How physician executives will drive value for hospitals

“Value” is the pot of gold at the end of the rainbow that health care professionals everywhere are seeking, but which few can seem to find.

Policy makers, hospital executives, physicians,  consultants – all are looking for a means to pivot away from a system that rewards volume of services provided to one that rewards quality and cost effectiveness (i.e., “value”).

How far we are from achieving this goal can be gauged by the type of incentives being offered to physicians.   The great majority of physician contracts today feature a salary with a production bonus, physician recruiting firms report.  In 2011, thirty-five percent of physician bonuses included financial rewards for physicians who achieve quality of care targets, up from less than seven percent the previous year, according to one study.

Though philosophically this represents a significant turn toward value, the practical effect is minimal.  Qualitative metrics still carry relatively little weight in most physician compensation formulas, usually accounting for less than ten percent of a physician’s potential bonus.    The reality is that volume still rules in physician compensation, whether measured by patient encounters, RVUs, net collections or other metrics.

Unless this paradigm can be shifted, achieving a value-based health care system will be problematic.   According to a Boston University School of Public Health study, physicians control close to 90% of all spending on personal health in the United States, by admitting patients, performing surgeries, ordering tests and treatments, and writing prescriptions.  For that reason, health reform at its essence is largely about modifying physician behaviors and aligning their practice patterns and interests with those of hospitals, whose reimbursement rates are likely to rise as they treat patients more efficiently.  However,  as history shows, bringing physicians and hospitals together is easier said than done.

If anyone will be able to bridge the gap it is physician executives.   As medical professionals, they have the best handle on how to define and measure quality – a very elusive metric where physician performance is concerned.  Due to their clinical training, they also are in the best position to evaluate and implement evidence-based treatment protocols that staff physicians will accept as valid and worthwhile.    Last, but not least, physician executives will be called on to lead medical staffs largely composed not of independent private practice owners, but of hospital employees.   Hospitals will look to physician executives to both implement new physician compensation models and to lead physician employees to a more collaborative, value-based mindset.

These are challenging goals, and to achieve them physician executives must evolve away from their traditional role as merely the “voice” of the hospital to the medical staff.   Instead, they will be at the center of hospital and system management, actively involved in both creating physician alignment  strategies and achieving the overall strategic and financial goals of the hospital.    Based on these expanded objectives, the new generation of physician executives is more likely to be involved in management full-time and is less likely to maintain a clinical practice.

Because medical training is not structured to teach management or business skills, hospitals will have to take the lead in creating training and career paths for the physician executives they will need in a value-driven era of health care delivery.    Hospitals that can consistently identify, nurture and recruit physician executives will have the best chance of finding the “pot at the end of the rainbow” in a post fee-for-service world.

Michael N. Sills is Vice President, Baylor Quality Alliance Partner, Cardiology Consultants of Texas Baylor HealthCare System. James Merritt is co-founder of Merritt Hawkins, a national physician search and consulting firm and a company of AMN Healthcare.  

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