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Model for Success

Elyas Bakhtiari, for HealthLeaders Media, October 13, 2008
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The reasons are becoming obvious: economies of scale, purchasing power, market share. The weight of 155 physicians has given Women's Health Connecticut more leverage when negotiating managed care contracts, and the physicians are receiving better reimbursement rates relative to what they were 10 years ago as separate groups, DeFrancesco says.

"We've been able to pool our resources whenever there are crises," he explains. Another example: When rising insurance rates were squeezing physicians at the height of the medical malpractice crisis, Women's Health Connecticut formed its own captive offshore malpractice insurance company to take more control of its own risk.

From paying for technology to recruiting physicians, larger groups have more resources to adapt to today's challenges. But there isn't a magic number of physicians that will suddenly turn things around. In fact, it's the capital and leverage that matter, not the number of doctors, and those two things can be found from other places—hospitals and health systems, for instance.

The last time hospitals and health systems aggressively pursued physician employment and practice acquisition as a growth strategy in the late 1990s, many overpaid for practices and got burned when physician productivity declined. This time, more attention is being paid to aligning incentives (with compensation structures that incorporate the entrepreneurial rewards of private practice) and entering into agreements for the right reasons to begin with.

Physicians are also finding ways to mimic the benefits of consolidation through partnership and collaboration. Joint ventures, gainsharing, service line management, and other hospital-physician partnerships are gaining popularity—and they're driven by the same market forces that are pushing physicians to look for help from other physicians or even the private sector.

Samitt compares the current medical group consolidation trend to the retail industry, where large corporations like Wal-Mart are able to minimize costs and offer greater convenience than smaller community operations. "While we don't necessarily like to compare ourselves to big business, it is really the same evolution that we've seen in multiple industries," he says. "It's going to be the larger physician practices that will be able to more effectively compete in all the things physicians need to compete in today: quality, service, cost. The same factors that would drive consolidation in other industries are also driving consolidation in healthcare delivery."

Growing pains
For all the problems that consolidation solves, it also brings new challenges. Who makes decisions about equipment purchases, hiring, and other financial issues as a group gets bigger? How much autonomy do individual physicians or groups in different locations retain? Who is involved in the increasingly sophisticated leadership structure?

There has to be some centralization. Satellite locations need to be branded as part of the overall group. Contracts need a degree of oversight. But financial integration is not enough. Groups that aren't also clinically integrated will stumble with pay-for-performance programs, care coordination, and quality improvement initiatives.

As they grow larger, physician-owned groups are beginning to face some of the same challenges as health systems when it comes to creating a cohesive organization without alienating physicians. The common strategy is to let central leadership set the strategic goals and cultural tone for the overall practice while still letting individual leaders manage daily operations. "It's like the whole organization is going from Boston to San Diego. Various sites can take a different route to get there," Samitt says.

Christie Clinic, an 85-physician multispecialty medical group based in Champaign, IL, has spent hundreds of thousands of dollars on management training to avoid the type of siloed culture that can make a group sluggish. Outside consultants were brought in to train board members, directors, and as many physicians as possible on management techniques to create a sense of ownership in the group's progress. "We tried to unify the culture of the organization. We changed the focus from the individual to the group and then the community," says Jeffry James, formerly the group's chief financial officer and chief operations officer and current CEO at Wilmington Health Associates in North Carolina.

Although he didn't know it at the time, the efforts to unify the culture were paving the way for later efforts to implement Toyota's Lean production principles into the organization, which has helped increase efficiency in MRI and CT scan departments (reducing the need for additional equipment purchases) and cut down on delays in the paperwork process. "Without it we would not have been able to start down that path as quickly as we had and with as much success," James says.

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