Hospital-Centric Healthcare | Impending Death of Hospitals

Why You Must Know About A University’s Captive Medical Group Filing Bankruptcy

Last week, on November 7, 2018, the medical group affiliated with Michigan’s Wayne State University Medical School, University Physician Group, which does business as Wayne State University Physician Group (“WSUPG”), filed Chapter 11 bankruptcy.

How is that even possible, you ask? After all, you were told that there’s safety in what is essentially hospital employment.

Well, it’s not only possible, it’s likely the tip of the iceberg, not only for “stand alone” captive physician groups like WSUPG with its 873 employees, but for entire hospital hospital systems made more fragile, not stronger, by their size.

Hospital systems across the country suffer from bloated fixed costs, huge payrolls, layers and layers of bureaucracy, and management by managers, not by entrepreneurial thinkers.

Instead of bringing what the proponents of hospital-centricity promised would be stability, the actual result is becoming much different: The larger the hospital-centric system is, the more sensitive it is to declining payments from private payors, and the movement of procedures out of their facilities to freestanding, and often independent facilities, from clinical laboratories, to imaging facilities, to ASCs. And now, the federal government is getting increasingly into the act: It has cut reimbursement to hospital outpatient clinics, and has signaled its decreasing support for outpatient surgery performed in hospital outpatient departments (“HOPDs”)as opposed to in freestanding ambulatory surgery centers.

Hospital employment was hardly ever a good deal for any physician. The difficulty in holding a hospital together is tough enough. The difficulty in holding a hospital system together is even greater.

But both pale in comparison to the challenges of holding a hospital system plus its directly or indirectly employed physicians together. A shock that could have been absorbed by the pure hospital-side of the business can be fatal to the enormously expense-ridden hospital-plus-physician structure.

Why You Need to Know

1. Employment, directly or indirectly, with hospitals is far from “safe.” In fact, it may be far riskier for physicians.

2. In the event that a tightly aligned physician group fails, the employed physicians have no offices, no patient records, no staff, no “nothing” readily available to them to re-start independent medical practice.

3. For outside groups, the failure of a hospital-controlled medical group presents the ability to cherry pick physicians who may be desperate for quick reemployment. That is, unless those physicians are barred from accepting employment in the area due to ill negotiated covenants not to compete, assuming that they are enforceable.

4. The failure of a hospital-affiliated medical group will disrupt referral patterns, presenting opportunities on both the services-side and the facility-side for independent physician practices and their affiliated facilities.

Comment or contact me if you’d like to discuss this post.

Mark F. Weiss

www.weisspc.com

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Impending Death of Hospitals

CMS Cuts Payments to Hospital Outpatient Clinics By 40% and Boosts Independent Physician Practice and Physician-Owned Facilities

In one fell swoop, CMS pulled the rug out from under hospital control of physician practice, rendering many, if not almost all, hospital outpatient clinics unprofitable.

But this isn’t a story about hospitals. It’s a story about the positive impact the change will make on opportunities for physicians, both in connection with independent medical practices and in respect of physician-owned facilities such as ASCs.

The Back Story

Spurred on in large part by Obamacare, hospitals “aligned” physicians by, in many cases, acquiring their practices and rolling the former independent physicians, together with many new-hires, into hospital-owned or hospital-controlled practices.

The key to this was the fact that those practices, in their guise as “hospital outpatient clinics,” were reimbursed by Medicare on a fee schedule (the Outpatient Prospective Payment System, “OPPS”) that was approximately 40% richer than the amount the exact same services were reimbursed to independent physician practices under Medicare’s Physician Fee Schedule.

Why, you might ask, would the government do that? Well, hospitals, through much better lobbying than physicians could muster, had fooled the government into believing that cost drives value. And everyone knows that hospitals have outrageous costs.

But, the reality is that cost has nothing to do with value. Do you care that the local market loses five cents on every pound of grapes that you buy? No, the thought never enters your mind. You just know that you’re willing to pay 88 cents a pound for grapes.

Finally, the government has realized the same thing. In the vernacular, “grapes is grapes.” The exact same service by the exact same physician on Tuesday, which becomes a hospital outpatient clinic by way of the hospital’s acquisition of the medical practice on Wednesday, will be reimbursed the same way on Thursday. This is the notion of “site neutrality” behind the 40% cut to hospital outpatient clinics under the just announced 2019 OPPS.

Of course, the American Hospital Association wants to sue to stop what some hospital folks have called a “roadblock to care.” Roadblock? Care? No, it’s simply the end of an entitlement, and the dawning of the realization that the emperor never actually had any clothes. It’s a start in dismantling a hospital-centric healthcare system. It’s a reduction in healthcare spending for both Medicare and for the patients whose co-pays shot up due to hospital slight of hand: slap up a sign, call it a hospital clinic, and jack up the amount due.

What This Means For You

If the just-announced final rule survives challenge, which is likely, it signals a major shift in favor of independent physician practice including in favor of physician-owned facilities such as ambulatory surgery centers.

With the economics of running outpatient clinics turned upside down, we can expect to see hospitals closing their clinics. Some hospitals will close completely. (See The Impending Death of Hospitals.) We can also expect to see them withdrawing from the role of physician employer, at least as to office-based physicians.

Jettisoned physician-employees will be seeking new opportunities, perhaps at a significant distance from where they currently call home.

The inability to control physicians through employment will have a significant impact on referral patterns both within surviving hospital system structures and without.

Community practice physicians will be particularly well-placed to gain referrals from which they were previously, in all practicality, shut out.

Additionally, I expect the change in referral patterns to be a major boost to physician-owned facilities, including ambulatory surgery centers and what I call a Massive Outpatient Clinic™: A combination of an ASC, a medical office building, and one or more of a menu of complementary offerings — essentially a “non-hospital hospital.”

