Five ways to overcome common PHO mistakes
Five ways to overcome common PHO mistakes
Do you ever feel like you are navigating a minefield — both financially and logistically? Running a successful physician-hospital organization (PHO) often can seem that way. The potential blowups are daunting. The key is to walk the path around the danger areas. The following is a list of missteps commonly made by PHOs, along with tips to help network leaders stay on a safe path through the minefield of physician-hospital managed care.While any one of these mistakes may not be enough to fatally incapacitate a PHO, take enough shrapnel hits and cumulatively they will do in just about any organization.
Why form a PHO?
Too often PHO development falls victim to the keeping-up-with-the-Jones’ syndrome, says Doug Chaet, MBA, president and chief executive officer of Lenox Hill PHO in New York City, and president of the American Association of Physician-Hospital Organizations in Glen Allen, VA."You have to make sure you are doing it for the right reasons," Chaet says. "One of the mistakes that many make is that hospital A starts a PHO and then hospital B says, I think we should do one because hospital A is doing one. That’s the wrong reason to start a PHO."
Instead, the decision to start a PHO should be made on market conditions, most notably the degree of managed care penetration and also after an honest analysis of relationships between the hospital and the physicians. "The hospital and the physicians have to have at least a reasonable degree of trust in one another," he adds.
Another pivotal factor is a clearly defined long-term strategy. Many are formed to practice managed care and consolidate resources. While this is fine, the big questions should be: Is full-fledged integration in the cards someday for the hospital and the physicians? Most PHOs, at least the successful ones, are used as stepping stones to such fully integrated network formation, Chaet says.
The following are five methods for avoiding PHO mistakes:
• Put market reality before politics.
Leading a PHO often means making deci-sions that are unpopular with some members, particularly physicians, but are necessary to achieve or maintain a strong position in a given market.
This means not backing down when you know specific actions are needed, even when the actions are hard for some to swallow.
The assumption of risk is an excellent example. "You commonly hear physicians say We don’t want to take risk. We are averse to risk. We are doing just fine without it,’" Chaet says. "That may be true in the short-term, but you need to make them understand that if you are in a market that is going to risk contracting, they better learn how to manage risk, or they are going to be left out in the cold."
Another example is the addition of primary care physician groups to a hospital staff. This is a common concern for many hospitals, in case another hospital comes along and snatches up the group. "Inevitably there’s a voice that says such a purchase might be threatening to the medical staff because someone thinks the hospital wants to go out and buy everybody’s practices and control them," Chaet says. "Really all you’re trying to do is secure primary care physicians from going to another hospital that is in a purchasing mode. You can’t let stuff like this get in the way. Do what the market dictates, even if it is unpopular at first."
• Taking on administrative duties.
Many PHOs are overwhelmed by the amount of administrative duties that come with running a successful PHO, says James R. Price, MBA, manager, KPMG Peat Marwick consulting firm in Atlanta.
"One mistake you don’t want to make is to underestimate the amount of staff needed to do this work," says Price, a former PHO executive director. "A lot of core competencies are needed in order to be successful."
These include, says Price, being adept at managed care contracting, finance, actuarial skills (or knowing where to contract for them), information systems, provider relations, database management, credentialing, medical management, claims payment and adjudication, and practice management.
"If you can’t do these things, your PHO may not last," Price says.
What happens all too often is that young PHOs are penny-wise and pound-foolish when it comes to staffing. "You are not going to accomplish much with one underpaid executive director and a secretary stuffed in a broom closet," Chaet says. "If you are going to do it, do it right. If you can’t afford to do it right, don’t do it at all."
Chaet recommends an initial capitalization, in an average market of about $3 million. This is needed to cover adequate staffing and information infrastructure for about three years, at which time the PHO had better be able to fend for itself and turn a profit.
It’s also important to position the PHO in a way that commands respect. Employers and other payers want to contract with rock-solid organizations.
Understaffed and underfinanced PHOs are also at risk of losing their physician base to other entities. "When you don’t produce results, the physicians are less apt to have a whole lot of faith in going forward," Chaet warns. "All of a sudden, a physician management company comes in with big chunks of capital, expensive staff, and expensive information systems, and all of a sudden, that looks a whole lot sexier to physicians than the home-grown version. That’s a common way for health systems to lose their doctors."
• Overcome self-interests.
Occasionally, there will be PHO board members who vote and make decisions based on their own economic self-interests. "In my judgment, this is a mistake," Chaet says. The good of one or two people or subset of people should never come before the good of the entire organization. When this does happen, the best PHO leadership can do is raise this point with the board and hope it doesn’t happen on a regular basis.
• Repeat communications.
"It’s impossible to overeducate or overcommunicate with the physician members," Chaet stresses, adding that he’s found that the same message has to be repeated several times before it is absorbed and embraced by those who were meant to hear it.
"Some think it is insulting to repeat information, but it is not," he adds. "People don’t always read everything they get. You need that repetition in order for the important things to really sink in."
• Let physicians drive the system.
As much as this concept is preached, some PHOs still don’t get it — let alone practice it. "Some hospitals still have the attitude of, Hey, we’re putting up most of the money, if not all of it, and therefore, we should have the most say in how it is run,’" Chaet says. "Of all the successful PHOs that I’m aware of, the primary care physicians are empowered, even though in almost all of the cases, they represent a minority of all physicians participating in the PHO." At Lenox Hill PHO, 14 of the 18 board seats are occupied by physicians, and of those 14, the majority are held by primary care physicians.
"The reason for this is simple," Chaet says. "You have to have primary care physician buy-in, and they have to take an active role. They are the first line of care, and therefore, they drive the process."
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