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Life after having your practice owned

By Rebecca Anwar, Ph.D.

We’ve seen it happen here in Philadelphia, and around the country. The frenzy of rising health care costs, Wall Street’s interest in medicine, and the rapid emergence of physician practice management companies (PPMCs), has taken a toll on the health care industry. Most PPMCs that promised improved management and profitability have achieved disappointing results. At the same time Wall Street’s main concern is quarterly profits, not whether infrastructure support is sufficient to maintain these practice models.

With the pressure of managed care and government’s impetus to continually reduce reimbursement, many hospital systems and physician practice management companies have abandoned ownership of physician practices and management service organizations (MSOs) created to provide administrative services for these practices. They have not been able to fulfill the promises of improved management, increased efficiency and profitability of physician practices. Taking money off the top to administer physician practices without improving the management and operating structure has resulted in turmoil, poor patient service and a flood of red ink—and the walls come tumbling down.

To be sure, physicians and consumers who have been ensnarled in this battle have felt the brunt of this economic and administrative upheaval. Patient services have deteriorated, and the physician-patient relationship has been compromised. The burden of financially supporting this new layer of administrative cost without investing in the infrastructure, has resulted in too few resources to manage patient services.

Physicians who have been caught in a system that promised more than it could deliver are not only frustrated, but are feeling betrayed and apprehensive about their future. Even those that have re-establish their independent practices are wondering if they will be able to sustain themselves over the long haul. One can only imagine where actual quality medical care and doctor-patient relationships fit into the equation.

At the moment, no one is quite sure what the future holds, but new opportunities are emerging for physician groups. The big question is, how can one recognize a prudent opportunity when it appears, after having gone through a bad experience?

Start by taking a critical look backwards. How did you arrive at the position you are in? What role did you play? What could have been done differently to achieve a better outcome? Perhaps you were unwilling to invest in your future. Some practices responded to whoever it was that waived the biggest carrot in front of them and ended up in a compromising position. Maybe a partnership was entered that required you to relinquish decision-making and release control of how the practice was managed.

So that a repeat performance can be avoided, understand how decisions or indecision affects your position. Learn as much about market forces as possible. What validity is behind the predictions you are hearing, locally and nationally? How much power is in the hands of the payers, the hospital, your colleagues, the employer market and the patients? For example, in some geographic regions, the consumer backlash is strong enough to have an influence on the employer’s health care purchasing decisions. Organized groups, such as senior advocate, AARP, will continue to have an impact on health care decision makers.

Now take a look at the current position of your practice. Where is the revenue coming from and how has it changed over time? If your revenue is down by 15 percent, is it across the board with all payer classes, or all procedure revenue categories? Or are you taking a big hit from one service area, such as substantial reduction from Medicare with surgical procedures, or perhaps the radiology services are not being paid at near the rate they were in the past, reducing the profits to nil.

Next, you must be a sleuth in understanding what the market’s current position means to you and what resources are available that can strengthen your position. Based on real data you gather about your market, you are better able to evaluate and qualify who to partner with for the next generation of private practice.

A number of distinguished health care leaders are predicting that physicians will recognize that finding a “suitable” partner is essential to their success. Physicians bring clinical expertise and political influence. They need to select partners that will complement their strengths and well as share similar philosophy and goals.

A “true” partnership requires a shared vision, so it is likely that the most suitable partnerships are between physicians. However, an experienced administrator in health care finance and management to assume responsibility for operations must be included in the equation.

Working together to develop and implement a well-designed strategic business plan and operational infrastructure is no easy accomplishment, but it is possible. The strategic plan must be written in real time and carefully crafted with a method that can monitor and respond to market changes as they occur. Such a response strategy is a key element to protecting the future of the practice. The strategic plan must be supported by a sufficient budget to implement the required strategies and improve the operating structure of the organization.

This must be supported by an investment in management information systems (MIS). MIS presents one of the most challenging aspects of practicing medicine in the future. Systems applications of the past are inadequate for merging financial and clinical data today.

MIS is a costly investment but a necessary one. The economic feasibility of acquiring such services may depend on purchasing computer services from a third party rather than purchasing a stand alone MIS. A third party can offset the expense of MIS by spreading it over many physician clients (similar to a billing service) on an on-going basis.

The ability to invest in a new practice structure can be accomplished through mergers or perhaps through a less formal alliance among physicians. A group alliance has a greater chance of succeeding when it is physician-owned and has a solid physician leader at the helm. A non-physician administrator who is employed by the group is essential to accomplish clear objectives and remain focused on the group’s mission. A group structure or alliance may be the only way to achieve growth, implement effective management strategies and maintain control—to prevent the walls from tumbling down.

It’s time for physicians to take charge of medicine and turn the health care system around. This can be accomplished when physician groups effectively combine the best of both clinical and business skills that are essential to developing a strong medical practice.

Physicians and practice administrators must arm themselves with the necessary tools to make their decisions. Success and stability will be directly affected by their involvement in the business aspects of the practice and the ability to monitor management’s performance on an on-going basis.

Sound business and clinical principles must be supported with the appropriate governance, leadership and expertise in management and finance. This needs to be coupled with an understanding of what it takes to run the practice as a business without compromising the quality of care and services provided to patients.

Beyond this, physicians must be willing to change, assume responsibility, be involved in examining system performance and decision making. Physicians are at risk until they accept risk and manage it wisely. It is only then that they will gain an understanding of what it takes to take charge of their future and deal with the competitive challenges that continue to emerge.

Rebecca Anwar, Ph.D., is a senior consultant in the Philadelphia office of The Sage Group, Inc., a national health care firm specializing in strategic planning, restructuring, practice management and marketing.

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