4 steps for creating value in the hospital-based physician enterprise

Nearly 20% of all active physicians in the U.S. practice in what can be considered “hospital-based” specialties, yet all too often health systems fall short in leveraging the expertise of these specialists to drive value across strategic, clinical and operational dimensions.¹ We define this group of physicians as adult and pediatric specialists in anesthesiology, emergency medicine, critical care medicine, hospital medicine, radiology, pathology and other subspecialists who practice largely on acute care campuses or in other facilities (e.g., freestanding emergency departments, ambulatory surgical centers). Additionally, a large and growing workforce of advanced practice providers (APPs) works exclusively in acute care environments, including nurse practitioners, physician assistants, certified registered nurse anesthetists and certified nurse midwives.

Hospital-based physicians and APPs can create value for the health systems in which they practice through a number of ways:

When physician and APP leadership and subject matter expertise are optimally deployed, clinicians can improve continuity and quality of care across acute and ambulatory settings; reduce unnecessary variation in care delivery; and play a critical role in traditional fee-for-service (FFS) models as well as population health and value-based payment models. The following examples from leading health systems illustrate the kinds of value these clinicians are delivering:

A 300-bed standalone hospital in the Northeast achieves a high net promoter score (NPS) with physicians in its community through extensive communication between its hospitalist team and patients’ primary care providers (PCPs) and ambulatory specialists. Hospitalists are expected to directly communicate with these physicians upon a patient’s admission, midway through the stay, and prior to discharge.

• A 700-bed academic medical center effectively engages anesthesiology leadership, enabling it to perform a high volume of surgical cases and provide expanded access to its perioperative platform. The anesthesiology chair is an equal member of the surgical executive committee with the chair of surgery and nursing and administrative leadership.
• A multi-hospital system on the West Coast is advancing its value-based care strategy and readmissions reduction objectives by integrating its hospitalist service and PCPs. The health system closely coordinates post-discharge follow-up (transitions of care management) visits and community PCPs. Its hospitalists also staff a clinic for patients without an assigned PCP or who require more extensive and immediate follow-up.
• A multi-billion-dollar integrated health system in the Northeast, facing significant acute care capacity constraints, engaged its emergency and hospital medicine leaders to design, develop, launch, and scale its hospital at home care model transformation. It resulted in moving thousands of acute care patient days out of the traditional hospital setting and unlocking acute care capacity for more complex patients.

While executives from leading health systems acknowledge hospital-based specialists generate substantial direct and indirect value², many hospitals have administrative and management processes that frequently fall short of adequately supporting and focusing on the hospital-based physician enterprise. Hospital-based physicians and APPs may report to medical group clinical and administrative dyad leadership (e.g., medical group president), report to hospital executives (e.g., CMO, COO), or have a “dotted line” reporting structure to one or both. When health systems partner with private physician groups for these services, legal/procurement teams may have significant involvement in the relationship and management of physician services agreements. Any of these models can be effective, as long as the organization maintains accountability for the hospital-based physician enterprise.

To best drive value in the hospital-based physician enterprise, health system executives can follow the four steps below. Conversely, leaders of hospital-based medical groups should understand these steps and seek ways to best partner with health systems.

Step 1: Align on clinical and operational requirements and objectives

Health system executives who oversee hospital-based specialties should reflect with their teams on how these specialties can drive the success of broader strategies and operational objectives.

At a basic level, leaders should understand requirements set out by regulatory/accrediting bodies. For instance:

• As a Trauma Level II facility, what specialties are required and to what level of responsiveness (e.g., “in-house,” “within 60 minutes”)? 
• What are the requirements of different accreditations (e.g., radiologist coverage for stroke center designation) or other services we provide?

Going beyond regulatory/accrediting minimums, leaders should understand the degree to which investments should be made in certain hospital-based specialties to drive strategic opportunities. Questions to consider include:

• Do we need to commit to additional investment in anesthesiology coverage to drive growth in surgical/procedural areas?
• Can a more robust hospitalist program support our patient throughput and length of stay reduction goals?
• Would a “laborist” model free OB/GYN provider capacity for greater ambulatory access in women’s health?
• For teaching hospitals and academic centers, how will these specialists support our graduate medical education programs and learners?

Heath systems have experienced tremendous margin pressure coming out of the pandemic, and decisions around hospital-based specialties should also consider financial objectives. Members of the health system finance team should be engaged to accurately understand expenses associated with hospital-based specialties, and they should fairly model the direct and downstream revenue to which these clinicians contribute.

Hospital-based specialists are in high demand, and compensation is escalating ahead of other physicians: from 2020 to 2022, compensation rose 8% to 11% for anesthesiologists, radiologists, and pathologists and 5% for internal medicine physicians. Compensation for acute care APPs rose even higher, by as much as 19%.³ MGMA and other organizations publish helpful benchmarking that lend insight into collections guarantees or “subsidies” and employed provider compensation.⁴

Similarly, health system leaders who oversee the physician enterprise within the acute care platform should inventory and regularly review call coverage agreements, medical directorships, and other physician arrangements (e.g., diagnostic testing supervision). These are often a material expense that may or may not align with clinical need and support operational and financial goals.

