Divesting losers: chipping away at integrated delivery systems.

Integrated health systems are rapidly divesting earlier acquisitions to beef up their bottom lines. Take an in-depth look at what the future may hold as the health systems battle to reorganize and reap greater profits.

Improving IDS performance through group practice expense management.

IDSs can turn around an owned group practice's poor financial performance by taking steps to more effectively manage the practice's expenses. The primary areas on which an IDS should focus its expense-management efforts are physician compensation, nonprovider staffing, and facility planning. The physician compensation system, for example, should include incentives for physicians to improve performance and increase productivity, and the size of the nonprovider staff should be adjusted according to patient volumes. Other areas in which changes in strategy may be required include information system investments; budgeting, accounts-payable, and purchasing processes; and corporate allocations of practice revenues to recover practice acquisition costs.

How to divest acquired physician practices.

When an integrated delivery system (IDS) determines it must divest itself of a previously acquired physician practice, it must manage the transaction with care. The IDS most likely will want to maintain a positive ongoing relationship with the physician practice, while avoiding concessions to the practice that could be construed as violations of state and Federal laws. Before proceeding, the IDS should evaluate the reasons for divesting the practice, assess legal issues involved in terminating contracts with the practice, decide how to deal with the practice's assets and office facilities, consider whether covenants not to compete should be enforced, ensure continued access to essential medical records, consider whether to incorporate a "non-disparagement" clause in the termination agreement, and determine what mutual general releases may be necessary.

What are IDSs doing about poorly performing physician networks?

A national survey of 105 healthcare organizations conducted by Longshore & Simmons found that most IDSs' networks of acquired physician practices are losing money. The survey examined a variety of issues related to management and structure of IDS physician networks and physician compensation. In addition to finding that most networks were unprofitable, the survey found that for 75 percent of respondents, capitation revenue represented 25 percent or less of total revenue. The survey also disclosed there was no single, preferred method for allocating capitation revenue among physicians; 43 percent of physician networks were organized as hospital departments, cost centers, or divisions; and only 21 percent of respondents were using relative value units as a means to measure physician productivity, despite the proven effectiveness of this approach.