- Evolving incentives and changing financial dynamics can create misalignments between hospitals and physicians.
- The ability to work together is really predicated on transparency, good communication, and some level of mutual governance.
- In order to provide good quality care, hospitals and physicians need one another and need better financial alignment, whether that is entering something like a co-management agreement, integrated physician network, or a joint venture. Solutions are not one-size fits all, and the most critical piece still comes back to improving communication between hospital and physician.
Daniel J. Marino
Managing Partner, Lumina Health Partners
Dr. George Mayzell
Managing Principal, Lumina Health Partners
Principal, Lumina Health Partners
Daniel J. Marino: Welcome to another episode of value based care insights. I'm your host Daniel Marino. I'm excited about today's episode, we're going to spend some time talking about the relationship between physicians and hospitals. Really around the changing financial dynamics that have occurred over the last number of years. And when you think about it, the relationship with hospitals and the relationship with their physician partners has definitely evolved. And it's evolved due to some of the market dynamics or some of the influences that we see within our industry. For instance, primary care physicians rarely go to the hospital anymore. There are hospitalists that take care of a lot of the patients that are admitted in the hospital. They round on the patients. They have good relationships with their primary care physicians, but the family practice physician, even many of the internal medicine physicians that are practice based, rarely go into the hospital. We also see a lot of shifts in sight of service. So for instance, 5-10 years ago, many services that were performed in the hospital were not performed outpatient. And that's only beginning to increase with some of the financial incentives that the payers are placing, and even the government is placing on all providers to do more and more services for outpatients. And then the last as you begin to think about it is the hospital has really evolved into caring for more complex needs of patients. And in some cases, the patient's clinical needs have become more complex where they need to be taken care of in the hospital, those that are less complex are taken care of on an outpatient basis, or even in the physician practices. So those changing dynamics have certainly created financial pressures on both the hospital and the physicians to think about their businesses differently.
Joining me today are two of my colleagues who are very excited. Dr. George Mayzell, a primary care physician who I've had the opportunity to work with for a number of years. And then Steven Berger, former CFO, great consultant. We also worked together for a number of years working through a lot of the financial opportunities and considerations that hospitals are currently working through. George and Steve participated on a podcast that we had six months ago, extremely successful, great conversation, if anybody wants to go back and listen to that, we really spoke about the financial alignment that has to occur between physicians and hospitals, and it was just just a great discussion. So I'm excited to have both you gentlemen here today. George and Steve, welcome.
Steven Berger: Thank you, Dan. Good to be here.
Daniel J. Marino: So George, maybe we can start with you. From the physician's perspective. As I mentioned, a lot of the services that used to be performed in the hospital are now being performed, either in the physicians clinic, in an ambulatory surgery center, or in some areas that are done outside of the hospital. How has that changed the mindset of physicians? How has that changed the relationship between the physicians and the hospital or the hospital leader?
George Mayzell: Thanks, Dan. I appreciate your comments. Again, a lot of things have changed for physicians and relative to the hospital over the last years. I think if we look back a number of years ago to my practice days, early on, there was a really symbiotic relationship with the hospital and the physicians. Certainly separate entities the services were provided for nursing and patient support medications and so on from the hospital. And of course, the physicians provided the medical care and leadership. All that's changed dramatically over the last several years and a number of factors have played into that. You mentioned the shift to outpatient services, which is certainly one of them. But there's a number of others that are absolutely critical to the consolidation of hospitals. There's Less hospitals, they're bigger, the more complex the more bureaucratic. A big one we're all aware of is COVID. Certainly putting a lot of stress on the system contributed to some of that financial stress that Dan mentioned, because COVID, despite what people hear, is not profitable for a lot of hospitals. And we add to that the burnout and stressors that have come on both nursing and physicians and the hospital setting. On top of that, we have this huge push to employment for physicians. So now that dichotomy of synergy with the hospital, and the physicians is very different if the physicians are now employed by the hospital systems. That's probably a discussion for a whole other podcast, because we could spend an hour on that, and I won't. And the last item I'm going to mention is that slow, painfully slow for some of us, is the shift to value based care, redefining some of the incentives and things hopefully, if it's done right, and we'll talk more about this later, do a better job aligning hospital doctors, outpatient and everything else. So lots of contributing factors, making it a very complex issue, and also very different in different markets, because different markets have different emphasis on all these factors I mentioned and others.
