by Perry R. Hanson, MHA
The health care delivery consolidation trend continues.
In the last month, the Twin Cities’ medical market heard the news that two of the area’s larger private, multispecialty groups were in merger discussions with Integrated Delivery Systems (IDS): Aspen Medical Group (160 providers) with Allina and Columbia Park Medical Group (87 physicians) with Fairview Health Services.
A September 7, 2007, Minneapolis Star Tribune article stated that "other clinic groups are said to be looking for larger partners.”
Wipfli’s Health Care group is concurrently conducting integration projects in 10 states. The August 2007 release from the Center for Studying Health System Change (HSC) reported “the proportion of physicians in solo and two-physician practices decreased significantly from 40.7% to 32.5% between 1996-97 and 2004-05.”
So, what is driving this latest wave of merger/acquisitions and how can both medical groups and hospitals ensure the desired market alignment is achieved?
Key factors that simultaneously drive this consolidation include the following:
Value = Quality, Safety (new), Reliability + Service (traditional), Access (new), Convenience (new)
Cost
- By law, CMS and Medicare Part B are “re-balancing” per-unit reimbursement in response to higher per-patient utilization (e.g., higher resources consumed result in lower per unit reimbursement); commercial payers have been typically following this trend.
- There is growing pressure for physicians to install electronic medical record systems at an approximate initial per-provider capitalization of $30,000 and annual maintenance costs of $5,000-$7,000. (Although this investment may be recoverable through improved efficiencies/staffing and possibly more accurate procedure/diagnostic coding, it is still a cash flow issue.)
- Physicians are more and more aware that hospital-based reimbursement options (e.g., provider-based models) yield better cash flow for office visits.
- Market compensation for (increasingly) scarce proceduralists is rising primarily due to supply shortages, at a time of growing demand from the aging Baby Boomer generation as they become the new “customers.”
- Clinicians desire a more sustainable balance between professional and personal life.
- Physicians want to share after-hours call and the practice’s development efforts.
- Physicians have a professional need for “curbside" advice and collegial collaboration.
- There is a desire for clinical sub-specialization to satisfy patient expectations for access, safety, and service quality (the above definition).
- Greater numbers of providers are needed to amortize costs for clinical and administrative equipment and facilities.
- Improved safety, continuity of patient care, and quality initiatives are key areas of focus.
- New physician recruits possess a different definition of professional/personal balance, often seeking larger after-hours call groups (to include no call at all).
An examination of successful integrations suggests requisite characteristics include:
- Shared vision
- Common goals
- Physicians having influence across the system
- Physicians having roles in governance and management
- Physicians adopting a group practice culture—promoting a regional/integrated strategy
- Physician-driven peer review and policy formulation
- Physicians sharing in the success of the system
- Quality management focus and program
- Effective communication with the balance of the medical staff
Market events will cause physician-hospital organizational integrations to continue. For the first time, these integrations include procedural specialists who also (in addition to their primary care colleagues) find it difficult to make median compensation from only professional fee efforts and reimbursement. To ensure these new relationships are sustainable, the following goals typically need to be achieved:
- Become the recognized leader and first choice for the delivery of a full continuum of high-quality, cost-effective medical care and community heath services.
- Maintain a community service/charitable mission to serve the public and retain tax-exempt status.
- Require the local and regional development of a primary care delivery system, including urgent and convenient care access.
- Require the development of key specialties according to reasonable, market-based supply/demand calculations.
- Preserve the ability to recruit and retain the highest quality medical professionals, management, and support staff.
- Provide accessible, state-of-the-art clinical services, technologies, and facilities to those served.
- Become the indispensable health value proposition for preferred managed care plans and third-party payers.
- Operate in a fiscally responsible manner that allows for required reinvestment in the integrated system.
- Create an environment of respectful teamwork among all who work for the integrated system.
- Require superior levels of performance for all aspects of patient care, community service, and operating efficiency and effectiveness.
Increasingly, the emerging health care customer base (also called the patient) is placing access and value demands on the delivery system that require new business relationships to service these demands well. Coupled with reimbursement changes, a collaborative delivery response is indicated.
About the Author
Perry R. Hanson, MHA, is a partner in Wipfli’s health care practice. He is an accomplished educator and trainer specializing in physician and hospital relations and integration, ambulatory venture development, strategic and organizational development, and board and management education. He can be reached at our Minneapolis office at 952.548.3373 or phanson@wipfli.com.