Hospital Management

Integrated delivery systems

Determining the right IDS model requires assessing the motivation of the physicians and hospital considering partnering in an IDS.  Failures will occur if motivations / incentives are not aligned and expectations / accountabilities are not formalized.


Successful IDS models can physicians and hospitals the opportunity to partner together to impact the quality, availability and cost of healthcare in their community.

There are several IDS models, three are summarized here:

Direct Employment: Physicians are employed by a hospital and assigned their professional fees to that hospital.  Compensation must be fair market value and may include incentive compensation models. 

Foundation Model: Tends to be an appealing model where physicians desire to retain more independence and autonomy than they perceive would be available in a Direct Employment model.

MSO Model: MSO may be either an independent entity or a subsidiary of the hospital.  Physicians can purchase services and lease assets from the MSO with the goal being lower overhead due to achieving economies of scale.

There are several operational, financial and legal pros and cons to these models:
            Direct Employment
·         Compensation and benefits directly from hospital
·         Professional fees assigned to hospital
·         Potential for Provider Based Billing
·         Compensation must be fair market value, can include incentive programs
·         Physicians may only receive compensation associated with professional services provided directly by that provider
·         Physician leadership and management skills development essential

Foundation Model
·         Foundation owns the revenue and clinics
·         Foundation is typically not-for-profit, achieving tax-exempt status ties to several requirements
o   Limit physician representation on the board to no more than 20%
o   Tied to whether the Foundation and hospital provide a “system of care”
·         Physicians typically serve on management committees Compensation
·         Physicians enter into a PSA agreement to provide professional services at the Foundation clinic sites
·         Often the preferred model when physicians desire to remain more independent than they may be as hospital employees
·         Physician organization responsible for developing their own compensation and benefit structure
·         Foundation pays a rate to the Physician Organization for professional services ($/wRVU)
·         Goals of the Physician Group may not always align with the goals of the Foundation

MSO Model
·         MSO may provide management and administrative services to a closed or open physician population
·         MSO may acquire asset from physicians joining the MSO and lease the use of these assets back to the physicians
·         Goal is to achieve economies of scale for physicians purchasing services/assets
·         Professional fees are retained by the physicians
·         If MSO is not hospital owned – Physicians may provide ancillary services and retain the associated fees

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Direct Employment in Hospital Management

At first glance Direct Employment can appear to result in a $50,000 – $100,000 loss per provider. It is important to consider the downstream effect of Direct Employment. Estimates are that for every dollar of revenue generated in a physician practice between $6.40 and $10.32 is billed elsewhere in the healthcare system.

Do not overlook the need to develop a strong Physician Leadership structure. May physicians will be attracted to this model as they believe it will allow them to defer all non-clinical decisions to the hospital. Employing large numbers of physicians who lack interest in the non-clinical elements of healthcare will result in physicians who are not vested in the success of the practice/clinic. Physicians must be partners in the process. The hospital must provide opportunity for leadership, management skills training and mentoring with skilled administrative team partners.

A sense of autonomy and control are the biggest barriers to physician interest in this model. A well structure Physician Leadership will contribute to the employed physicians gaining a sense of autonomy and control as they partner with the hospital to provide professional services in a model they participated in building, maintaining and growing.

Aligning financial incentives is also important in this model. Well developed incentive plans will reward the physicians for hard work and reinforce key initiatives of the hospital.

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Foundation Model in Hospital Management

The Foundation Model can be an appealing approach for physicians who perceive direct employment would result in loss of independence and autonomy.

There are added legal implications to this model which cannot be overlooked and tend to make this model more cumbersome to execute and maintain.
The Foundation owns the clinics, the revenue stream and the insurance contracts. The physician group may find the lack of control over the revenue stream and insurance contract to be a dis-incentive to pursuing this model.

The physician group contracting to provide professional services to the Foundation clinics is responsible for developing and managing their own compensation model. Since the physician group has a separate management infrastructure than the Foundation under this model there is the inherent risk that the goals of the physician group and the goals of the Foundation may shift out of alignment. If this occurs the relationship between the physician group and the Foundation may be at risk. The two parties would need to work hard to maintain alignment in order for this model to succeed.

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MSO Model

MSOs may be independent organizations or may be owned by the hospital. MSO wholly owned by a hospital will still be faced with Stark regulations and may also find it harder to attract physicians to purchase services as it may be perceived that by doing to the physician is showing preference to that hospital.

The success of an MSO is contingent upon achieving economies of scale and maintaining management team that holds the skill set necessary to manage professional service operations. Much of the literature indicates that a target physician customer base of at least 100 providers in necessary to begin seeing the economies of scale desired in this model. An efficiently run MSO provides physicians the opportunity to purchase services and potentially lease asset at a rate lower than providing those services or owning those assets independently.

A well run MSO will be appealing to physicians as it allows them to maintain autonomy, retain their professional fees, render ancillary services, retain the ancillary fees, and purchase management expertise that they may not otherwise be able to afford.

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