Daniel J. Marino: I agree. All those things, I think have really, really changed what that relationship is looking like today, and I think is even what it's gonna look like tomorrow. So Steve, when finance leaders are thinking about the economic drivers of their institutions, and they know that the relationship is changing, they know that certain services aren't being done outpatient, they know that even physicians are starting to create some of their their own services outpatient due to some of these changing dynamics, I would think it's gonna place a lot of pressure on the finance folks. What are some of their thoughts? How are they addressing some of those things as they're thinking about how to make it economically successful, yet really maintain the relationship with their physician?
Steven Berger: Actually, it's pretty darn tough. And they're thinking about a lot of things, all of which are very difficult to actually achieve. But it's their job to do it. And it's not just the finance folks that are looking at this, obviously executive leadership, so CEO, COO, CFO, the finance people, but also of course, the Chief Nursing Officer, the Chief Information Officer, the Chief Clinical Officer, and you've got these issues that have to be dealt with in order to continue to achieve a bottom line. It's always for finance, it is always about the bottom line. But look, the finance guy, or gal reports up to the chief executive who reports to a board, what are they looking for? What are they looking to achieve? Is it just the bottom line? And if so, how much of the bottom line is appropriate for this particular organization? George said that there are different issues, depending on where you're located, location matters, size of hospital matters. And whether you're urban, suburban or rural. All of these things are different. But we still need that bottom line. As this is happening. You have all of these shifts going on. And I completely agree with George regarding this slow pace of the adoption of value based care. We can do better as a nation, but we're not quite doing it. So meanwhile, as that's the beginning, what are they looking at? Well, as always, they're looking at the areas that will allow them to achieve a better bottom line. It used to be volume. So we've got volume, but we don't have volume anymore. Value based care is not a volume based revenue source. It's the opposite. It's one of the reasons in fact, that's probably the primary reason why we haven't achieved it yet.
Daniel J. Marino: If I can jump in for a second. For many hospitals, their contracts are still fee-for-service driven, the right vast majority of hospitals. So finance leaders are looking at volume. And although I think if you look at how value based care has evolved, it's actually impacted the physicians more than it's impacted the hospitals. So many of the contracts that are out there that are value based are providing financial incentives around quality and managing costs to the physicians. That's not quite come into play as much as we'd like on the hospital side. So what I'm seeing then is almost a misalignment of incentives.
Steven Berger: There is a complete misalignment of incentives and that's why we're really calling this the intersection between hospitals and physicians. So the physicians have gone further on their value based care reimbursement, while the hospitals haven't even come close to achieving that kind of outcome, you've got a lot of things at play here. While the finance people are looking to continue to do volumes, there's another group inside the hospital that are looking to achieve more of a value based care outcome, meaning more alignment, so that we can have more per member per month payment, and the way to achieve a bottom line in that case is to have less patients in the hospital,
Daniel J. Marino: And almost focusing more on quality. So George, let me turn this over to you for a second. So when you think about some of these changing incentives, right, evolving incentives that have occurred, doesn't this almost create a competitive nature between physicians, certainly around value based care and hospitals? Or does it bring them closer together?
