve all goals. Leaders must involve those physicians from the beginning of the strategy development."

Physician practice administrators are key to helping their physicians and staff integrate into the new culture of the IDS. Their knowledge is invaluable, because hospital administrators, skilled at running inpatient operations, generally struggle with managing ambulatory-care organizations. In fact, a common integration pitfall occurs "when a hospital acquires a group and makes it use the hospital's practice management system, which is inpatient-based and does not meet the needs of [ambulatory-care] clinics," says Fabrizio.

Two tips for successfully merging hospital-practice leadership teams:

• The administrator and physician leadership team of the former practice have to understand hospital culture, including the new speed of decision making and chain of command. "Most major decisions that involve spending or recruitment now have to be referred to a higher level," Fabrizio says. This abrupt workplace shift means an administrator-physician team needs to have the skills to work with hospital leaders, including the chief executive officer and the vice presidents of strategic planning and medical affairs.
  
• Effective communication channels in the new organization will build the trust the health system needs to succeed. "Just saying, 'Trust me, everything's going to be OK' – that's not going to cut it," says Fabrizio. He suggests setting strategic planning meetings that involve hospital and practice leaders in the same room to begin working toward the same goal.

Ultimately, what makes most integrations, or collaborations, successful is that the leaders of both teams (whether a practice and a hospital, or two practices) have taken time to develop a win-win situation. And it's not just about money. Fabrizio says, "It's understanding the issues in the community. What are the major health needs? What are the gaps? What's happening on the national landscape?"

 Listen to our interview with Fabrizio for more tips on successful integration, and don't miss your opportunity to learn all about IDSs in his sessions at the MGMA 2009 Annual Conference.

By Bob Bohlmann, FACMPE
Principal, MGMA Health Care Consulting Group

I believe that the rumors are true – medical group practices that affiliate with hospital systems immediately begin to produce red ink. But it's not as bad as you might think – if you get the facts straight.

The pressures of the nation's economic downturn have entered boardrooms and executive suites in hospitals and integrated delivery systems (IDSs). The integrated movement surfaced in the 1980s, stalled out in the late '90s and rekindled in 2004-2005. Now, with the economic downturn, the Obama administration and anticipated margin losses, boards of directors are getting nervous.

IDS leaders have tended to accept red ink reflected on operating statements as a reality of affiliating with medical practices. After integration, medical groups continue to apply their private-practice processes, but they're being measured now by a different set of rules – the hospital's – which can result in red ink. I've observed annual losses in excess of $100,000 per physician that may occur in the first year of integration. Hospitals perceive that they're losing money, but if you look at all the factors, they're not losing money to the degree that they think they are.

Even if physicians remain productive and don't add unnecessary cost, hospital-owned groups typically show cash-flow losses in the first year as credentialing and collections ramp up, and the newly integrated practice starts from dollar-zero accounts receivable. The resulting delay in revenue lasts for about six to 12 months. Then it's up to the practice and hospital leaders to minimize loss.

I've actually never seen a practice make a profit, but that's due to factors such as installation of electronic medical records, paying for new facilities and setting up satellite clinics. These are things that would normally not be done had the group not integrated with a hospital system.

So why integrate at all? There are a number of reasons:

• Physicians want to integrate.
• The hospital gains a sense of security in the marketplace.
• Private groups can no longer sustain themselves.
• It may make strategic sense.

Today's hospital system-medical practice integration is closer to a merger than an acquisition.

Success largely depends on aligning physicians and physician compensation with the IDS' goals, and setting expectations and accountability that the medical practice and hospital agree upon. Being proactive and understanding the full implication of integration can help you prepare for red ink, among many other things.

For my clients, I developed a 25-point checklist (that's how many things there are to consider) to get both organizations on the same page. In essence, both parties sign a "prenuptial" agreement based on these points.

Before signing off, here are four key things from my list that a medical group should do to ensure a successful hospital integration:

1. Identify the advantages, opportunities and goals of the integration.
   Are they individualistic or mutual? The financial, structural and operational details are broader than most medical groups (and many hospital systems) realize. Define goals and expectations up front and in detail to increase the chances of a smooth integration once the marriage takes place.
2. Identify the areas most affected.
   Understanding must be predicated on fairness for both sides. The obvious major points are compensation arrangements and purchase and/or lease of practice assets. Equally as important, but less obvious, are the effects of professional liability insurance and internal accounting methods. A financially solid pre-affiliation practice plan prevents misunderstanding of post-affiliation losses and forestalls the collapse of an otherwise productive relationship. No one wins when an affiliation or merger goes sour.
3. Identify the steps necessary to close the practice.
   Confusion related to property ownership, payments and ongoing commitments can occasionally scuttle a potential deal.
4. Consider getting help with the integration.
   If you're unsure about the areas you should review, consider seeking help. It will likely pay for itself in the long run. Consultants, such as those with the MGMA Health Care Consulting Group, specialize in this type of work. They can help you identify key issues up front and facilitate informed decision-making.

For more information on IDSs, check out MGMA's upcoming book: Integrated Delivery Systems: Ensuring Successful Physician-Hospital Partnerships. You can preorder for its release this fall.