MSO meet the hospital

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More than a few hospitals and health systems have abandoned or downsized their employed physician group management services organizations (MSOs) in recent years as ongoing financial losses and conflicts with physicians have taken their toll. But complete repudiation of the once wildly popular MSO strategy is probably unwarranted. In fact, research conducted by Health Directions in spring 2005 reveals that a properly configured and managed MSO can make a difference in short and long-term business and financial organizational performance.

What makes an MSO successful?

MSOs were evaluated based on four criteria:

Does the MSO meet the hospital’s or health system’s business needs? Is it financially self-sufficient? Does it help grow market share?

Does the MSO provide economic security and good practice management support to the physicians whose practices it manages?

Does the MSO develop and maintain channels that generate referrals to specialists who are not part of the MSO?

Does the MSO meet patient and consumer needs? Does it help practices focus on prevention and health management, as well as patient satisfaction and retention?

MSOs that scored highest on all four criteria tended to share the following characteristics:

Strong leadership, with business and clinical expertise.

Ongoing communication with MSO physicians and board members on issues such as increased market share, enhanced physician income, and reductions inpractice losses.

Physician compensation based on practice financial performance.

Management and innovation focused on practice profitability and growth.

Implementation of new and emerging clinical and information technologies.

Strategic alignment of hospital and physician incentives.

A review of positive and negative cases of MSO development and management offers additional insight into MSO success factors, as well as potential barriers and pitfalls.

A Poorly Performing MSO

Situation: An east coast health system incurred financial lossses of more than $100,000 annually on its managed practices due to high physician compensation rooted in management reluctance to tie physician pay to practice performance.

Intervention: To boost financial performance, the MSO’s executive director worked with physicians to create an incentive-based compensation program. This MSO moved from a salary-based program with easily achievable upside incentives and no ties to financial performance to a compensation system that xlosely aligned income with practice financial performance. However, the MSO made no effort to secure buy-in for the changes, so physicians rejected and rebelled against the program.

Outcomes: The MSO executive director resigned. Physicians expressed strong resistance to any compensation system tied to practice performance and the hospital re-evaluated its MSO.

Lessons Learned:

Avoid planning and implementing change without physician, administration, and board support.

Make sure physician leaders drive change – especially with regard to sensitive issues such as compensation.

Allow management to take a back seat, supportive role in change management.

Develop a quality practice infrastructure that ensures smooth scheduling, adequate staffing, and minimal clerical interruptions for physicians.