George Mayzell: I think it has the potential to do both. I think right now, I'd say it's leaning toward your first comment, I think it's more competitive. And here's why. Some of the misalignment you talked about is certainly true. But I would even add to that, think about the hospital. Hospitals get paid DRG for the most part, and that's a whole different incentive. Focusing on let's get more patients in, and let's keep them shorter because we get a fixed payment per patient for most Medicare and even commercial now. So that's one incentive. There's a number of others also that, you know, hospitals do have some value based incentive stuff from CMS, and some readmission penalties and other things. But that, frankly, plays at the margin. So right now, there's a total misalignment of payment models for most physicians and most hospitals. Now, as you shift, as you said, to physicians slowly having more incentive based payments on the outpatient side, they're looking at the most expensive part of patient care if they're in a total cost of care model, or they actually have some incentive on that. And the most expensive part of care is two things. Really, it's the hospitals number one, and then you know, then you start to do some of the specialty drugs and other things, but hospitals are one, two, and three on that list. So they're looking at how we manage our inpatient service, and that, again, creates another misalignment. The potential is there, however, to Steve's point and your point, if you can align those payment models, so that everybody wins for doing the right thing, and there's payment for doing the right thing, that will work. But there's a lot of things that have to change. And one of them, hopefully, we're gonna talk a little bit about is data and transparency and information, and moving away from charge masters and getting to real costs, and things like that. So everybody's on the same page. And there's some real transparency on what things are cost and really looking at where the value is. And of course, you know, value is outcomes over cost. So, you know, you got to figure out where that is. So there's a lot of things that have to change, for us to get to that next step. And I think we do have to get there.
Daniel J. Marino: You're right. I think an interesting point is, and this has happened for years, but it is the reimbursement model. Physicians are paid for their professional services, which are very productivity utilization driven. But there are a lot of incentives now that are out there to reimburse based on quality, that is it is being offered or at least identification of value. But on the facility side, on the hospital side, they're being paid for the facility fees. They're being paid for the DRGs. They're being paid to cover, hopefully, some of the internal expenses that are occurring. So how do you bring this together to create an alignment model? So is episode based pricing one way of being able to do it? Is there opportunities to align the hospitals and the physicians around clinical services or clinical specialties? Steve, where are you seeing this alignment occurring in a way that's providing financial opportunities, or incentives, for both physicians and hospital leaders?
Steven Berger: So you have different organizations taking different texts? And here is the point again, big versus small, urban versus rural, what's the size? Critical access hospitals are going to be taking a different tack than a giant Medical Center. So one size does not fit all. And that is what makes a difference in this conversation. So the smaller hospitals if they're still generally self sufficient, and underlined, if you will, they're going to most likely be trying to move towards more of a value based care model for reimbursement as best they can, as best as they can, because they're still going to be having their reimbursements in the way that they've used. Medicare hasn't changed, for example, and the giant insurance companies haven't quite changed, although it's sometimes easier to get through to them than to Medicare for these changes. So you've got the small hospitals that are in one place, you've got the major medical centers that are trying to go to clinically integrated networks, they have a much easier time doing it. I wonder what it would look like if we did a poll and said to some of these giant medical centers out there, how many of you would in fact like to become a Kaiser model?
Daniel J. Marino: There is where you're getting reimbursed with a full capitation arrangement, and then there's managing the costs internally. A lot of folks believe that we need to get to that point in order to truly manage costs, but that can even limit the relationship or minimize the relationship even more, right? Because, each of the physician physicians in the hospitals are going to be responsible for managing their own patients and their own list of services.
Steven Berger: I'm not sure what you mean, by minimizing I think it maximizes everybody's way of working towards a simple higher level goal of better outcomes at lower cost. Isn't that what we're talking about better outcomes, lower cost? The Kaiser model was designed that way, and it's been out there almost 100 years, maybe 100 years. That's a model that almost no other organization has taken on. They created it, they started that way.
Daniel J. Marino: George, when you think about sort of the changing dynamics that physicians are under, again, that the economic model within their practices, within their groups, is evolving, it's continuing to evolve. What physician leaders are looking for? And I guess it does depend. If you're independent or employed, I guess I want to take it more from the independent physician. If you're a medical group, even a specialty group, what are you looking for out of your hospital?
