Survey: Physicians work harder for money

Productivity growth outpaces pay hike

Physician productivity is increasing faster than related compensation, while physician practices aligned with integrated delivery systems are starting to cut their historical losses, according to the 1998 Physicians’ Benchmarking Survey, published by Ernst & Young in Washington, DC.

"Continuing focus on productivity is paying off for integrated physician networks, while holding the line on compensation is helping improve the bottom line," says James Rodeghero, PhD, director of physician compensation at Ernst & Young. The study predicts that as the bottom line improves, physicians can expect to see their pay rise.

For instance, during 1997-98, gross professional physician charges increased an average of 16% for primary care specialists; 4% for surgeons; 8% for medical specialists; and 6% for procedural specialists.

In contrast, incomes during the same period only increased 6% for primary care physicians; 3% for surgeons; and 1% for medical specialists. Procedural specialists saw their income jump 7%, which was slightly higher than their recorded rise in charges, found Ernst & Young.

Consolidation, while still a defining characteristic in health care, has slowed somewhat, the study finds. Depressed market valuations, public perception, and physician wariness all have adversely affected efforts to consolidate physician practices. On the whole, large-scale integration (i.e., hospitals, physician networks, and financing) no longer plays a leading role.

Managed care organizations (MCOs) have moved from simply buying physician practices to alternatives such as developing affiliations, contractual relationships, and physician gain-sharing programs. Moreover, MCOs now seek to shift risk to hospitals and physicians. As a result of the partial integration, specialty organizations were developed to service provider networks (e.g., billing services). Similarly, subspecialty providers groups flourished.

Some of the first hospital-based primary care network integration models have improved operations and financial performance. The 1997 Ernst & Young survey showed 76% of integrated delivery systems (IDSs) reporting losses, with physician practices averaging $93,600 in losses per physician. This year, only 59% reported losses, averaging $86,915 in losses per physician. Among the current concerns for IDSs are alignment of physician compensation with performance and investment in infrastructure.

Ernst & Young predicts that improvements in primary care networks, in addition to the emergence of subspecialty providers, may be indicative of a new care model for integration. New challenges in health care delivery, for both consolidation and integration models, exist in the allocation of risk and the use of information technology. According to Ernst & Young, successful delivery systems will be able to tackle these challenges.

Direct contracting represents one manifestation of changes in the allocation of risk. With the advent of the Medicare+Choice program, newly developed provider-sponsored organizations (PSOs) will serve as a study of providers in direct contracting. PSO partners hope to leverage the experience gained with Medicare risk contracting to advance into the commercial market. Consumers fueled by dissatisfaction with current insurer-run programs should assist the PSOs with the transition.

New sampling trends

Technology also can help both MCOs and PSOs gain share in the consumer market, the report states. As the market becomes flooded with overlapping networks, consumers will have access to most providers regardless of whether they participate in a given health plan.

Internet services (though not fully utilized in the past) that provide information on provider quality will help educate consumers and enable them to distinguish between plans. This, in turn, will help providers and MCOs to maintain a high level of quality and service. Using technology to provide better patient service (e.g., through ease of referrals) also will increase satisfaction in the consumer market.

According to the Ernst & Young survey, the branding’ that comes with better delivery efficiency and user sophistication quickly becomes a competitive advantage in the marketplace.

The expansion of Internet technology will enable networks to create efficient delivery systems, the report says. Physicians, hospitals, and payers will be able to share data and create comprehensive patient records; streamlining operations to benefit both the delivery system and the patient. Also, the groups can share internal data regarding pharmaceutical resources and utilization details. Again, mastering technology will help physicians and provider organizations excel.

Premiums have increased in recent years, causing more money to flow to MCOs and HMOs. Ernst & Young’s report says physicians will push hard to allot these funds to the direct care delivery point. Predictably, patients also will seek to increase funding for direct care. Since the increase in funding is bound with physicians’ personal income, they must take care to avoid the obvious impression that their desire for additional funds is based on a desire to fatten their purses, stress Ernst & Young consultants.

According to the survey, this dilemma will "test the physicians’ ability to speak coherently and singularly about quality medical management and not slip into self-serving demands for income increases." Moreover, for the first time in several years, physicians in fee-for-service practices earned more than those in managed care. As a result, physicians will likely lobby for a greater share of premium dollars in the future.

Physician payments have undergone changes recently as IDSs attempt to align incentives between hospitals and physicians, the report says. Past payment incentive models experienced problems due to HCFA regulations including self-referral prohibitions under fraud-and-abuse or Stark laws.

These new models should help align financial incentives to help build a stronger community presence and protect market share. The programs, however, still will face scrutiny from regulators as well as patients who question whether the real purpose of the incentives is to reduce costs by limiting care. To survive, programs must establish impeccable clinical quality outcomes as well as demonstrate community benefits, says Rodeghero.

For physicians to succeed in the new environment, they must evolve beyond their current roles and develop leadership skills. Physicians need to move from practitioner to business leader and recognize the basic management skills such a position requires. Perhaps the greatest key to success is displaying an eagerness to explore new ideas. As the Ernst & Young study notes, "willingness to take early action and to move in new directions will continue to be the most important success competency in facing healthcare’s new challenges."