My Hospital is Losing Millions on Physician Practices—Part Two

We described in the previous installment in this series how recent case law and DOJ settlements provide clear evidence of the position of qui tam relators, prosecutors, and government experts that losses on hospital operation of physician practices are being targeted. Because evidence suggests that hospital losses on physician practices are common in many markets, the questions on everyone’s mind are whether health system losses on physician practices put the organization and key individuals at significant fraud and abuse compliance risk, to what degree can existing physician practice losses be justified through documentation, whether the health system has a functional Fair Market Value (FMV) and Commercial Reasonableness (CR) enterprise risk management process, and—the subject of this series--is a plan at the ready to begin mitigating practice losses?

Don’t assume physician practice losses are acceptable just because the hospital system is profitable. If not already in place, add a process for contemporaneous documentation of losses associated with each applicable physician practice. This can include, but isn’t limited to, matters related to reimbursement (i.e., payer mix, local commercial fee-for-service rates), community need and health system staffing requirements, practice startup, local market economic and industry factors, and others. Make certain, however, that the information used in documenting the basis for physician losses is grounded in supportable facts, rather than anecdotes, as the latter will be of little value in defending an arrangement years later when the plaintiffs have the benefit of hindsight and historical facts.

Hospitals and health systems should use new opportunities presented in the market (i.e., MACRA) to take another look at the physician network strategic plan. As MIPS begins to threaten slim margins in many independent physician practices, a new stream of doctors desiring hospital employment is likely to emerge. Don’t take on new acquisitions if you won’t be reasonably able to project a breakeven or justify losses to an enforcement official. Deliberately consider strategic additions and divestitures from your primary care and specialty employed physician networks. Revise or update your community needs assessment and your hospital staff development plan accordingly.

With the transformation of payment models away from primarily fee-for-service, it is beyond time to move physician contracts away from purely volume-based. MACRA is forcing many to do a better job of putting physicians at risk for higher quality and lower cost. This is an excellent opportunity to move physician contracts to a consistent framework and link to MIPS measures as applicable.

Develop projections to show the impact of the above steps on profitability at the physician practice level, without a nexus to health system profits. The idea here is to create a proactive posture related to physician practice finance over time to limit exposure to only those losses that can be fully justified with well-documented facts—facts that can be defended if ever called upon to do so. It’s time to return to the fundamentals of healthcare finance when it comes to successfully operating physician practices.

If you don’t have one already in place, now is a good time to implement a physician contract management system and use it to capture and monitor all focused arrangements, linking them with relationships and identifying numbers to avoid surprises associated with related parties and entities.

Prudent business decisions include a good action plan to manage hospital-owned physician practices. In today’s compliance environment, this is fast becoming an integral part of successful enterprise risk management.

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