How Value-Based Healthcare Is Changing the Assumptions in Your Medical Staff Plan

In 2007, the American Academy of Family Physicians published a study entitled, “Panel Size: How Many Patients Can One Doctor Manage?” Though the authors were careful to disclaim any one “right” answer to the question of panel size, the number 2,000 was bandied about as a reasonable target, and this figure has continued to dominate much of the literature.

Hospitals, consultants, regulators and other players in the healthcare industry use the AAFP study and others like it to estimate the staffing levels needed to deliver quality care. But five years can be an eternity in a rapidly changing field such as healthcare. Do the old formulas and assumptions continue to offer any predictive value for administrators desperate to strike just the right balance between revenues and expenses? The authors of the AAFP paper specifically state that any “ideal” is bound to be a moving target:

“Panel size is an outcome of the system in which providers operate. The ideal panel can be determined, but its size will necessarily differ in different environments depending on all the provider and system factors.”

Why productivity no longer drives the medical staff plan

As delivery models change, we have to reexamine all of the assumptions on which those models were based. In terms of a medical staff plan, the reigning productivity model was relatively easy to manage under a fee-for-service regime. When revenue dipped below expenses, it was generally seen as a productivity issue, rather than a staffing issue. The simple solution was to increase the patient count or decrease the time spent with each patient – in other words, boost productivity among existing staff, rather than adjust staff size. With reimbursement based purely on volume, revenue responded in a predictable manner.

But healthcare reform is now changing that calculus. As new value models begin to emerge, greater productivity can no longer be the presumed solution for revenue woes. At least three major initiatives are already underway linking reimbursement to outcomes rather than volume, and more such efforts are on the horizon. Value Based Purchasing, Accountable Care Organizations and Patient Centered Medical Homes all offer financial rewards based on the health of a patient population, rather than the number of office visits or procedures.

Suddenly, the old levers for shifting income and expenses are beginning to look very rusty indeed. Physicians can’t simply adjust their caseload and expect finances to respond in a predictable fashion. This could have a profound effect on healthcare staffing levels, and old assumptions, at the very least, will need to be reconsidered. Adding to the uncertainty, all of this change comes at a critical time for an industry already facing increased demand for medical professionals.

Supply, demand and uncertainty

By 2020, the healthcare industry will need to create 5.6 million new jobs, according to a Georgetown University study, and 4.6 million of those positions will require a post-secondary degree. Good news for college administrators may be bad news for hospital administrators, however: RAND estimates that only 926,000 physicians will be trained and available to practice in the U.S. by 2020 – well short of the 976,000 needed to care for a growing and aging population.

A physician shortage was never good news for hospitals, but recent employment trends are only exacerbating the problem. Young physicians today overwhelmingly prefer to be employed by a hospital or group practice, as opposed to starting a business of their own. According to search firm Merritt-Hawkins, only 1% of first-year residents plan to work in a solo practice, and Jerry Kennett, chief medical officer at Boone Hospital in Missouri, recently told a Congressional subcommittee why the “Marcus Welby” model is falling out of favor:

“Continued cuts in Medicare reimbursement, combined with increasing overhead costs, increased regulation, unfunded mandates, a micromanaged payment system, and an uncertain, cloudy future are making it difficult for practices to remain viable.”

Unfortunately, the same pressures pushing physicians into full-time employment are making it harder for hospitals to manage – and profit from – those new employees. Faced with a severe physician shortage, hospitals in the past would likely have raised salaries while simultaneously pushing for greater productivity to offset the added expense. But as payers demand a de-linking of revenue and volume, those options look increasingly untenable. In order to remain financially viable under new reimbursement policies, hospitals are devising complex compensation packages with up to 40% of total pay tied to quality goals, rather than productivity.

More employee demand, less supply, rising costs, and shifting reimbursement policies – the crosscurrents affecting hospital staffing decisions appear to be unprecedented, and every decision is fraught with long-term implications for patient care and financial health. In this environment, we believe it is important for every hospital to reconsider its physician plan now, in order to stay ahead of the changes – and the competition.

