Measuring Up: Physicians Practices Put at Financial Risk for Performance


Learn how physician practices can better understand, negotiate, report, & monitor their performance metrics to reduce financial risk & improve hospital relations

The inclusion of operational and quality performance metrics in physician practice-hospital service agreements has become increasingly commonplace as hospitals push to quantify key aspects of the care process.

But while hospitals traditionally have framed metrics as a tool to support broad mutual objectives and a collaborative environment, a growing number of organizations are imposing highly specific operational and quality thresholds that trigger significant financial penalties if unmet by the practice.

Performance measurement and associated penalties also are being extended beyond the group itself to include the practice medical director. Finally, hospitals are using group performance as a tool to differentiate between competing organizations, with under-performing practices at risk of being replaced by those with comparatively higher scores.

Given these trends, physician groups must up their game when it comes to understanding, negotiating, reporting, and monitoring the various performance metrics that relate to their specialty. Because the financial and nonfinancial consequences can be significant, it is critical that groups pay close attention to both the metrics and reporting processes proposed by the hospital and be ready to push back against any unreasonable expectations.

Three Kinds of Metrics

Performance metrics for hospital-based physician groups typically fall into three categories:

  • Specialty-specific quality and performance metrics linked to the Centers for Medicare and Medicaid Services (CMS) Merit-based Incentive Payment System (MIPS) program
  • Patient experience scores and measures
  • Hospital-developed quality and/or operational and efficiency measures designed to address internal priorities or pain points.

Medical Director Fees at Risk

In recent months, Change Healthcare consultants have witnessed an increase in the prevalence of contracts that put a group’s medical director stipend at financial risk against a host of performance metrics. For example, a large emergency department in the East recently was asked by their hospital system to put 25% of their total medical director fees at risk based on six performance metrics. With assistance from Change Healthcare advisors, the group ultimately convinced the health system not only to eliminate the potentially onerous downside financial penalty, but also to include only potential financial upside in the agreement. Notably, the hospital also accepted the practice’s threshold recommendations for these metrics.

Characteristics of Metrics

Ideally, performance metrics should be as objective as possible and exclude more subjective measures, such as medical staff satisfaction surveys. Practices should also make certain that the proposed performance thresholds are not only attainable, but realistic and based on variables that are within the control of the practice. Groups additionally must be cognizant of benchmarks or peer comparisons proposed by the hospital that that may be inappropriate for the practice. For example, an emergency department that has 50,000 patient visits annually is not going to have the same throughput as one that sees 10,000 visits.

Ensuring Accurate Data and Reconciliation

The group’s agreement with the hospital or health system should contain provisions to help safeguard the accuracy of the data collected by the hospital. In many instances, performance variables are measured by abstracts or reports pulled from the electronic health record (EHR). The process and timing for pulling these reports should be jointly agreed upon. Also, because many throughput metrics reflect time-driven performance, it is important to define exactly what the start and stop triggers will be for a specific measure. Finally, as part of this process, groups and hospitals should establish a process for comparing and validating their respective data pulls.

Performance and Potential Growth

Groups that meet or exceed the various thresholds associated with each performance metric can not only help ensure that at-risk monies are protected, but also can potentially earn a bonus payment if the highest performance thresholds are met. Optimal performance can also create an advantage to groups bidding on a new service location. Change Healthcare recently assisted an emergency medicine group with a response to a request for proposal (RFP) from the group’s hospital system. Because the practice had superior results compared to their competitors within the same hospital system, those results were highlighted in the practice’s RFP response.

Another clear benefit stemming from high performance against quality and operational metrics is that it can help ensure the practice will maintain its agreement with its hospital or health system. Groups that either resist the adoption of performance metrics or perform poorly on them often end up seeing their department put out to bid. And when the situation reaches that point, the odds of retaining your contract are low.

Group Policy

The financial and operational importance of performing optimally against various metrics highlights the necessity of proactively establishing a group policy to address situations wherein a group member or members cause the group to fall short of performance thresholds. The absence of a pre-established policy can produce physician dissension, major disruptions in the group’s financial stability, and potential legal action (imagine a group that terminates a physician based on poor metric performance but does so without a clear policy to justify the termination).

Key features of this type of policy could include, but are not limited to, whether the performance can be verified, the cause of the performance shortfall and whether it avoidable. Other considerations should focus on whether the same physician or physicians causing the performance metric to be missed should be financially penalized in an amount equivalent to the performance incentive reduction or a portion thereof. Also, the policy should define whether a member or members can be terminated for continually causing the group to miss certain performance indicators and/or putting the group’s service agreement at risk.

No Going Back

The growing prevalence of performance measures reflects an inevitable and irreversible transition toward ever-greater accountability at each point along the care continuum. That means at-risk agreements will likely only increase going forward. Groups therefore may need to find capable partners that can assist in contracting and help streamline and execute the reporting process.

Most importantly, practices should avoid adopting an adversarial stance toward the hospital in connection with performance metrics. Assuming they’re appropriately designed and applied, metrics provide physicians with an unmatched opportunity to demonstrate value, generate additional revenue and solidify their relationship with one of their most important customers, the hospital.

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