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Publication: HealthCare Strategy Alert - Hospital & Physician Collaboration
Author: Jeff Peters
Date: May/June 2005
Compensation Plans and Leadership - The keys to Successful MSOs
More than a few hospitals and health systems have abandoned or downsized their employed physician group management services organizations (MSOs) in recent years as ongoing financial losses and conflicts with physicians have taken their toll. But complete repudiation of the once wildly popular MSO strategy is probably unwarranted. In fact, research conducted by Health Directions in spring 2005 reveals that a properly configured and managed MSO can make a difference in short and long-term business and financial organizational performance.
What makes an MSO successful?
MSOs were evaluated based on four criteria:
- Does the MSO meet the hospital's or health system's business needs? Is it financially self-sufficient? Does it help grow market share?
- Does the MSO provide economic security and good practice management support to the physicians whose practices it manages?
- Does the MSO develop and maintain channels that generate referrals to specialists who are not part of the MSO?
- Does the MSO meet patient and consumer needs? Does it help practices focus on prevention and health management, as well as patient satisfaction and retention?
MSOs that scored highest on all four criteria tended to share the following characteristics:
- Strong leadership, with business and clinical expertise.
- Ongoing communication with MSO physicians and board members on issues such as increased market share, enhanced physician income, and reductions inpractice losses.
- Physician compensation based on practice financial performance.
- Management and innovation focused on practice profitability and growth.
- Implementation of new and emerging clinical and information technologies.
- Strategic alignment of hospital and physician incentives.
A review of positive and negative cases of MSO development and management offers additional insight into MSO success factors, as well as potential barriers and pitfalls.
A Poorly Performing MSO
Situation: An east coast health system incurred financial lossses of more than $100,000 annually on its managed practices due to high physician compensation rooted in management reluctance to tie physician pay to practice performance.
Intervention: To boost financial performance, the MSO's executive director worked with physicians to create an incentive-based compensation program. This MSO moved from a salary-based program with easily achievable upside incentives and no ties to financial performance to a compensation system that xlosely aligned income with practice financial performance. However, the MSO made no effort to secure buy-in for the changes, so physicians rejected and rebelled against the program.
Outcomes: The MSO executive director resigned. Physicians expressed strong resistance to any compensation system tied to practice performance and the hospital re-evaluated its MSO.
Lessons Learned:
- Avoid planning and implementing change without physician, administration, and board support.
- Make sure physician leaders drive change - especially with regard to sensitive issues such as compensation.
- Allow management to take a back seat, supportive role in change management.
- Develop a quality practice infrastructure that ensures smooth scheduling, adequate staffing, and minimal clerical interruptions for physicians.
- Track physician satisfaction with MSO performance and take corrective actions.
A Top-Performing MSO
Situation: Baptist Health's Practice Plus, Little Rock, AR, is one of the country's better performing MSOs. The 1,171 -bed health system is located in a highly competitive market and had ignored its primary care base for years.
Intervention: System leadership developed an independently structured MSO to work toward the following abjectives:
- Recruit primary care physicians and manage their practices.
- Secure MSO management staff with practice management skills.
- Encourage physician leadership and participation.
- Build a culture that aligns physician and hospital needs and incentives.
- Design physician compensation systems based on practice performance.
- Focus on patient satisfaction through regular measurement and identification of areas for improvement.
- Design protocols related to implementation of preventive health recommendations related to immunization, mammography, and risk assessment.
Outcomes: Baptist Health's MSO now has 1,000 employees who are responsible for more than $200 million in MSO revenue annually. Physician losses have dropped to less than $5,000 per physician annually. Both employed and managed practices have experienced significant growth. Local physicians have come to view the MSO as providing the community with needed practice management and consulting expertise. And MSO leadership has helped senior system leadership work more effectively with physicians. "Both Baptist executives and board members credit our MSO with establishing a sustainable competitive advantage in the marketplace," says Russ Harrington. Baptist's President and CEO. "INstead of imposing its own concepts and physicians, the MSO asked physicians what they needed - both here and now and in the long-term. Moreover, the MSO used its practice management expertise to develop new health resources in underserved markets."
Lessons Learned:
- Use a straightforward, businesslike approach.
- Develop "Best Practice" operation systems.
- Deliver needed physician specialists and hospital services to medically underserved markets.
- Use physician leaders to better understand the real practice needs of physicians.
- Work with physicians in a way that helps both physicians and the hospital prosper.
- Focus on how the MSO can meet the needs of both managed and independent practices.
Another Top Performer
Situation: a 1,000 bed hospital resided in a Midwest market with a large, growing physician multispecialty group. Specialists worried that the group's dominance could erode their financial future. Hospital executives wondered if they could continue to support a 56 physician primary care group losing more that 56.7 million annually. Though physicians remained loyal to the MSO's weak executive director, the hospital's no-nonsense CEO sent a clear ultimatum: Get the MSO to approach financial breakeven within 24 hours, or the hospital will divest the MSO.
Intervention: Hospital executives facilated the MSO's turnaround by:
- Assigning a board member with turnaround experience to work with physicians and MSO staff.
- Empowering the physician chairman of the MSO board to lead the transformation.
- Replacing the existing MSO executive director with a more financially-oriented leader.
- Improving communication through weekly meetings with physician groups and at practice sites.
- Re-enginnering triage and other MSO processes.
- Transforming an RVU-based physician compensation system to one based on net income by practice site.
Outcomes: Financial performance improved dramatically. MSO losses declined from $6.5 million initially to $3.9 million by the end of year one and $2.3 million by the end of year three, with projections for a $1 million loss by the end of 2005.
Lessons Learned:
- Secure strong management and board support.
- Insist on rapid, disciplined MSO turnaround.
- Address abstacles to change early on.
- Insist that physician compensation be based on financial performance.
Don't Unwind, Re-engineer
Successful MSOs meet the needs of hospitals, MSOs meet the needs of hospitals, MSO and non-MSO physicians, and patients. They drive market share, curtail finanacial losses, achieve financial self-sufficiency, minimize physician complaints, and enhance physician satisfaction. IN addition, MSOs can help physicians generate more income than they could in private practice, while experiencing relief from the burdens of practice management and achieving am ore balanced lifestyle. Non-MSO physicians can benefit from new referral sources and the chance to generate higher incomes. Finally, MSOs can provide patients and consumers convenient, timely access to physicians with minimal telephone, registration, ar payment headaches. MSOs also help physicians broaden their focus from crisis-oriended, illness care to prevention, wellness, and personalized health management.
The key is not unwind or forsake MSOs, but to assess and re-engineer them so that they serve the healthcare organizations' business and clinical needs and increase market share. Properly designed and executed. MSOs help establish a sustainable competitive advantage and provide a vehicle for recruiting and retaining physicians.
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