Specialist Independence – Key Considerations

In today’s healthcare environment there is a lot of change and uncertainty, particularly for physician groups who are evaluating whether they can remain independent or should become employed by a hospital system or larger group practice. As payment reform becomes more prominent there are new opportunities for smaller, high-quality specialty practices to gain increased freedom over how they care for their patients while also earning significant new revenue through value-based contracts, particularly in bundled payment arrangements. Over the last few years we have seen independent specialists earn significant savings dollars in the CMS Bundled Payment for Care Improvement (BPCI) program, and this phenomenon is now starting to gain traction in the commercial payor market as well. In our experience, in the current environment, the benefits of remaining independent can often outweigh the risks.  Some of the benefits of remaining independent include:

  • Ownership of the Premium Dollar – In a bundled payment program the Episode Initiator, or “owner” of the bundle, controls all of the dollars related to the care they oversee. For example, oncologists earn about $3,000 during the course of a cancer episode, but they are managing a $40,000 event. In joint surgery the orthopedic surgeon earns about $1,300 from Medicare, but the surgeon is managing $30,000 of spending on average.
  • Access to Data – The owner of the dollars also controls the claims and clinical data. In our experience once focused specialists understand where the dollars are spent and the broad variation that exists across providers they can identify many areas and opportunities for process improvement and savings.
  • Clinical Control – Once specialists own the dollars and the data they have more control over how they care for their patients, where their patients get care, and have more freedom to partner with clinical partners based on quality, value, and clinical capabilities.
  • Innovation – Once these elements are in place they create the opportunity for specialists, the professionals who have the best understanding of the patient’s condition and needs, to develop the optimal way to enhance quality, improve the process, and reduce costs.  In our experience this innovation comes from high volume specialists who have a focused expertise in a particular area, such as joint replacement, lung cancer, CHF, etc. We affectionately refer to these folks as “Contrarian Outlier Specialists” who are passionate about improving the process for patients with their condition of expertise, even in the absence of financial reward.
  • New Revenue - In our experience working with these type of specialists in the BPCI program these benefits can lead to hundreds of thousands of dollars of annual new revenue for independent physician groups. The rules of BPCI, however, require that most of the program savings go to fund group overhead rather than physician compensation, which can create funds flow issues within larger groups.
  • Business Autonomy – In many cases the specialists who have managed to maintain independence up until now have done so because they enjoy being a principal in their business, which enables them to have more control over the governance of their group, as well as over key operational and strategic decisions, including provider compensation, bonus structure, payor contracting strategies, staffing, EMR system choices, productivity expectations, vacation policies, etc. Key questions to ask in an acquisition or merger situation include: How will key corporate policies be established? and Who will have majority control over those decisions?
  • Provider Partnerships & Joint Ventures – Remaining independent does not and should not preclude independent practices from entering into meaningful partnerships with hospital systems and other provider organizations. In our experience these partnerships can take the form of clinical and management joint ventures, gainsharing contracts, preferred provider agreements, and payor contracting collaborations. All of these options can improve clinical quality and collaboration, align incentives and help reduce costs without requiring long-term loss of practice freedom and control.

Some will say there are risks to remaining independent, but these risks are starting to diminish as the market shifts toward value and data-driven quality measures, and away from scale just for the sake of scale. In fact, the argument that healthcare consolidation improves quality and efficiency has been questioned by economic studies of healthcare mergers and pricing strategies. (See work published by the Massachusetts Health Policy Commission and the Robert Wood Johnson Foundation.)

Some of the concerns providers evaluate when considering to remain independent are discussed below:

  • EMR Integration – Unfortunately the promise of increased efficiency through better, more integrated information systems does not appear to be materializing. In fact, companies like athenahealth have moved toward less expensive, open environment strategies that facilitate data sharing across EMR systems and provider networks. CMS is also encouraging open IT network strategies. Either way, physicians will be taxed by the costs, time and complexity of implementing technology. If they’re independent they have more control of the process, costs, and key decisions.
  • Risk Management – As payors start to shift risk to providers through ACOs and bundled payment programs, there are new opportunities for providers to earn incremental revenue for taking on more accountability and risk for the quality and cost of the care they deliver. As this market matures there are increasing number of companies, including Archway, traditional health insurers, and reinsurance providers who are willing to mitigate the downside risk for physicians who enter into these contracts. Hospital systems also offer to insulate physicians from the risks of these programs, but they generally require physicians to make a number of compromises, including reduced upside opportunities, the inability to negotiate payor contracts outside of the network (exclusivity), sharing savings and absorbing losses with other providers not in their control, reduced transparency and more restricted data access, and limited influence over contract design, quality metrics and funds flow decisions.  

Choosing whether to remain independent or join a larger group or system is obviously a big decision in the evolution of a practice and in a physician’s career. While there has been a trend toward greater consolidation, it is important to evaluate your individual circumstances and balance popular trends against emerging opportunities created by payment reform and the push toward value-based contracting.

We’d love to hear your thoughts, feedback, and questions about this post.