Industry Voices—It's time to shine a light on the hospital industry's biggest blind spot

A mature woman physician consulting with a patient in the doctor's office.
If an error-prone payments system results in a big lawsuit or fine, doctors and managers are going to suffer the consequences together. That should be a powerful incentive to expose this murky area to the light of transparency and accountability. (Getty/Ridofranz)

The pressure for efficiency in healthcare has turned hospitals into well-oiled machines, with chief financial officers seeking to account for every cent and ensure every process is streamlined. Health systems and hospitals have ratcheted down their staffing, reduced their discharge times and automated swathes of their work flow.

But there’s a glaring blind spot that has defied this trend—the payment of physicians for their administrative work. It’s a process that remains stuck in the dark ages for many organizations, dominated by forms, scribbled notes and interminable approval processes that often delay payments for months. On average, there are 18 manual steps between a doctor filing their time log for work and receiving a check. Doctors, being typically short on time, are prone to losing forms and forgetting to log their hours, while many hours of staff time are lost to finding, tracking and approving payments.

Late or missed payments are a source of frustration for physicians, eroding their partnership with a hospital. But this operational and financial blind spot contains even more serious consequences for hospitals and health systems. 

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First, the administrative payments represent a large stream of spending that isn’t being tracked or analyzed. In our most recent Ludi Hospital Survey of around 100 hospitals, we determined that a 200-bed community hospital spends about $20 million on their physician contracts, including those for employed and independent physicians. That’s a lot of potential money that CFOs and CMOs aren’t actively overseeing.  

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Second, because the often-chaotic and paper-based time log system allows for items to be missed or filed incorrectly, it leaves hospitals and physicians vulnerable to regulatory action. Hospitals are being hit regularly with fines in the millions of dollars by the Department of Justice for violations of the False Claims Act and the anti-bribery Stark Law.

How did this gaping hole appear? 

As the pace of acquisitions and roll-ups in the healthcare space has picked up, administrative payments have fallen between the cracks. CEOs running the deals have a million other things on their plate and don’t fully understand physician alignments and contracts. The picture is further muddied because no one truly owns the process. It gets touched and handed off by a hodgepodge of different departments including legal affairs, medical affairs and finance, creating the perfect conditions for a dropped ball.

To create visibility and accountability around administrative payments, hospitals should be aiming to automate the process and transition from paper to digital. It’s a transition that can drastically speed up payments and slash the risk of incorrect filings. 

But there are some fundamental steps that any hospital or healthcare system can take tomorrow to reduce their risks. Most importantly, they should dig up their provider contracts and make sure they know what’s in them. 

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It sounds obvious, but it’s surprising how often this gets missed. If administrative payments aren’t directly tied to the physician’s contractual agreement it’s a violation of the Stark Law, raising the prospect of legal consequences far more significant than a lost or illegible piece of paper. 

Hospitals should also tighten up their processing of time logs to avoid further legal and financial risks. In that same survey, we found that 21% of hospitals don’t even collect time logs for physicians’ administrative work, while 42% aren’t requiring employed physicians to complete time logs, a federal violation that comes with potentially millions of dollars in fines.

Ultimately, this comes down to people, not paper. Both physicians and corporate managers need to know that there’s no place to hide when it comes to regulatory compliance. 

If an error-prone payments system results in a big lawsuit or fine, doctors and managers are going to suffer the consequences together. That should be a powerful incentive to expose this murky area to the light of transparency and accountability.

Michelle Harmon is chief strategy officer at Ludi, Inc.

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