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Physician Margin Recovery Six Ways To Improve Performance

Many hospitals and health systems are looking for ways to create a sustainable financial model when it comes to their employed physicians.  In this brief article, we will review our thoughts on Physician Margin Recovery and provide six ways to improve performance.  The options presented focus on leveraging your greatest asset: the physician medical group.

Today’s Healthcare at a Glance

Financial viability is a concern for hospitals and health systems as declining operating margins and day’s cash on hand become a challenge to achieve and/or maintain.  Major credit rating agencies such as Standards & Poor, Fitch, and Moody’s have all provided a financial outlook for 2018 as stable-to-negative, due to uncertainty with the Affordable Care Act, State Medicaid expansion, and drug costs.  Additionally, volumes continue to shift from inpatient to outpatient as Accountable Care Organizations and payment models continue to emerge.

As the majority of physicians in the United States are now employed by a hospital many healthcare executives are working to understand the economic model for physician practices.  In many cases, physician practices are seen as a large “loss” leader to the hospital and is a driving force on strained operating margins.  With this in mind, the focus on practice operational improvement is at an all-time high.

Leveraging the Physician Group

We believe the physician group is the largest untapped opportunity that exists within a hospital.  Many times, the physicians are not being leveraged or utilized in a way to unlock the economic potential that exists.  The reality is that the physicians, like all staff, have a responsibility to make positive contributions to the overall performance of the hospital beyond just the practice operations or income statement.

Physician Margin Recovery

We will discuss six ways to improve performance that each hospital and/or physician group should consider when exploring physician margin recovery:

  • Access Strategy for Expansion
  • Explore Potential Revenue Enhancement Opportunities
  • Assess Provider and Staff Productivity to Ensure Efficiency of Performance
  • Optimization of Payer Contracts
  • Development of Key Service Lines to Ensure Success Across the Continuum of Care
  • Understanding Patient Leakage

Access Strategy for Expansion

Access is the lifeline to any practice or hospital.  Only with new patients and the ability to get existing patients in will there be an opportunity for services to be delivered and to meet the needs of the community.  The following are the key steps for any physician group to undertake to optimize access:

  • Understand current and potential capacity by specialty by a physician.
  • Develop a strategy and implementation plan to target new patient growth areas in market demographics, specialty services and/or exploration of collaboration with potential partners in your service area.
  • Ensure proper care team alignment in order for members of the team to function at top of license (MD, APN, Pharmacist, Social workers, front office).
  • Review and make recommendations on performance relative to service expectations for customer experience (scheduling, phone triage, online functionality).

Explore Potential Revenue Enhancement Opportunities

As the evolution of healthcare continues to change to an outpatient setting, it is important for hospitals to explore the ability to generate various revenue potentials beyond the traditional Evaluation and Management services provided in a physician practice.  The following items should be considered and evaluated for potential new revenue opportunities:

  • Review of current physician payer contracts to ensure market comparability,
  • Risk sharing contracts with payers and/or Accountable Care Organization (ACO) participation,
  • Home Medical Equipment or Durable Medical Equipment services,
  • Ancillary services such as X-Ray, MRI, CT, and Lab,
  • Provider-Based billing or Rural health clinics based on eligibility of the practice location,
  • Federal Qualified Health Clinics (FQHC) or partnership with an FQHC,
  • Medication Assistance and Drug Replacement plans,
  • Specialty Pharmacy,
  • Joint Venture on Home Health, and
  • Partnership with a tertiary facility on clinical services.

It does take time and resources to understand and implement the above, but overall some of these items can certainly pay off in the end and create additional value to hospitals.

Assess Provider and Staff Productivity to Ensure Efficiency of Performance

Provider and staff productivity are very important elements of physician margin recovery.  Many times the conversation is about physician productivity, which is important, but staff should also be in the same conversation.  Here are some thoughts to consider when evaluating productivity:

Provider Productivity

Measure the performance of a provider in terms of work relative value unit (wRVU) performance against survey data (MGMA, AMGA, and Sullivan Cotter).  Additionally, consider the providers’ patient panel relative to the overall wRVU production. Sometimes you may find that the high producers in terms of wRVUs are not always those with the largest panels. The panel of patients becomes of utmost importance as physician groups are in a risk shared model or ACO.

Staff Productivity and Labor Management

Once you determine the provider productivity in terms of patient panels, wRVUs or both, use the benchmark data to account for appropriate staffing levels to validate new or replacement positions.  This will allow labor costs to be consistently managed within the practice focusing on benchmark targets and aligning with how a physician typically is compensated via wRVUs.

Optimization of Payer Contracts

Many payers will add “upside” risk as an incentive relative to achieving certain targets in performance for the physician practice.  These targets may be based on items such as HEDIS Measures, CAHPS scores, pay for performance measures, utilization/cost management, clinical quality/effectiveness and patient safety (medication adherence, opioid management, etc.).  It is important to note that providers need to be engaged in the review of the performance metrics.  Additionally, performance against the targets should be tracked and communicated on a regular basis.

Development of Key Service Lines to Ensure Success Across the Continuum of Care

The creation of service lines with a multi-discipline team to derive best outcomes related to satisfaction, service, quality, and financial performance is best practice.  This allows for collaboration and development of key initiatives such as capital planning and resource allocation while actively working to fulfill the goals of the hospital.

Understanding Patient Leakage

One of the greatest challenges that hospitals have with the employment of a physician is around patient leakage.  Patient leakage is defined as a patient that is within your care receives services outside of your facility or network when you could have provided these services to the patient.

In reviewing the opportunity around patient leakage there are five questions that you should ask while you analyze the data:

  • Is the patient leaving because of patient choice, insurance?
  • Does the hospital have the services to provide for the patient?
  • Is there an access issue with a provider?
  • Is there a quality concern with a provider?
  • Is there a service issue with a provider?

The first two items above are acceptable and there is nothing immediately that the hospital can do to address them. The latter three items are things that the hospital and/or physician group needs to understand and improve, which should remove any barriers to why a provider may refer out.


Physician Margin Recovery is needed to create a sustainable model around the physician employment models within hospitals. It does require change, discipline and a willingness to face cultural issues that exist in every organization.  However, by engaging the physicians in solving and implementing the recovery efforts, it will unlock the power of the hospital’s greatest asset.

If you have questions or would like to learn more about physician margin recovery, please contact Tony Javorka.


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