There are additional reasons for my bullishness on physician-owned ASCs:

First, if the government’s eyes are open to the fact that cost doesn’t drive value, then payments to hospital outpatient departments (“HOPDs”) will soon be reduced to ASC fee schedule levels. That will moot most HOPDs.

Second, CMS is expanding the role of, and improving the economics for, freestanding (read that as physician-owned) ASCs. Among other things, the 2019 payment rules for ASCs provide for a 2% increase in payment to freestanding surgery centers, add almost 200 new codes to the list of procedures approved for ASC payment, and call for a number of “surgery-like” procedures to be added to the covered list.

What do you know, it’s win-win! Physicians win because independent practice is strengthened. Patients win because the co-pays will be lower, both for physician visits and in connection with surgeries at ASCs as opposed to at HOPDs. Sorry hospitals! There are only 2 wins to go around.

The time is now to begin considering how you are going to take advantage of the situation. Let’s start the conversation today.

Comment or contact me if you’d like to discuss this post.

Mark F. Weiss

www.weisspc.com

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Impending Death of Hospitals

Thank God, You’re About To Be Treated By The Chief Transformation Officer!

You can’t believe your luck!

You’re in the back of an ambulance, its siren streaming as it pulls into the emergency entrance of Big Medical Center of Somewhere, America. You’re quickly rolled inside, in tremendous pain but still conscious. Up walks a physician in impeccable C-suite attire with a stethoscope draped over his neck.

God must be smiling on you, for you’re being taken care of by the highest-paid physician on the hospital’s payroll, yes, the top clinical integration/transformation executive!

What, you’re not lucky?

Hospitals are focusing their hard and few-earned dollars exactly where it counts, spending big bucks on the physician executives who will surely rescue them from nosocomial existential syndrome: chief officers of this or that trendy trend.

According to a recent report, here are the top earning lifesaving physician executives:

• Dr. Top Clinical Integration-Transformation Officer pulls in close to $600,000.
• Dr. Top Quality Executive earns a bit more than $460,000.
• Dr. Top Medical Informatics executive earns close to $380,000.

But don’t feel sorry for them having to spend so much time in meetings, drinking coffee, and having executive lunches. Those dollar figures are just the cash portion of their compensation.

Hey, I’d expect a lot of transformation for $600,000. Change is good, right? Just ask the physician I met from Venezuela. Oops.

Hundreds of hospitals are closing. Others left standing bemoan the fact that they’re broke and often blame it on their greedy contracted physician groups. “You want a stipend so that half your group doesn’t leave? What, are you crazy? We lost $4 million last year and now we have to hire a chief transformation officer and a few MDs who gave up medicine for informatics.”

Does anyone else find this funny? Does anyone else see this as not only rearranging the deck chairs on the post-iceberg Titanic, but spending to parachute in some extra caviar and champagne?

Still conscious as you’re rolled into the operating room and the team gathers around you (yes, you’re still awake . . . couldn’t afford those damn anesthesiologists) you’re baffled as the room gets dark, not light. And then you understand why: Dr. Top This-or-That wants to make sure that everyone can see her PowerPoint presentation, even you.

There’s never a shortage of money, only a question of priorities. And, it’s a heck of a question.

Comment or contact me if you’d like to discuss this post.

Mark F. Weiss

www.weisspc.com

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Impending Death of Hospitals

Physician Opportunity: Hospital CFOs Freak Out Over Failed Business Model

It’s not quite like life imitating art, but it’s probably as close to it as I’m going to see today.

I just read a puff piece sponsored by Bank of America, pricey click bait for hospital CFOs, that supposedly features a roundtable “conversation” among (oxymoron warning) forward-looking hospital CFOs.

Apparently, these CFOs have just realized that even the largest and, supposedly, best run hospitals and health systems are suffering from financial distress. The hospital-centric business model is broken. Ya think? [Read The Impending Death of Hospitals, on Amazon or, as a complimentary download.]

Their suggestion, after more than a decade of spending billions of dollars acquiring and otherwise “aligning” physicians, and then, as an industry group, blocking physician investment in hospitals, is that hospitals push into the outpatient/ASC world. (Attention hospital CFOs: this is not “forward-looking.” It is still looking into the rearview mirror to explain why hospitals are in decline.)

The problem of course, is that when hospitals thought that the future of healthcare would be hospital-centric, they convinced physicians that they needed the hospital. However, in the world as it’s become and is becoming even more so, that is, the outpatient, ASC (and not hospital outpatient department) centric world, physicians don’t need hospitals as partners. Oops.

For physicians, the unfolding world of independent outpatient care offers tremendous opportunity. Yes, it’s riddled with compliance landmines (and sure, the hospital industry will lobby for more restrictions faster than they can charge $15 for a single Tylenol), but most can be overcome. And, if I have to reverse social justice brainwashing, there’s nothing wrong with profiting legally from your referrals and healthcare investments.

Choose your partners wisely. Find those who’ll work with you, support common goals, and not seek to control you. Document deals properly up front — the expense will pale in comparison to that of undoing a poorly designed deal or of the first few months of litigation.

And, if you actually need a hospital partner for a joint venture, let the hospital compete for the deal. (Tell them you’re considering sending out an RFP. They used that ridiculous process to beat physicians down, and maybe I was wrong about their uselessness: I never considered them as a way to have fun.)

And, one final, free piece of advice for hospital CFOs: You should “forward look” back to elementary school: The time to ask Billy for an invitation to his party wasn’t after you stole his lunch.

Comment or contact me if you’d like to discuss this post.

Mark F. Weiss

www.weisspc.com

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