By Marc Halley, MBA
In the search for a sustainable competitive advantage, the trend for hospitals to acquire physician practices is once again gaining national momentum. Health systems and hospitals that do not want to repeat the problems of the past two decades should remember a simple equation—Primary Care = Market Share.
The key to increased hospital admissions lies in capturing and retaining market share in primary care practices, then attracting that market share in the form of referrals and admissions. In competitive markets, healthcare systems must make sure the right primary care physicians are in the right locations to capture patients, affiliated specialists are actively connecting with those primary care providers and relationships between the physicians and hospital businesses are properly managed.
Healthcare organizations that learn to successfully integrate primary care physicians, specialists, hospitals and related services will achieve a sustainable position, even in the most competitive market.
In 2008, there are a number of market factors influencing the competitive dynamics in most markets which affect how hospitals and health systems interact – and integrate – with primary care physicians.
Hospitals continue to see a decline in many types of inpatient services, as technology is allowing for a shift to outpatient and ambulatory care. As time goes on, inpatient beds will be increasingly filled with Medicare/Medicaid patients as the baby boomer population ages. This puts increased emphasis on integration because hospitals no longer are the only place where care can be provided. So there is increased need to integrate or market share will erode.
Secondly, primary care physicians are looking for additional ways to enhance their income by increasing the number of procedures they do in the office setting. Some are even using conscious sedation in well-equipped procedure rooms. Others employ mid-level assistants to perform some procedures as part of the primary care team. Healthcare executives need to recognize this trend as they interact with primary care physicians.
The hospitalist model is a growing trend as well. It has become the standard in many urban, suburban and even rural settings. In many cases, this has changed how often a primary care physician visits a hospital, since they often no longer have to do medical rounds. In addition, primary care physicians can make more money and achieve better work/life balance if they stay in the office. Because the opportunities for hospital administrators to interact with physicians is reduced, it is critical for hospital leadership to find ways to continue to build relationships with their primary care physicians and keep them engaged with the hospital.
The pay-for-performance model is another medical practice model to consider. It continues to gain momentum, particularly as CMS jumps on board. Pay for performance also is playing an increasing role as an incentive related to quality standards.
Legal and regulatory issues significantly impact physician/hospital and physician/vendor relationships. Closer integration between physician and hospital reduces the potential risk. A strong employment model alleviates many of these concerns.
Additionally, reimbursement from Medicare and all commercial payers continues to decrease, or is increasing by only one percent a year. As a result, independent physicians are seeing profit margins shrink, which in turn motivates them to be part of a hospital which offers greater financial security.
Both hospitals and physicians are recognizing that integration can be in best interest of both parties, ultimately enhancing the continuity of care for the patient.
The key to establishing a sustainable integration strategy for hospitals and physician practices is to follow the market share. Primary care physicians capture and retain 2,000 to 5,000 patients who are largely dependent on their trusted doctor for referrals to specialists and hospitals. Capturing the health care customer in primary care practices and retaining that customer through referrals to affiliated specialists, ancillary services and for hospital care is critical to the success of all the stakeholders – not to mention the potential continuity of care for the patient.
If a hospital can control a reasonable portion of its market share through ownership or affiliation with adequate numbers of primary care practices, the institution and its employed or affiliated specialists can be assured a seat at the competitive table. Limited services providers may rage, competitors may invade, reimbursement may continue to decline, but the hospital that controls market share through a strategic integration of primary care physician practices will remain and succeed.
About the Author:
Marc Halley is president and CEO of The Halley Consulting Group in Columbus, Ohio. He has provided practice management and consulting services to medical practices for more than 20 years. He is also the author of The Primary Care – Market Share Connection: How Hospitals Achieve Competitive Advantage and The Medical Practice Start-Up Guide.