Provider Development Planning: A Critical Tool During Economic Headwinds

According to Fitch Ratings, 2022 will go down as one of, if not the worst, operating income years ever.  Labor shortages, and the resulting cost increases are wreaking havoc on many of our Partners’ financial performance.  At the same time, rebounding volumes post-COVID are lagging cost increases and the performance in the financial markets has been generally poor.

3Dhealth recognizes that these are tough economic times for our Partners and we are responding in real time to help.  First, we are growing our subscription model, allowing Clients to develop a recruitment road map, while spreading their costs over 36 months.  Secondly, we are laser focused on the components within our Provider Development Plans that provide real economic relief.

From our perspective, Hospitals and Health Systems should focus on five key opportunities now:

1.      Grow Your Primary Care Patient Base

2.      Fill Obvious Holes in Your Specialty Base

3.      Eliminate Excess Capacity Within Your Employed Base

4.      Avoid Recruiting the Wrong Physician

5.      Prevent the Surprise Retirement

Grow Your Primary Care Patient Base

As a Hospital or Health System, there are at least three costs and business risks associated with not having enough primary care physicians.  On average, each primary care physician (Family Medicine & Internal Medicine) manages around 1,460 patients, accounts for 136 inpatient discharges per year and 1,065 Hospital outpatient encounters. Based on a Merritt Hawkins survey from 2019, each primary care physician generates $2.4 million in inpatient and outpatient net revenue within the Hospital.

A lack of primary care physicians is also an opportunity cost from a market share perspective.  Missing a single primary care physician represents a reduction of 1,460 patients from the Hospital or Health System.  A simple test that we often complete with our partners is to compare Hospital inpatient market share to primary care market share. If the Hospital inpatient market share is higher, the lower primary care market share is a real business risk.  We often ask “do you believe that at some point your Hospital market share will be a direct reflection of your primary care market share?”  If so, investing in primary care is a necessary cost of doing business.

Finally, living in a partially fee-for-service world, having enough primary care physicians to support existing specialists remains a concern and potential risk.  We have found that a large percentage of specialists still rely heavily on referrals from non-captive (outside the family) primary care physicians.  As competitors tighten their referral networks, specialists are exposed to the potential of not having enough patients.

Fill Obvious Holes in Your Specialty Base

Investing heavily in primary care requires also monitoring your specialty base for any obvious holes.  One missing specialist within a key service line can dramatically lower both inpatient and outpatient activity within the line:

Without filling the gaps in specialty care, the full investment in primary care is not realized.  According to Jackson Physician Search research, 40% of physician vacancies remain unfilled, leaving gaps in many hard-to-fill subspecialties.

Eliminate Excess Capacity Within Your Employed Base

Since the early 1990s, Hospitals and Health Systems have tried to increase employed physician productivity and reduce excess capacity, with varying luck.  As a practical matter, physician productivity can have a large impact on the number of patients a primary care physician can manage.

Primary care physicians practicing at the 75th percentile manage 27% more patients than someone practicing at median, and 65% more than those practicing at the 25th percentile.  On average, a physician practicing at the 75th percentile can manage 2,000 patients, compared to 1,022 at the 25th percentile.

Avoid Recruiting the Wrong Physician

Recruiting any physician tends to be an expensive undertaking, recruiting the wrong physician takes both an economic and reputational toll.  According to Merritt Hawkins, between the physician salary, benefits, candidate sourcing, recruitment costs, spouse interview, relocation and start-up marketing, recruiting a single Family Medicine physician costs around $342,000.

The quarterly Physician Flash Report by Kaufman Hall showed that the median subsidy, or loss, per employed physician increased by 14.1% from January to August of 2020 compared with the same period the previous year.  Overall, the median loss was $227,000 per physician across all specialties.  This investment is required on an ongoing basis.  Given the above, a physician leaving after a two-year contract would cost a Hospital or Health System $796,000. 

Additionally, physicians leaving after a short period of time results in both operational and messaging chaos – What do we do with the physician’s patients?  Staff?  How do we tell them their physician is leaving?  Have we done this to the patient before?  What is the best way to minimize the damage?

Prevent the Surprise Retirement

Unplanned physician retirements, particularly in key service lines, can decimate a Hospital or Health System budget.  According to Merritt Hawkins, a General Surgeon retiring can cost $2.7 million in lost revenue, $3.3 million for an Orthopedic Surgeon, $3.4 million for a Neurosurgeon and $3.5 million for an Invasive Cardiologist.

When analyzing the potential for retirement across a physician base, it is best to look at both a three-year and ten-year window and combine it with local knowledge.  People in general, and physicians in particular, do not typically enjoy engaging in conversation about planned retirement age.  The key is to not shy away from the conversations and engage physicians in helping find the next generation.

Conclusion

Investing in and maintaining a physician base is one of the most capital-intense activities for a Hospital or Health System.  Not having enough, or the wrong type of physician, can cost a Hospital or Health System thousands of patients, tens of millions in lost revenue and millions in real costs, which is one of the reasons that 3Dhealth exists!

For questions or comments please contact Shane Foreman at SForeman@3Dhealthinc.com or Ron Flower at RFlower@3Dhealthinc.com . 

Congratulations are in order for 3Dhealth’s Manager, Sarah Catrambone! She is the 2022 recipient of the inaugural 3Dhealth WOW Award. Sarah received this honor at our recent company retreat and was recognized for the many ways in which she has wowed not only our Partners & Clients, but also her fellow team members. She goes above and beyond, has grown by leaps and bounds, and always has a smile. Her impact at 3Dhealth is immeasurable. Congrats to Sarah for always wowing with excellence!

We are excited to announce the addition of Sully DeCramer to the 3Dhealth Research Associate team! Sully Received his Bachelor of Business Administration-Marketing from the University of Wisconsin-Milwaukee and currently lives in Waterbury, Connecticut. We are thrilled to have Sully on the front line of our market and consumer data efforts. 

Please join us in congratulating Sarah and welcoming Sully! 

Our Mission

Striving to be the partner of choice for Provider Development Planning, Medical Staff Development Planning and Community Needs Assessments.