Most integrated delivery networks (IDNs) today have hospitalists managing some portion of the hospital's inpatient activity. One of the most common arrangements is to have the IDN contract with the physician group to provide the service and the hospital pays a fee. But this arrangement can often have a number of shortcomings.
Let's take a closer look...
A significant issue with the contract model is, well, the contract itself. IDNs ask the hospitalists to cover a certain volume of patients in a set period of time. But the hospitalists have no control over the volume of patients or the payer mix, and so they often refuse to share in the risk...
... Resulting in a contract that looks like this:
- The IDN and hospitalist group agree to the amount of coverage to be provided.
- The group provides the physicians, but takes no risk for the cost (that expense is ultimately born by the hospital).
- The group charges the IDN a management fee, often a percentage of total expenses.
- The group bills insurance for the patients seen, typically through their own billing and collection service, which charges a fee of 4-7%. The funds collected (less the fee) are used to offset the cost of providing the service and the management fee.
- The IDN pays the difference between the revenues collected and the expenses incurred.
Here's the rub...
This scenario puts the IDN at risk for the performance of the group's billing and collection program. If the group does not perform, it may risk losing the percentage of funds charged for the service, but the hospital is responsible for any operating losses. Plus, most IDNs employ other physicians and have a billing system in-house - thus paying the group for duplicated services.
Also, the group has lower incentive to control its costs and often collects a higher management fee because of the higher salaries it pays to its hospitalists. Again, the hospital bears the risk. In total, the IDN is essentially taking 105-112% of the risk and expense - more than it would by employing the physicians.
Frequently the quality, outcomes or ALOS are not significantly better than those managed by other physicians. The management and infrastructure of many groups, especially the smaller, local groups, is often weaker and offers less in terms of leadership to address performance issues. All in all, the value an IDN sees from hospitalist contracts can be lower than hoped.
If an IDN wants to evaluate the performance of its hospitalist contract, here are some questions to ask:
1. How does the cost of the hospitalist contract compare to benchmarks?
- How much is the IDN paying?
- What level of production is it receiving in exchange?
- Are the billing and collection functions performing?
- Would employment cost less?
2. Are physicians and patients satisfied?
3. Does the current hospitalist contract promote alignment?
- Do the performance metrics align with how the system is paid?
- Is the IDN's commitment to these metrics apparent in the contract?
- Does it adequately divide risk between the entities?
4. Is the IDN helping, or hurting, the quality of the program?
- Does the system create reliable and meaningful performance metrics?
- Are those metrics available to the physicians
- Do the physicians know the reports are available?
My next post will finish out this discussion with some options on what to do after you've answered these questions. Look for it on January 9.