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From the Consultant’s Corner 9/17/15

September 17, 2015 News 1 Comment

Downstream Revenue: Evaluating the Financial Return of Clinical Alignment Tactics

Hospital-based medical practices have increasingly become a major component of a health system’s clinical integration strategy. Over the past 30 years, many employed physicians have not viewed hospital-based practice models in a positive light. Governance, organizational structure, and leadership in the typical hospital operational model remain foreign to many physicians coming from private practice. These physicians have struggled with the perceived bureaucracy of hospital systems, and often become frustrated and disillusioned with the relationship.

Hospitals have also struggled to justify ongoing financial support of these physician practices, which on their own frequently operate at a loss. The physician-hospital relationship has historically been one of mutual distrust and perceived competing interests. Developing an employment relationship with physicians without a foundation of trust and a clear understanding of the role and objectives of each party typically results in strained relationships and constant conflict over operations and finances.

The investment in any hospital-employed or -affiliated group is significant. Without an accounting of the impact the group has on the downstream revenues brought into the health system, the parent organization naturally exerts pressures to reduce medical group expenses and losses. Analysis of downstream revenues is much broader than reviewing an individual practice or physician P&L. This would include referrals to specialists within the health system, ancillary services such as lab and radiology, and inpatient admissions. Development of the methodology to quantify the downstream impact of the practice’s physicians has been a historic challenge for every group and parent organization. To effectively and efficiently monitor downstream revenues, organizations often utilize business intelligence tools to evaluate the revenues, expenses, and contribution margin of the health system’s broader ambulatory (i.e., specialists) and hospital service lines.

Ultimately, technology in combination with a strong commitment from executive leadership drives downstream revenue within healthcare organizations. Ongoing analysis of this revenue is critical to both the enterprise and its affiliated physicians. Just as organizations want to understand the value practices bring, providers likewise want to understand their overall contribution to the organization – for business reasons and for personal satisfaction.

Accurate analysis allows healthcare organizations to grow through acquisition and alignment, with the confidence to make informed decisions based on a complete understanding of return on investment. They can build their brands within their communities and grow the number of patients under their care.

Health systems, hospitals, and academic medical centers can no longer afford to write blank checks to acquire practices. To achieve success in a value-based world, they must dedicate the resources – including experienced leadership and technology – to measure and drive downstream revenue.


Brad Boyd is vice president of sales and marketing for Culbert Healthcare Solutions.


JenniferMr. H, Lorre, Dr. Jayne, Dr. Gregg, Lt. Dan

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Comments 1
  • Brad–
    While agreeing wholeheartedly with the idea of understanding downstream events in health care, particularly for PCPs, I want to pick a bit on the idea of physician practices “losing money” at hospitals.

    Two words: “assigned overhead.” Hospitals have significant overhead costs that are assigned by accounting, which wouldn’t be part of the business if the physician group were a reasonably well-run independent practice. Unfortunately, middle managers coming in to try to make the P and L look better are both cause and result of this practice.

    This comment is not meant to defend the operational habits of cottage industry small practices that really weren’t run as businesses, or to enable idiosyncratic, unmanageable doctor behaviors. Those exist, for sure.

    Rather, I want to resist the framing of physician practice as an inherently unsuccessful endeavor, which survives by the grace of the hospital, “saved” by understanding the value physicians create within a hospital system. Indeed, when the payment system flips to population-based payment, let’s see whether hospital systems or independent pcp groups choosing where to get their patients’ care appear to be the centers of profitability. Only monopoly power in hospitals would stand in the way of physician group success.

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