Integrate financial and clinical decision making to achieve alignment

Many physicians believe that they play no significant role in hospital finances. After all, isn’t the medical staff’s job to practice evidence-based medicine and management’s job to count the beans? The truth is that the medical staff should support management’s efforts to achieve financial targets and optimize the hospital’s reimbursement. In doing so, they ultimately, serve their own self-interests.

The way Medicare reimburses physicians versus the way it reimburses hospitals makes it harder than ever for hospitals and physicians to financially align. On one hand, Medicare reimburses hospitals based on Medicare severity-adjusted DRGs (MS-DRGs) that are founded on admission, not discharge, diagnoses. This payment system motivates hospitals to reduce length of stay and minimize the number of clinical resources they use to treat patients by implementing system efficiencies. 

On the other hand, Medicare pays physicians retrospectively on a fee-for-service (FFS) basis using current procedural terminology (CPT) codes. Physicians are paid based on the discharge diagnosis and are rewarded for extending patients’ length of stay and using more clinical resources.

Given these overwhelming hurdles, how can physicians and hospitals work together toward mutual success to support better outcomes, greater efficiencies, and greater value? The following initiatives will help the medical staff, senior management, and the board engage in a more collaborative relationship:

Learn financial basics. Too often medical staff leaders and board members are not financially savvy enough to interpret financial statements. They often leave this task for hospital management to tackle. However, when physician leaders fail to understand the financial implications of clinical decision making, it is impossible to help the hospital reach its goals.

Review financial statements at MEC meetings. Although the organized medical staff is not directly responsible for overseeing and sustaining the financial assets of the organization, everything it does—from bringing on a new physician or developing a new service line—affects the bottom line. By translating complex financial information into easy-to-understand dashboards and scorecards, hospital management will help the medical staff leaders and board members understand the impact of their decisions.

Bring all non-financial, contractual issues to the MEC for input. The medical staff and hospital management can align quality with costs by discussing the affect that contractual relationships (e.g., joint ventures, exclusive contracts, service line development, etc.) have on the quality of clinical care. For example, hospital management routinely creates productivity incentives for employed physicians based on relative value units (RVUs), but these incentives do not include specific quality metrics, medical leadership, co-management relationships, or call issues. By aligning quality incentives with financial performance, hospital administration can more closely link hospital and medical staff goals. 

Reduce length of stay. At a recent national program, a hospital’s chief financial officer estimated that his 100+ bed hospital would earn an additional $2.5 million per year if physicians reduced the average length of stay by a single day. Imagine the hospital could do with that much additional operating margin every year. 

Understand the clinical implications of financial decisions. I recently visited an organization where administration made the unilateral decision to cut ED staffing after two low-volume months. A month later, the volume resumed to its previous level, leaving the department understaffed. The number of patient complaints skyrocketed, referrals to other hospitals increased, and morale suffered. Had management consulted with the medical staff before making this decision, the two parties could have decided on a better solution.

Understand the financial implications of clinical decisions. When physicians order multiple CT scans for fear of liability, or an orthopedist uses an $8,000 implant instead of a $5,000 one, they are negatively affecting the hospital’s bottom line. Management should share with the medical staff financial spreadsheets that illustrate how these seemingly isolated clinical decisions affect hospital finances.

Avoid jargon. Just as physicians must translate clinical jargon for patients, management should simplify financial analyses so that everyone at the table can participate in meaningful discussions.

Invite the medical staff to participate on the governing board. By inviting medical staff members to formally and informally participate in governing board activities, board members will gain greater exposure to clinical issues. In addition, physicians will more fully understand the financial issues the organization faces. Physicians may then better communicate this new level of understanding to colleagues and peers.

Invite medical staff leaders to collaborate with the senior management team. The average physician is not exposed to the operational challenges that exist in a multidisciplinary setting. Senior management should allow physician leaders to participate in decision-making discussions to facilitate mutually beneficial solutions. For example, when discussing whether to launch a hospitalist program, managers can demonstrate how a subsidized service would affect the hospital’s bottom line, and physicians can help management understand the not-so-obvious clinical and political implications.

Create a strategic medical staff development plan. A well-designed strategic medical staff development plan allows the medical staff to collaborate with the management team and governing board. In the past, the medical staff created a development plan after conducting a community demographic analysis to determine how many physicians it needed in each specialty. Today, given physician’s varying practice preferences (i.e., inpatient v. outpatient, part time v. full time, call v. no call, etc.), it is more important than ever for leaders to consider the financial and strategic implications of recruitment and retention decisions.

Jonathan H.  Burroughs, MD, MBA, CMSL, is a senior consultant with The Greeley Company, a division of HCPro, Inc. in Marblehead, MA.