Aligning the strategic objectives for these services can in turn inform metrics to incorporate into managing these specialties. For example, a health system looking to support patient throughput goals may elect to include an incentive on the timely entry of discharge orders in hospitalists’ employment contracts or physician services agreements. Consider how clinical models and incentives may interface across specialties. An emergency medicine physician incentive focused solely on “door to disposition” time may not capture the benefit of “bridging orders,” which streamline hospitalist workflow and overall patient throughput.  

Step 2: Explore business options   

Health system leaders need to evaluate the advantages and risks of different “business options” for hospital-based specialties. Traditional options for hospital-based specialties have centered around either direct employment by the health system or professional services agreements with private physician groups. The significant shift in recent years towards direct employment of physicians by health systems is well documented, though that trend may be plateauing. As of 2022, the share of physicians in private practice declined to 46.7%.⁵ Many health systems adopt differing approaches across specialties based on their objectives and availability of options within their market. If electing to partner with a private physician group, many components of a potential agreement require evaluation, including:

• Does the agreement include a collections guarantee or express subsidy?
• Will the group be responsible for its own professional billing and revenue cycle management?
• Should there be specific allocation of FTE for medical directorships? If so, how will this be balanced with “clinical FTE” or patient-facing responsibilities?

Aside from traditional employment or professional services agreements, a third option is emerging: Some hospitals are engaging in joint ventures with investor-backed physician practice management (PPM) companies. In some cases, these partnerships may involve the creation of new entities, often by spinning off services that were previously managed directly by the hospitals. Hospitals commonly outsource various functions, such as revenue cycle management and certain ancillary services. Applying this approach to partnering with physician specialists is a newer but expanding trend. The health system can co-own the spun-off practice with other investors, among other possible structures.6 This model can offer a source of additional funding for growth, like building capital and operational support for ambulatory surgery centers. But it may not suit every health system and can be less feasible in some markets.

Leading health systems periodically consider these “make versus buy” options across each hospital-based specialty. To engage a private physician group to provide these services, conduct a request for proposal process with selection criteria matching the objectives identified in Step 1. Involve key stakeholders, legal staff, and procurement staff in the decision-making. And invite both smaller, locally based practices and regional/national-level groups to respond. Use this process to evaluate the various benefits and tradeoffs with any option (e.g., local groups may already have strong reputations with medical staff, national groups may leverage scale in recruitment).      

Step 3: Carefully manage change while pursuing the selected option

Once health system leaders have set clinical and operational objectives and chosen a business option, they must ensure that teams are well-resourced to execute and manage change. For example, when switching between private anesthesiology practices, a health system should adopt a formal plan that includes technical tasks (e.g., credentialing, EHR access, and other onboarding). The plan also must include communication and change management with the broader medical staff. Specific tactics in this example may include health system leaders conducting one-on-one conversations with surgery chiefs, new anesthesiology providers undertaking “roadshows” to meet surgeons at their offices, and regularly emailing updates on anticipated changes.

The need for change management can be even more profound if a private practice transitions to hospital employment. Critically, messaging may require tailoring to specific audiences (e.g., partners in the practice vs. physician employees, practice support staff). Investing in a formal implementation plan and change management strategy is crucial for mitigating risks of disruption to patient care and operations.

Step 4:  Integrate performance management and continuous improvement systems

Successfully managing the hospital-based physician enterprise should be seen as a continuous process, rather than a one-time or infrequent exercise to revisit every few years. At a minimum, the appropriate “infrastructure” should be established, including centralized contract management applications, reporting tools, and monthly or quarterly operating reviews.

All too often, various department leaders hold employment contracts and physician services agreements in isolation, leading to limited system-wide visibility regarding specific terms, service standards, and renewal dates. This poses both operational and legal risks. Regular monthly or quarterly operating reviews with each specialty, whether employed or contracted with a private group, offer a platform to promptly address deficiencies, enhance performance, and drive value across the enterprise.

Engage Your Hospital-Based Clinicians for Optimal Value

Health system executives are wise to fully leverage the expertise of the hospital-based physicians practicing daily within their facilities. The four steps above offer a roadmap to engage these professionals in achieving clinical, operational and strategic success.

Notes:

1. Estimate based on Society of Hospital Medicine (SHM) 2023 Report and American Medical Association (AMA) Physician Masterfile. Dec. 31, 2021.
2. White AA, McIlraith T, Chivu AM, Cyrus R, Cockerham C, Vora H, Vulgamore P. “Collaboration, Not Calculation: A Qualitative Study of How Hospital Executives Value Hospital Medicine Groups.” J Hosp Med. 2019 Nov 1;14(11):662-667. doi: 10.12788/jhm.3249.
3. 2023 MGMA DataDive Provider Compensation.
4. HealthCare Appraisers. 2021 Review and Benchmarking Guide: Trends & Data Insights for Hospital-Based Clinical Coverage Arrangements. March 10, 2021. Available from: https://bit.ly/489GlUA.
5. AMA. “Physician Practice Benchmark Survey.” Nov. 16, 2023. Available from: https://bit.ly/3OvsAZ7.
6. Herro N. “Physician Practice Spin-Outs: The Opportunity for a Mutually Beneficial Private Equity-Health System Partnership.” Chartis. Oct. 6, 2023. Available from: https://bit.ly/3Sw9BQx.