When developing a medical staff plan, keep in mind these four factors that are especially relevant in the current environment:

First, consider the issue of panel size when setting up patient-centered delivery systems. ACOs and Medical Homes are intended primarily to improve quality, but some studies indicate they can also incentivize a larger panel size for each participating physician, because the financial risks are less pronounced when spread across a larger patient population.

Unlike the old productivity model, physicians are not required to see more patients in order to earn more money. Instead, they voluntarily increase their panel size to reduce the impact of a single catastrophic illness that might otherwise undermine their reimbursement for population health management.

When a larger panel is seen as desirable, physicians may become more willing to share responsibilities with other team members who previously were viewed simply as support staff. The American Medical Group Association puts it this way:

In order to work effectively as ACOs or within ACOs, all medical practices will have to be reengineered so that physicians become leaders of high-performance care teams, take on new roles, and share responsibility for patient care with other members of the team, seeing only those patients who require physician attention. In particular, primary care practices must find a way to increase their patient capacity without sacrificing quality of care or adding more work to already overburdened physicians. This will entail changes in workflow and work processes to delegate clinical responsibilities properly. A medical staff plan that fails to take these issues into account will quickly become obsolete.

Secondly, remember the needs and expectations of physician employees. Physicians join with hospitals largely to escape the burden of administrative duties, so they may be in for an unpleasant surprise when ACOs and other new delivery structures necessitate more of the very paperwork and management headaches they were trying to avoid. To keep physicians happy, hospitals must be careful to provide them with all of the administrative support they possibly can. At the end of the day, however, value-based healthcare will require physicians to accept a leadership role in high-functioning teams, and hospitals will need to provide additional training in leadership skills that were never addressed in medical school.

Next, look for every opportunity to use physician extenders. With or without the structure of an ACO or PCMH, hospitals will need to shift responsibilities away from scarce physicians in favor of extenders such as physician assistants and specialized nurses.

New regulations are making it increasingly possible for many extenders to work without direct physicians supervision, a trend that seems certain to continue as the physician shortage becomes more acute. Though various medical societies and other trade groups are seeking to maintain their traditional prerogatives, most courts are turning back such challenges, thus creating a legal precedent that should help to alleviate the hiring crunch – at least for those hospitals that are prepared to take advantage of all their options.

Physician extenders may help to solve some staffing issues, but they do come with their own set of management challenges. Mobility, for instance, is likely to be a prime concern. Compared to physicians, extenders don’t have the same time invested in education and training, so it becomes easier to switch specialties when the work is perceived as too routine or insufficiently rewarding. Also, although some extenders might develop their own patient following, particularly in primary care, they typically do not have as significant a patient panel as physicians, allowing extenders to more easily jump from one practice to another due to salary or lifestyle concerns.

Finally, consider the options for delivering more care at home. Faced with a physician shortage and federal financial penalties for readmissions, hospitals have more reason than ever to keep multi-chronic patients at home as long as possible. According to the Alliance for Home Health Quality and Innovation, readmissions double the cost of post-acute care – a cost that Medicare is determined to shift from taxpayers to providers.

Technology is one way that hospitals are keeping readmissions from overtaxing the system, using various telemonitoring devices to keep tabs on patients without requiring a face-to-face visit with a physician. For a more personal approach that still addresses the physician shortage, hospitals can also partner with home health agencies to follow up on patients considered to be at high risk of readmission. In upstate New York, for instance, Rochester General Hospital and three nearby facilities cut readmissions by 25% through the use of home visits carried out by local provider agencies.

The bottom line: Faced with a growing shortage of physicians, even the best health systems will find it difficult to keep up with demand for years to come. In this environment, your medical staff plan takes on added urgency. New models of healthcare delivery will have a direct effect on panel size, and old ratios simply won’t prove reliable in physician development plans.

To stay ahead of the curve, we recommend that hospitals reexamine their assumptions regarding supply and demand, looking for ways to serve more patients with fewer physicians – and no attendant drop in quality of care.

Brian Ackerman heads the Washington, D.C., office of Ascendient Healthcare Advisors, a healthcare consulting firm headquartered in Chapel Hill, N.C. If you have any questions about your medical staff plan or other issues discussed in this article, please contact Brian at BrianAckerman@Ascendient.com.

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