Straight talk: Physician practice turnaround in an integrated delivery system

This is the second installment in a series of group discussions by top executives on key issues in healthcare today. Straight talk is presented by Modern Healthcare and PwC. This session tackles the subject of physician practice turnaround in an integrated delivery system. The discussion was held on March 5, 2002 at Modern Healthcare's Chicago headquarters, moderated by Charles S. Lauer

LAUER: Ten years ago, hospitals were acquiring physician practices as fast as they could. Then one after another, they started hemorrhaging money on them, and many have decided to dump the groups, forget integration, and just run their hospitals. Some, however, have stayed the course. We've invited several executives from Advocate Healthcare here to talk about how they've turned around their physician practices. They have made minor, sometimes major, course corrections to accomplish this. First, I'd like to talk about the genesis of hospitals owning physician practices. Control was one of the reasons that this was all going to happen. Was that the only reason?

SACKS: I think control was one factor, another was market share. In the days of excess capacity, everybody felt that tying in physicians would guarantee that business would flow to the hospital. Another factor was that as teaching programs moved from university settings into community hospitals, the faculty practice plan became a practice model. And probably the last real push was in the early '90s, everybody scrambled to make sure that they had a network of primary health physicians as effective contracting vehicle.

LAUER: Debra, you're right in the trenches on all of this. Tell me some of the things you've done that have turned your physician practices around.

GEIHSLER: In my opinion, Advocate Medical Group has made a financial turnaround because the physician groups haven't been treated like hospital departments . We brought in people to run them who are dedicated to the building of physician group practices and know how to run the business. A lot of hospitals were never concerned about what went on in the office, only with the patients who came out of the physician office. We put the focus back into the operations of the office.

LAUER: Years ago, many of the people running physicians practices had no basic experience, right?

GEIHSLER: Yes. There's a tremendous amount of difference between the operations of a medical records department in a physician group practice and in a hospital. You need different information; you need to track it differently. It's the same way with the billing systems, the financials, the scheduling process, even purchasing. When hospitals are running the practices, they don't pay attention to those details, which can add up to millions of dollars of losses.

LAUER: Dan, you have some strong opinions about physician practices. What do you think is key to success?

SCHMIDT: I think the key is exactly what Deb just hit on --- details. The systems that have been successful with physician practice management have gone back to the basics: billing, training employees appropriately, clearly written policies and procedures, and basic management systems. The places that have not been successful have not been able to focus on details. Just keeping on top of the billing and collection activities can mean the difference between financial success or failure.

ALBIAN: Chuck, to Deb's point, I have many hospital clients who will admit that they truly do not know how to run physician practices well and can't understand why they are losing as much money as they have. Regardless of why the institution decided to acquire physicians, in my experience there is a common theme among those who are performing better than the average: setting realistic goals, obtaining real physician commitment and managing according to a formal plan. I have found that institutions suffering serious financial losses have not given enough credence to these basic tenets. Organizations that have mastered them are performing better and can focus on care management issues that benefit the patient.

SACKS: There's another thing we shouldn't overlook. That is the role of the physician. A brutal lesson we learned is that when physicians come into these things all for different reasons and not with a common vision, it's a prescription for disaster. You look at our most successful group practice --- Dreyer Medical Clinic --- which is going to celebrate its 80th anniversary this year. It's been part of Advocate since 1996. It's a finely tuned machine that keeps on going, but it starts with their physicians. They hire physicians who fit in, weed out those who don't and they have strong physician leadership. One of the key parts of our turnarounds in recent years was creating a strong physician culture. We explained, "This is the vision. If you aren't comfortable with it, you can get out but you don't belong here if you don't share that vision. If you have 50 different ways of doing things because you have 50 doctors saying "My way or the highway," suddenly there are no economies of scale.

LAUER: We're getting back to the basics: mission, vision, values, service and leadership. That's part of your whole strategy, isn't it?

GEIHSLER: It definitely is. We really try to run the group like a real physician group practice, which is sometimes hard for people to understand. When a hospital purchases a practice, they usually salary that physician and then just let the business run, without paying a whole lot of attention to it. But Advocate has run it like a group practice, as if the physicians are private practitioners. The doctors' income is in proportion to how much revenue they bring in. It's a whole different feeling than if you're just allied to a hospital.

SCHMIDT: We stuck with the group practice model, as opposed to a collection of individual private offices. We have tried to create a culture where the needs of the group practice are more important than the needs of the individual physicians. At one point the plan was to have all the Advocate employed physicians in one large group practice. We have retreated from that approach. We now have three separate and distinct group practices, each with separate management teams and physician governance.

