Challenging times

Integrating physician group operations can equal substantial operating losses.

By David Richard and Adam Shewmaker


PIB_ShewmakerLater this summer, Kentucky-based CPA and business advisory services firm Dean Dorton Allen Ford (Dean Dorton) will be releasing its updated findings as it relates to the challenges of successfully integrating phy s i c i a n group operations. In last year’s publication, a survey of nearly eighty hospitals was conducted to gain valuable insights into the challenge of integrating physician group operations.

Survey responses were solicited and received from 26 healthcare executives (CEOs and CFOs) representing 79 hospitals. Most of these hospitals are located in Kentucky. The report was created in response to a clear need – nearly every hospital and health system that the healthcare team interacted with was actively acquiring or seeking to acquire physician group practices, yet most of them were realizing substantial operating losses from those groups.

Integration of physician groups is the right answer for many hospitals. It allows them to achieve their strategic goals, to provide the appropriate levels of care for their communities and it ensures a consistency in the type of care provided. Thus, many hospitals are already heavily invested in it. But very few have achieved a sufficient level of integration to operate physician practices without sustaining significant financial losses. Downstream (hospital) contribution margin does not provide an overall return if it merely offsets physician practice losses.

Integration Challenges
The study details how hospitals are currently operating physician groups, where they are experiencing challenges, and what best practices might be uncovered to assist healthcare executives in identifying pathways to improving physician group operations.

Key findings included:
• 41 percent of all respondents reported that thei r average annua l loss for hospital-owned physician groups is greater than $100,000 per physician. An additional 29 percent had losses between $50,000 and $100,000; in total, 87 percent of respondents reported some level of loss.

• Losses on physician group opera-t ions are occurring at a l l sizes of hospitals. Reported losses were widespread regardless of whether they were large urban hospitals or small rural hospitals.

• The longer a hospital has employed physicians, the higher the likelihood that it is experiencing losses for those groups.

• The more physicians a hospital or system employs, the more likely operating losses become. It’s also true that the more physicians employed, the more likely it is that the hospital has added sub specialties that drive up costs that result in higher losses.

• The length of physician employment contracts does not appear to have an impact on whether the hospital-owned physician group is experiencing losses.

With the transformation of the healthcare delivery system, the study tackles issues such as population health management, coordination of care, value based payment models, data integration, and a further understanding of physician practice losses by specialty. The study also looked at the hospitals’ assessment of their downstream contribution margins from the hospital for the physician’s patients in addition to the physician practice losses. Plans for the development of a clinically integrated system along with the appropriate tools and controls for these networks were also investigated.

Successful integration takes time. Organizations must act now to prepare for the new reality, by identifying their unique issues, developing the right strategies to position themselves for a new environment, and finding the metrics to accurately measure progress.


The systems that are successfully integrating employed physicians are doing so by recognizing the three major development phases, each part of the same process.


David Richard is director of Assurance Services and Adam Shewmaker is associate director of Healthcare Consulting Services at
Dean Dorton Allen Ford.