By Anthony V. Coletta, M.D.

Anthony V. Coletta, M.D., is chairman and CEO of Millennium Physician Organization.

Published October 1997

• Introduction
• Physician Unions
• Physician Organizations
• Physician-Owned Insurers
• National Health Insurance

• React to this article in the Discussion Forum.

If we as physicians accept these realities of our marketplace and choose to participate, then we must start where all enduring enterprises begin: with vision. We must create and embrace our own vision for the future of medicine in the Delaware Valley, seeing clearly in our minds eye, a new, profoundly different, dramatically improved system for the delivery of health care in our community. A futile exercise in a profession where all of the next steps seemed to be predetermined by market forces driven by bottom line economics and political influence? Not so. Progressive ideas by their very nature transcend what might appear to be formidable odds. If as physicians we fail to develop and pursue our own vision for the future of health care delivery, then we not only abandon unparalleled opportunity, but also our profession and our patients. The corporatization of health care in America has begun in earnest. It will happen with or without us. In the Delaware Valley, that decision, for now, remains ours to make. The choice is simple, and, for the present time, the options remain: we will either be the corporatizees (physicians driven by the enterprise) or the corporatizors (the physician-driven enterprise).

How does the competitive, enduring physician-driven enterprise distinguish itself from the preexisting entities of the marketplace? Free from the ball and chain of bricks and mortar, bureaucracy, preexisting corporate and organizational enmity and market analyst expectations, the physician-driven enterprise capitalizes on the unique opportunity of building from scratch. The foundation that currently exists across the profession is characterized by its carriage industry nature. Most of us practice medicine in relative isolation, or, if you will, in silos. Patients move from one silo to the next, with primitive means of communication amongst these silos by modern business standards and little or no attempt to capture, collate, understand and interpret the information being generated by these isolated episodes of care.

The physician-driven enterprise seeks not only to tear the silos down, but to build the singular environment that co-mingles the clinical resources of physicians across all specialties, creating a collaborative practice paradigm where patients benefit from a rich and robust knowledge base that currently does not exist. Amongst all existing entities, such an enterprise is the only one capturing the energy of the inside-out approach. Furthermore, with the transformation of this carriage industry into a corporate enterprise, only physicians are positioned to build the delivery system that reaches across geographic regions, hospital systems, and insurance carriers. The incomparable data base generated by such diversity will not only have a profound effect on the quality of care provided but also differentiate the physician-driven enterprise from all others. A unique, differentiated product that the market demands and that only physicians can provide. Therein lies the inherent value.

Two core elements are critical in bringing the physician-driven enterprise into the market dynamic: infrastructure and capital. In building infrastructure, while conglomerates focus on expensive information systems, the physician enterprise focuses first and foremost on human resources: business and physician leaders who understand and embrace the vision and are willing to execute the strategy collaboratively. Without such leadership, the effort will fail. Next in infrastructure comes medical management. This entails the introduction of an organizational process (such as Physician Organizations) that is both feasible and productive. Through committee structure and organizational discipline, the educational process begins. The first steps are neither prohibitive nor sophisticated. On the contrary, the first steps in implementing medical management infrastructure are predicated upon the Hawthorne effect. Just paying attention to the necessary components produces improvement. Finally, information systems to drive the process are introduced. The intelligent physician-driven enterprise is born.

Capital is critical. It is necessary both to build and support the infrastructure, and to provide the reserves necessary to bear the risk. Not only the risk assumed in managing the resources of care delivery, but the risk of entering into the fiercely competitive health care market. Over time, leadership and results will lead to strategic alliances. Until then, physician-driven enterprises can expect, and need to be prepared for, market reaction, the nature of which may take many forms as traditional paradigms of control shift. Capital, on the order of magnitude necessary to accomplish the goals and weather the storm, will undoubtedly require sophisticated capital partners encompassing the full spectrum of the investment community, willing to invest millions of dollars.

Such capital comes with a price, and physicians must accept and understand this. Every party will seek a return on investment that will need to be balanced with the essential component of physician ownership and control. No potential partner should be summarily dismissed. The inurement issues arising from non-profit capital will need to be very carefully considered. Further, the physician-driven enterprise must recognize that generating profit was, is and always will be a part of health care delivery. Our challenge is to create the industry that allows for the generation of profit without violation of our oath. We must not shy away from building shareholder value if, in doing so, our patients ultimately benefit. Finally, capital will be used to reward the physicians who effectively deliver care under the new paradigm through both direct compensation and equity distributions that recognize the true value of their contributions. The physician-driven enterprise recognizes from the outset the power inherent in the alignment of financial as well as professional incentives of its member physicians.

The beginnings of the development of the physician-driven enterprise will start with the private practitioners of medicine. In fact, experience in other markets has shown that it is, for the most part, the most successful private practitioners who hold out against the employment scenarios of hospitals and practice management companies, seeking with good reason to maintain control over their business, built with years of hard work and dedication. Understanding the dynamic, however, increasingly these physicians come together in second and third generation IPAs that allow for single signature contracting leverage while maintaining practice independence. Successful physician organizations over time begin to not only secure a market presence for their physician shareholders, but also attract the interest of capital and strategic partners who recognize the potential value of the enterprise.

Equity vehicles are then constructed, owned and operated by physicians in concert with these partners, that provide key infrastructure components to the organizations. Contractual agreements with insurance companies gradually migrate risk and dollars towards these increasingly sophisticated physician-driven enterprises. As opposed to selling their practices up front with an immediate loss of control over both physician and business partnerships, these physician shareholders over time consolidate their practices with colleagues (both business and clinical) of demonstrable abilities and qualities.

Exposure to and support of such consolidation comes from the capital and infrastructure resources of the equity vehicle. The silos come tumbling down. Although the relationship with physicians outside of the enterprise remains cordial and, when necessary, contractual, the physician shareholders increasingly build a network of expertise internally. As the enterprise grows, so does the equity of physician shareholders who are continuously rewarded both professionally and financially for their contributions. These are the dynamics of a competitive, free market.

Not only pursuing, but creating this vision continues to be actively discouraged by well-capitalized market entities that seek to either purchase or control physicians in order to both establish their products and maintain or acquire market share. Thus, in the name of competition, we have allowed the market to pit primary care physicians against specialists, and specialists against specialists, all the while keeping hospital-based physicians isolated. Physicians labor under constant reminders that we are in oversupply, that dealing with us is like herding cats, that we lack business acumen and will not survive on our own resources. We should not take this personally. This is purely business. For, health care conglomerates of all sizes and shapes realize that their greatest potential competitors are physicians who recognize the professional and financial opportunity of building their own enterprises. Enterprises built on consolidating physician resources, not isolating them.

Every one of us realizes the impact we could have on the cost and quality of care delivered to our patients in an environment where primary care, specialist and hospital-based physicians collaborated in that care, with alignment of clinical and economic incentives. Incorporate that paradigm into a physician-driven enterprise that embraces corporate governance (organizational infrastructure), retains earnings (capital), and competes in the service-based market of health care delivery (product), and there is little that exists today that could compare in potential value. Thus, often in subtle ways, a competitive market is best served by discouraging such a vision. Nothing personal. Purely business.

We must not succumb to this attempt to discourage us. As the inevitable corporatization of health care continues, we must enter into the arena, not as employees but as entrepreneurs in unified pursuit of a physician-driven vision for the delivery of health care. Anything short of this denies the realities of the practice of medicine as we enter the 21st century, realities which we have already denied for too long.