LAUER: What are the three groups as you break them down?

SCHMIDT: Over the last several years Advocate has consolidated its employed or partnered physicians into three medical groups totalling about 500 physicians. Advocate Medical Group started many years ago as the faculty practice plan of Lutheran General Hospital, and many of the physicians still participate in teaching programs. AMG is responsible for about half of the Lutheran General admissions. Advocate acquired Dreyer Medical Clinical about five years ago. It came to the system with its own HMO, surgery center, and an extensive clinic network in Aurora and Fox Valley. It is a successful freestanding, multi-specialty medical group. Advocate Health Centers was acquired about three years ago. It was a staff model HMO owned by Humana. Today it is still over 90 percent capitated care. AHC is spread throughout Chicago, and many of its centers are in medically underserved communities.

These three freestanding medical groups all have a little different culture, a little different way of doing things. But there are some common elements: We've standardized all our billing methodologies, we're all on one computer system, and we're all under the same management system, financial reporting, risk management, purchasing and human resources.

LAUER: So there are all kinds of synergy. And part of the reason for the success is using systems to get synergy.

ALBIAN: Leveraging information is another typical characteristic of those successful organizations I mentioned earlier, Chuck. Healthcare is an incredibly "information-intense" business whether you are talking clinically or administratively. I see a very clear correlation between organizations that aggressively use information and those that are financially successful. The immediate response at many hospitals is that there isn't enough money to pay for the infrastructure needed, but those who effectively leverage their systems ultimately benefit from them.

SCHMIDT: I think another synergy, which might be the biggest reason to get into these relationships, is to participate in managed care. At Advocate we have all of the hospitals, their PHOs, and the medical groups negotiating and operating the managed care contracts as one entity. This puts us in a good negotiating position with the insurance companies, and gives us tremendous economies of scale in administering these programs. Virtually everyone will agree that the medical groups are positioned to do a good job of utilization management and operating as managed care organizations.

LAUER: It has to be a key, if not THE key element in making sure that this thing works.

GEIHSLER: I would like to go back to Lee's point. At Advocate we're not just focused on what the physicians can do for the hospital, but we have made our medical group business successful as well. A key element for us has been improving the revenue cycle. This strategy has helped us do the IT, get back to basics and concentrate on the business side of the physician practice.

SACKS: If the physicians don't buy into some of the business system issues, it won't work. If they whisper into their patient's ear, "Don't worry about the co-pay," or "You forgot your insurance card, not a problem," unintended consequences happen. And some of the group practices really weren't set up as groups. They were a confederation of ma and pa stores.

LAUER: When you're called in to look at a physician practice, Joe, what do you do first?

ALBIAN: You know, Chuck, the first thing we do is listen and try not to assume that we have all the answers the minute we walk in the door. Clients are very sophisticated these days and if the answer were obvious they would address it themselves. In the case of Deb's group, for example, our team spent several weeks working very closely with their key management staff understanding the issues and drivers. Based on that qualitative assessment, we formed cross-functional teams in all the key operational areas, all of which added to the overall financial turnaround of the group.

LAUER: Does this improve the overall performance of a group of physicians and improve morale generally?

SACKS: At Advocate, there was turmoil initially. With the benefit of hindsight, we see that part of that was a healthy weeding out process, with unhappy people selected out. Now there's a very positive morale, a feeling of accomplishment, of controlling their destiny. The culture has been shaped. As physicians come into the group, they know what the rules are, and if that's not what they're comfortable with they're not going to come.

LAUER: We're really talking about a team effort.

SACKS: Yes, and to be blunt, most physicians aren't used to being part of a team. It's not part of medical school and residency training. It's the exception. But there are examples all over the country -- Mayo Clinic, Cleveland Clinic -- where the team approach provides the best care.

SCHMIDT: I think in the cases where we have had a turnaround, there's always been a "burning platform." It takes a sense of urgency. A time came when we had to look our physicians in the eye and say, "If we can't improve to x, y or z, this organization may not be around and you may not have a job." A few years ago, physicians could merely go work someplace else, but it is a different situation today.

GEIHSLER: It's difficult to get a sense of ownership from the physicians in a group because they're not like their peers. They don't own their practices. You've got to develop a sense of pride, ownership, and commitment. The way we've been able to do that is to provide them with information and give them the tools to have a successful practice, and to get them to see that we're trying to focus on their business, which is delivering patient care. You really have to work hard for that ownership, that commitment.
We have meetings and have involved physicians in the decision-making, policy-making, protocols, disease and care management process. The philosophy is, "Even if you're not in a private practice, you need to know what it takes to run your business."