George Mayzell: That's a good question. I think the other thing we have to acknowledge is that over 50% of these primary care are employed now. So the independents are struggling, because some of the costs of being independent, particularly EMR and other things, are almost impossible to survive in a very small independent practice anymore. Now, not that they're going to ever go away totally. But it's hard. I think if you're in a small independent practice, or even a medium sized independent practice, what you want in a hospital is a great place to give your patients great care without an undue burden on yourself or your patients financially. That's what you're looking for. You are probably not going to the hospital anymore if you are primary care, some do still, but more likely not. Even specialists now have specialist hospitalists. It's really becoming a specialty unto itself at the hospital level. So what you need is great care and great communication. Let's just assume it's good care. But one of the challenges we have is if you're going to take care of a patient, you need communications back and forth. If you're a hospitalist, you need communication back to primary care. You may be all on one EMR, chances are you're not, especially if you're independent. So the EMRs are not very talkative to each other. So getting that information back so the patient has continuous care is really a challenge.
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Daniel J. Marino: You're absolutely right. And I still believe that in order to provide really good quality care, hospitals and physicians need one another. They do. And I think that dynamic, as we've mentioned, is changing based on the complexity, based on the needs of the patient, and based on the evolving services that can be done outpatient versus inpatient. But when I think about ways or solutions for hospitals to come together to better manage the patients to create even better financial alignment, three solutions right now come to mind. Co-management agreements is one, creating these integrated physician networks, whether they're CINs or ACOs, or maybe still the PHO models is a second, and then joint ventures as well, where hospitals and physicians could come together and sort of share in the services and maybe even economically share in some of the output. Steve, Let me turn it over to you. Are those three solutions? And maybe there's a few others. Are those a couple of things that you're seeing that helped to align the incentives, or at least bring physicians and hospital leaders together?
Steven Berger: I'm thinking the hospitalist issue holds them apart, because the physicians who are doing the primary care for these patients are losing sight or losing touch with their patients. So I think that hospitalists have hurt, not helped in terms of bringing together. That's my position. What are others thinking? Well, the organizations are thinking about bringing in more hospitalists, because it just helps inside the hospital. But it doesn't help bring physicians and their patients closer, it brings them apart, I believe. As far as shifts of service, the payers are looking to take patients out of the hospital into the lower cost setting, the outpatient setting. Okay, good for the payers, not so good for the hospital's bottom line. Meanwhile, the hospital, as you said earlier in this podcast, they have to maintain this giant building with all the people who have to run the building, these costs to run the building. The overhead is enormous. So the more you take out a primary revenue, the more you take out from the hospital. That hurts the bottom line. How do you make that up? Well, as long as the payers are going to continue pulling patients out, as we've talked about, then there's going to be a tipping point. A tipping point whereby the hospital has to go all in on the total cost of care, value based model, outcomes based, and they're getting paid on this per member per month basis.
Daniel J. Marino: So it's really the economic model that you're seeing that hospital leaders need to focus on probably reducing their cost and thinking around what the episode based pricing is, and really getting into their cost accounting.
George Mayzell: I think those models you named are all great models, but they're structurally based. And I think it's great to have that structure, but I think the stuff that goes behind any of those models is really the more critical piece, right? To me, that's about better communication. Physicians need to understand something about finance. They don't have to know their own practice’s finance, but hospital finance, enough to understand how things work, at least at a general level. And I would say the opposite is also true. I think hospitals need to understand physicians, and I think there has not been a lot of good communication, and a lot of empathetic communication on either side. I think transparency of information and data and finances. Everybody thinks hospitals are cash cows, some are. These days, most of them are struggling to make enough money to cover back capital costs. And recapitalize the system. They may be a few bucks, but not enough to handle the depreciation that they have. I think we need to acknowledge that and be clear and concise about it so everybody's on the same page. I think that data should be published and discuss quality outcomes, cost outcomes, utilization, patient experience, and then lastly is the incentives that go inside these. The incentives need to be all aligned, all open, there's no payment model that's perfect. They all have good incentives and bad incentives built into them, and you just have to acknowledge that. Even value based care. Then really measure and evaluate what that payment model is doing to patient outcomes so that you're on the same page.
