Strategic Challenges and Associated Risks of Greater APP Utilization

Hospitals and healthcare systems are increasingly looking to utilize advanced practice providers ("APP[s]") in response to aging populations, expanded insurance coverage requirements, and increasing financial pressures, among a myriad of other factors. APPs help these organizations offset the general shortage of physicians, augment their existing care teams and offerings, and expand their overall capacity to serve patients. As organizations look to engage with more APPs, and align with and incentivize their current physicians to collaborate effectively, it is prudent also to understand the associated strategic challenges and regulatory constraints.

In primary care settings, which generally see heavier usage of independent empaneled APPs (versus pure physician extenders), one such challenge arises for organizations utilizing compensation models that pay physicians based on volume. Having more APPs in these environments effectively reduces physician volumes and volume-based physician compensation. If incumbent compensation models do not consider the financial, operational, and strategic implications of the evolving physician-APP care delivery paradigm, physicians will be financially penalized. Over the last decade, physicians have experienced a general expansion in their duties and responsibilities, resulting in longer work hours and increased workload. It is no surprise that already squeezed physicians hesitate to take on the additional burdens associated with "babysitting" APPs without receiving an offsetting benefit(s).

From the healthcare entities' viewpoint, the utilization of APPs gives rise to a different set of strategic challenges, primarily driven by the uneven assumption of financial risks and returns between the healthcare entities and physicians. For example, health systems and hospitals have historically employed APPs that work in whole or part to support the physicians in care delivery, which means that physicians have been insulated against APP losses while receiving the immediate term benefits from APPs.

Examples of physician benefits include reduced call burden and increased productivity and compensation, especially in situations where APPs operate as physician extenders. Meanwhile, organizations bear significant risks as they are ultimately responsible for paying APP salaries; however, they may not realize downstream benefits (e.g., cost savings, patient satisfaction, patient access) until the providers can collaborate effectively in providing care, thus creating a timing mismatch in the risks and returns for each party. Physicians demanding payment for the supervision of APPs further exacerbates the financial picture for these healthcare entities. As many hospital leaders can attest, "right-sizing" the risks and returns can often take much longer than expected or budgeted.

The utilization of APPs also gives rise to several regulatory issues; these issues may be nuanced based on the type of APP. For example, when analyzing compensation for providers in situations where independent empaneled APPs are utilized,it is imperative to gain a full understanding of the administrative burden borne by both physicians and APPs so as not to gain inefficiencies and "double pay" for this work. It is also important to consider potential overlap in other compensation drivers for physicians and APPs and ensure safeguards are in place to prevent compensation stacking.

On the flip side, when analyzing compensation for providers in situations where pure physician extenders are utilized,hospital and healthcare system stakeholders should factor in the distribution and magnitude of risks borne by each party in structuring the alignment models' financial components. For example, suppose surgeons benefit from the financial "upside" of additional system-employed APPs via increased production. In that case, organizations should also consider sharing an appropriate portion of the "downside" with the surgeons if net losses attributed to the APPs occur.

Hospitals and health systems are expected to continue increasing their reliance on APPs to augment and work alongside physicians. As they explore new and innovative ways for physicians and APPs to collaborate effectively, they must do so while also navigating strategic challenges and regulatory constraints that are more prevalent than ever before in today's increasingly complex and evolving healthcare landscape.

Next Steps

• Read our comprehensive white paper on Using Patient Panel as a Principle Element in Primary Care Physician Compensation
• Listen to a podcast about Innovative Physician Compensation Models

• Take a deeper dive into Understanding Value-Based Compensation Models