ALBIAN: "Involvement" is the key word here. Those who become disengaged from the organization, whether they are physicians or management, will very likely never help solve problems, in fact they will end up adding to them considerably. Those organizations that consistently score higher on patient satisfaction, employee satisfaction and perform better financially involve people in the process.

LAUER: If I were to take a Gallup poll of most of your provider institutions, they'd say, "I don't want to get involved in physician practices. " Yet, you've been quite successful. What would you suggest to other hospital executives today about how to put together a successful physician practice, so that in Joe's terms, the ultimate recipient, the patient, would benefit along with the members?

SACKS: I think it's going back to looking at vision. If you're a hospital executive, you need to think, "What's the vision of my organization out 10 and 20 years?" If you're thinking you want to be known for quality, as opposed to being a commodity that's indistinguishable, then you should be thinking about how to establish a physician practice. Begin by taking very small steps with a handful of physicians, making that work, and then growing that as the nucleus. This differs from what we saw in the last decade, a flurry of acquisitions and trying to mash things together. It's certainly not right for every hospital. But hospitals that pop to the top of the lists for outstanding quality and special services more often than not have some kind of organized physician group attached to them.

SCHMIDT: I would echo that. I'd look five or 10 years out and say, "What are you going to need from your medical staff to make your hospital or system be successful?" It's more than just filling hospital beds. If you can get where you need to be without investing in a medical group, then fine. It is a lot of work to make these relationships be successful. I also think the medical group model is a great way to develop your medical staff and can complement your private practice physicians.

ALBIAN: First, understand the differences between physician practices and hospital departments. Don't assume that you can manage a physician practice the same way you manage a hospital department. I would highly recommend involving people who have experience managing physician organizations and bring them into your management fold. Second, spend time planning your strategy: what services do you want to offer; where should they be offered; how long will it take to implement; what will it cost; and what kind of return should you expect. Third, get buy-in from those physicians who will help you achieve your goals and involve them from the beginning. All too often, these marriages fail because one or the other party feels the relationship is lopsided. Last, communicate financial performance and expectations early and often.

LAUER: Where can hospital executives get the data to decide if they should or should not be in the physician practice business?

GEIHSLER: If a hospital has a vision, and if its leaders look at the market and say, "We want to provide a continuum of care," they then need to determine what services need to be provided to provide that care. They should develop the vision, goals and objectives. If a group practice is part of meeting those goals, then they have to go to the next step and say, "We're going to run a business line that will be successful on its own but will work in collaboration to provide a continuum of care for the patient." They can't just say, "We're going to buy practices," they have to determine the outcome they want and build it from that point.

SCHMIDT: The other thing that I would say is there are no quick fixes. A typical turnaround takes three years. Whoever is in the middle of that has to be patient and get the board lined up to withstand the pressures to just cut the losses immediately. It takes time to do a turnaround. You have to change the way physicians think, change the systems and look again at things like managed care contracting. You can't wave a magic wand and fix things in 30 to 60 days.

GEIHSLER: The other thing we have to do, as Lee said earlier, is look at where the future of healthcare is going. We, as healthcare leaders, think short-term sometimes. The stronger alignment between physicians and hospitals will provide cost-effective and good quality care looking out into the future.

ALBIAN: Chuck, for those hospital executives who may be faced with physician practices that are losing money I would suggest keeping the following five-step approach in mind.

Qualify the issues - how did you get here?
Quantify the impact of change - not everything will be worth changing.
Formulate a comprehensive plan - people really perform better if they know where they are going and the expectations that you have for them.
Implement the plan in a team based approach - this type of effort is difficult and will require people throughout your organization to be successful.
Maintain the results - don't think that this is a one-time fix. If you want to reach your destination you must continually check your course.

LAUER: And that's getting back to basics.

Want to learn more about physician practice turnaround?
Contact Joe Albian, healthcare consulting partner with PwC, at (312) 298-5018 or click here to send him e-mail.

March Participants:

	Charles S. Lauer Publisher, Modern Healthcare, Chicago, IL
	Joseph M. Albian Healthcare Consulting Partner, PwC, Chicago, IL
	Debra A. Geihsler Chief Executive, Advocate Medical Group, Park Ridge, IL
	Lee B. Sacks, MD Executive Vice President, Chief Medical Officer, Advocate Health Care Oak Brook, IL
	Daniel P. Schmidt Chief Executive, Physician Services Group and Advocate Health Centers, Chicago, IL

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