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Daniel J. Marino: I agree. And those are good points. You can have the structure, and the structure is key, but it's all the things behind the structure that really makes it work. Right location, transparency of data, you've got to build trust, you've got to be able to align some of the activities and goals and the objectives. And if you can do that, then you can build a model that financially aligns both physicians and hospitals. Steve, any closing thoughts, any advice that you may give to the finance leaders that are out there?
Steven Berger: We've discussed a number of things and this is meant to be physicians and finance. How did we come together in a better way? George talks about communication. I couldn't agree more. And he also mentioned that more than 50% of physicians these days are employed. So as we're moving towards some new model, who knows when. It's moving at a glacial pace. As we move towards it. The hospitals, I'm going to take the hospital finance side, have to continue to work through elements so that they can maximize their bottom line. Now maximizing the bottom line, once again as clear as possible, you need either more revenue or less cost. The only way to improve your bottom line, to maximize, or whatever maximizing means. So they have to keep moving towards there, if it means structuring those outpatients so that they make a little bit more money off the outpatients in order to continue to, as George mentioned, maintain those giant buildings, the overheads, and the capital for replacement. It’s a very tough deal. As long as patients in America expect every single problem to be solved by the hospital and their doctors, we're going to continue to need money to do that.
Daniel J. Marino: It's true. So George, just in closing, for the physicians that are listening today, any pieces of advice you would give them as to maybe how they should work with their finance leaders, or how they could offer some opportunities, or some some suggestions on building a stronger relationship?
George Mayzell: It's really tough to be a physician out there right now, I'm very empathetic to the folks out there that are trying to practice medicine, you know, amongst COVID, amongst the employment models, amongst all these changes. I think the answer is, be open minded, learn some skills beyond the clinical skills, learn enough finance so at least you have an understanding of the basics. Physicians are usually pretty good at understanding finances inside their own practice, but they struggle inside the hospital on some of that, and I've seen many disagree because the hospital hasn't always been clear and concise about sharing financial data. And I think it's about assuming good intentions with your administrative counterparts in the hospital. And it's about trying to sort of understand each other, you know, being in each other's shoes a little bit more so that you can make the right decision. The one thing that I think everybody agrees upon, hopefully, is we all want great patient care and great patient outcomes. And we ultimately need to make health care affordable for us, our kids, and our grandkids. And so we have a lot of work to do. I think the only way that happens is if we all figure it out, sit around the same table and figure out how to do it.
Daniel J. Marino: I couldn't agree more. Well, gentlemen, thank you for your time, great discussion. As always, I really appreciate it. This will be an ongoing topic and an ongoing discussion and in some cases, an ongoing debate that I'm sure we're going to have, again, as we talk about how we can get physicians and finance to work closer together.
In summary, I just like to hit on a couple of points. I think both George and Steve brought up some really good thoughts. I think a couple of things around the ability to work together is really predicated on transparency, good communication, and some level of mutual governance. You can have the structure in place, but again, if you don't create a situation where you're aligning incentives, I think you're going to have some real challenges. It's going to affect the relationship between hospitals in finance, or hospitals and physicians, and frankly, hospitals and physicians need each other if you're really going to provide good quality care for the patients in your community. Thanks, everybody for listening today to Value Based Care insights. I'm your host Daniel Marino. Until next time, have yourself a great day.
About Value-Based Care Insights Podcast
Value-Based Care Insights is a podcast that explores how to optimize the performance of programs to meet the demands of an increasingly value-based care payment environment. Hosted by Daniel J. Marino, the VBCI podcast highlights recognized experts in the field and within Lumina Health Partners.