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Model for Success

Elyas Bakhtiari, for HealthLeaders Media, October 13, 2008
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With expenses rising, reimbursements falling, and everyone from the government to patients demanding more sophisticated technology and improved quality, running a medical group has never been more complex. But many practices have found ways to not only survive—but thrive.

Physician practices have traditionally survived as the mom-and-pop shops of the healthcare business world. What they lacked in size and business savvy they made up for with patient loyalty and long hours. And when the practice environment was a little more stable, it worked.

Not anymore. As healthcare has become more complex and the financial climate more hostile, the old model has fallen short. Practice expenses have risen at double the rate of inflation in the past 10 years while reimbursement rates have slowed to a crawl, making the financial margin for error razor thin. Healthcare administration has grown more complicated amid stricter regulations. Labor shortages are driving up salaries and making recruitment more competitive. The list of challenges grows longer every day—and medical groups often don't have the resources needed to adapt.

In addition to new obstacles, today's medical groups have new initiatives to implement and new goals to attain. Governments, insurers, and patients are pressuring doctors to adopt a host of expensive technologies, from electronic medical record systems to e-prescribing. Physicians are participating in pay-for-performance programs and being rated on everything from quality to patient satisfaction. The industry is seeing a growing emphasis on preventive and patient-centered care—and is still exploring how to get there.

All of these initiatives require new levels of capital, leadership, and integration across settings that mom and pop can't provide. So if the old model isn't working, what does the new one look like?

No one has completely figured that out yet. Answers are easier to come by when everyone is turning a profit; hard times bring doubt, but they also tend to spur innovation and experimentation, says William Jessee, MD, president and CEO of the Medical Group Management Association. "That's why we've been seeing a lot of creativity in new models. Medical groups basically have two choices in the current environment: You can say, 'Woe is me,' or you can change your business model," Jessee says. "If you continue with the same thing you've been doing, you're headed for bankruptcy court given the economic climate."

The absence of a detailed blueprint for running a medical group today doesn't mean there are no answers, however. Many groups are not only navigating the healthcare minefield, they're thriving. They may not be representative of the average physician practice—they tend to be larger and much more complex—but the traits they share offer insight into what it takes to succeed.

The B-word
The medical groups that are finding success in today's changing landscape, for the most part, are the ones shedding the small-business mind-set. They are larger, more growth-oriented, and even more corporate than traditional medical groups.

They diversify their revenue sources and constantly search for new investment opportunities in ancillary services. They develop strategic growth plans and look to expand market share. They stay on the cutting edge of technology as much as possible. They are a cohesive organization rather than a loose confederation of physicians sharing space and equipment.

Physicians, and much of the industry in general, have long fought the notion that healthcare is a business. But it's increasingly difficult to stay afloat without taking a more sophisticated business approach to running a practice, says Craig Samitt, MD, MBA, president and CEO of Madison, WI-based Dean Health System, which has 12 healthcare facilities in southern Wisconsin. "Right or wrong, medical groups need to begin to function much more like businesses in everything that they do."

But that doesn't mean getting bogged down in dashboards and metrics and process engineering. Samitt argues that it's more important to recognize basic business principles: Consumers come first, technology is good, and change is necessary. That's how hospitals and health systems already think. Physician groups, not so much.

Take EMR adoption, an issue that touches on all three of those principles. Despite repeated evidence that EMR systems can enhance patient safety and improve clinical outcomes, only 13% of physicians have a basic system and only 4% have all the bells and whistles, according to an extensive study from the Institute for Health Policy. Understandably, cost is an issue. Most physicians look at the price tag and ask, "How can we afford this under our current practice structure?" For most, the answer is that they can't.

Rarely is the reverse considered: "How can we change the practice structure so that we can afford the technology?"

Strength in numbers
When Mark DeFrancesco, MD, MBA, began his career as an OB/GYN in 1984, his practice was fairly simple. He partnered with one other physician and continued under that model for about seven years. The group slowly and organically grew to four physicians and two midwives by 1996, when they decided to merge with two other practices to bring the total number of physicians to 10. Within six months, however, DeFrancesco found himself in a 155-physician group after 27 of Connecticut's OB/GYN practices merged to form Physicians for Women's Health, for which he now serves as chief medical officer.

The scale and rapidity of the merger may not have been run of the mill—the OB/GYNs initiated the transaction to avoid selling out to a physician practice management company—but the trend has been similar around the country. Small practices are slowly dying out. The proportion of physicians in solo and two-physician practices dropped from 41% in 1997 to one-third in 2005, according to the Center for Studying Health System Change. Medical practices are in the midst of a wave of consolidation.

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