The End of the Healthcare Bubble

Healthcare reform threatens to usher in an era of complexity that could put small contract management groups at a distinct managerial disadvantage.

Healthcare reform threatens to usher in an era of complexity that could put small contract management groups at a distinct managerial disadvantage.

A recent issue of the Journal of Healthcare Management includes a thought-provoking article written by Nathan S. Kaufman that may partially explain a growing trend: seemingly-competent independent EM groups are suddenly being supplanted by larger contract management groups. The title of the article is Three “Brutal Facts” That Provide Strategic Direction for Healthcare Delivery Systems: Preparing for the End of the Healthcare Bubble [1]. The three “brutal facts” are: (1) our healthcare bubble will eventually burst, (2) neither the shared savings ACO program nor first-generation clinically-integrated networks will produce the desired results, and (3) physician autonomy and the organized medical staff will become less relevant. Among his other insights, three of Kaufman’s statements have particular relevance to EM groups. He states that, “VBP (value-based purchasing) now puts hospitals’ revenues at risk contingent on their physicians’ clinical practices and communication skills.” Later, he states that “hospitals can no longer afford to delegate the responsibility and accountability of the cost and quality of care to an independent medical staff of physicians practicing and promoting the traditional autonomous, highly variable model of care.” Finally, Kaufman observes that, “Hospitals will have to … develop the clinical infrastructure with a new breed of physician leaders in which medical directors will have the authority and accountability for cost, quality, and patient satisfaction in their service lines.”

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Another way of saying all of this might be that the management of the practice of hospital-based medicine (EM and others) makes an exponential jump in complexity under healthcare reform and that many independent EM groups are being perceived as ill-prepared to meet the challenge.  Just practicing good medicine won’t be sufficient under fully implemented healthcare reform and group size matters when it comes to the perception of being prepared to respond to complex practice management issues.

The larger contract management groups may in fact have the advantage over smaller independent groups in some respects but they are positioning themselves to be perceived as being more capable in all areas than they will likely prove to be.

The larger contract management groups are in general more capable in their business management systems and IT infrastructure. In practice today this means capabilities like:

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• Sophisticated finance, HR and accounting systems, including managed care contract management capabilities
• Internet-based electronic scheduling that is fully integrated with payroll
• Productivity-based compensation with offset metrics from peer review (best practice compliance) and patient satisfaction systems
• High volume (1M+) EM-focused billing company
• Internet-based peer review
• Patient satisfaction surveying solution capable of achieving a statistically valid sample size (generally about 30 completed surveys per provider per month)
• Hospital order entry data link to generate provider resource utilization reports
• ED performance dashboard incorporating provider and nursing staffing levels and productivity metrics
• Non-Physician Practitioner and Scribe training and oversight programs
• Robust physician group relationship, communication, strategic planning and project management skills with wide physician group participation in RM/PI progra

A larger group can amortize the cost of these systems over many ED contracts while the smaller independent group cannot. A larger group can also afford specialists in areas like human resources, benefits administration, managed care negotiations, and finance where a smaller group more often has to rely on the hospital or consultants for these resources. While there are EM management services organizations (CEP’s MedAmerica or PSR to name two) that could provide the smaller EM groups with these capabilities at an affordable price most independent EM groups fail to recognize the need for such services until it’s too late.

In other practice management areas larger and smaller contract management groups (CMGs) are on a more equal footing but each tends to fail to perform for a somewhat different reason. In regard to the standardization of physician practice patterns, the larger CMG generally has more metric data but fails because it tends to lack the level of physician trust and collegiality present in the smaller CMG. It’s also typically struggling more for staffing and tends therefore to delay confronting physician outlier behavior issues. Smaller independents, on the other hand, are notorious for failing to enforce practice discipline among their ranks and have Doctor A and Doctor B shifts just as frequently as practices managed by one of the larger CMGs. Equal ownership groups are especially problematic in this regard since everyone is, by definition, equal, which is often interpreted as untouchable. Unless the group’s governance provides for it and the group’s leadership enforces it, dealing with a group owner’s deficiencies typically takes much longer than it should.

Regardless of the reality of the situation – the larger CMGs are not the panacea they present themselves to be and the smaller independent groups are not as incapable as they are presumed to be – it’s clear that the perception of the EM group’s readiness to step up to new challenges in a rapidly changing healthcare environment is extremely important. Today’s hospital needs an EM group partner that is ready to grow and take on additional ED contracts when the hospital needs them to do that, or to staff the hospital-owned urgent care facilities, or to develop an observation unit or hospitalist program. The larger CMGs of course make the most of their readiness to do those things even though their execution may lack the physician buy-in, dedication and loyalty of the smaller, more broadly owned independent group. The smaller independent group may exhibit more physician stability, loyalty and hospital engagement but the perception is that they don’t have the resources to be a full partner in meeting the extra-departmental healthcare challenges of the near future.

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The moral to this story seems to be that small independent EM groups without the support of sophisticated practice management resources and the entrepreneurial spirit to expand their horizons to meet hospital needs are likely to become increasingly vulnerable to the loss of their contract. This in turn would seem to argue for obtaining sophisticated MSO services and/or the aggregation of smaller groups into larger ones.