If It Wasn't For Those Darn Physicians, We'd Make Money

Philip Betbeze, for HealthLeaders Media, February 16, 2009

That's the message I so often get from CFOs when we talk about the drivers of healthcare costs generally and within the organizations for which CFOs work. I'm not dropping any bombshells here, but docs just don't think like you do and they certainly aren't motivated by the same things.

To be sure, physicians and CFOs start out as adversaries almost by the very nature of their responsibilities. It's the CFO's job to map a strategic financial direction for their hospital, and whether you head the financial ship at a for-profit or, more likely, a nonprofit hospital or health system, that involves some measure of margin be earned. You try to subsidize your organization's flexibility and its ability to compete through debt, philanthropy, and other creative financial engineering, but it can all get shot to hell if operations doesn't come through with a profit. Many of you believe, with some justification, that doctors, in many cases, just aren't on board.

HealthLeaders Media's annual Industry Survey backs up that claim, at least from the CFO's point of view. Download the finance section of that survey and see for yourself. From the importance CFOs place on physician inefficiency as one of the top drivers of healthcare cost escalation, you'd think that CFOs and docs are regularly screaming at each other across a boardroom conference table. I'm skeptical that's going on in many places, but there's clearly a disconnect and a level of enmity between the groups.

All this happens as weaker revenues, slower growth in inpatient volumes, tight labor markets, and rising capital and operating costs combine with weak investment markets and the recession to accelerate the pressure on hospitals, according to Standard & Poor's, which has issued multiple reports lately detailing the storm hospitals are facing. Emerging challenges such as rising pension costs and state budget stress, with the related impact on Medicaid rates and eligibility, will make it even harder for the sector to stay healthy, according to S&P's latest report.

In the medical staff model that so many hospitals are saddled with these days, in which physicians in private practice have little if any incentive to align their actions with the financial health of the organization, that kind of attitude is not surprising. At their most elemental levels, physicians and those manning the finance suite can operate at cross purposes. Physicians want what they think is best for their patients—even when the perfect is the direct enemy of the good. For example, using a preferred brand of medical device for which the hospital gets no volume discount, even when a similar item would be just as good.

Looking out for patients' best interests is an admirable trait and, as a future patient, I wouldn't have it any other way. Finance types want great patient care, but they want it at a bargain. Somewhere between these two points of view, there has to be a happy medium for the organization to thrive.

Hospitals have made great strides in aligning strategies between physicians and the finance suite. There are a lot of great ideas out there, and in many cases, they're simple in concept. Making physicians—through "ist" programs—employees of the hospital, has decreased stress between financial types and physicians. Hospitalists, intensivists, and laborist programs, among others, have helped physicians align the hospital's financial goals with excellent patient care. Recognizing the value in these programs, hospitals have turned toward making physicians their direct employees in many cases where it's practical. New physicians these days seem to prefer that option anyway.

Even physicians who aren't interested in being employed are being brought into the financial picture early and often. For example, incorporating docs on committees that decide standard-of-care questions to help align the hospital's bargaining power with suppliers and other vendors is the very least hospitals should be doing at this point in time.

As with all things adversarial, fostering communication between warring factions goes a long way toward aligning interests where that alignment is possible. Using these and other creative solutions, I'm convinced that next year we'll see a decline in the share of finance folks who see physicians as the problem. As many of their high-performing brethren have already discovered, hospitals that survive this recession will utilize physicians as the solution to their cost conundrum.

Philip Betbeze is finance editor with HealthLeaders magazine. He can be reached at pbetbeze@healthleadersmedia.com.
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