Interdependent Physician Practice

A Model to Reduce Overhead and Improve Morale

By

Michael J. Pulaski, FACMPE

Published by the American Medical Group Association

Group Practice Journal, Volume 49, No. 8, September, 2000, pp. 18-20.

Look:  (PriceWaterhouseCoopers' article about this model.)

If you want to reduce overhead while improving physician and staff morale, then consider introducing fundamental change to your organization’s business model.

This article suggests that the major problems plaguing today’s medical group practices result from the continued use of a decades-old business model — developed before the availability of inexpensive information technology and before most of today’s physicians entered medical school.

A new model is presented which combines modern information technology with an organizational structure that aligns the autonomy needs of individual physicians with the financial and morale needs of the group. The relationship of physicians and staff within this model is “interdependent.”

Background

Most medical groups today are organized top-down: policies are formulated by a “benign dictator” or by a central governing body.  Typically, these policies serve the needs of the group’s majority but not the unique needs of each member as an individual.  Consequently, those individuals not served by the “one-size-fits-all” policies find overt or covert ways to undermine them, causing business inefficiencies as well as poor physician and staff morale.  In the worst cases, groups splinter and individuals seek other employment.

The group practice business model that is widely used today (herein termed the traditional model) requires individual physicians to sacrifice a certain amount of autonomy.  It is the job of leadership to decide how much physician autonomy should be forfeited when designing the group’s governance, business systems, and operating policies. Often, after considerable experimentation and chaos, a group finds an acceptable balance between homogeneity and autonomy — or ceases business.

Physicians and administrators are inundated with articles in professional journals and with solicitations to attend lectures about how to improve physician morale; how to counsel the physician “outlier” (one who does not comply with the group’s culture); how to motivate physicians to become better “team players”; and how to reduce group overhead. These articles and seminars, by their very existence, underscore the problems associated with the traditional business model.

The recurrent theme of these articles and lectures is: The loss of physicians’ autonomy is the main source of disharmony and dysfunction in group practice today. To remedy this, physicians and administrators have been told about the merits of “groupness,” “team-building,” and forging a common “culture.”  While these remedies treat the symptoms, they are not the cure.

The New Model

Although physicians are independent – minded, the traditional business model forces them to act as dependents within the organization. The new business model unleashes a higher form of independence – namely, interdependence. This model allows individual physicians in the organization to retain their personal preferences while maintaining or increasing profitability of the group as a whole.

This new business model has, as a case study, the performance of Peachtree Orthopaedic Clinic in Atlanta, Georgia.  One year after the group implemented this new business model, its bottom line improved by 23 percent –  without the addition of any new sources of income.  Physician and staff retention, as well as group morale, increased dramatically.  As a result, the group is now expanding rapidly using a unique method of financing it developed internally. [i]

Overview

The new business model calls for the group to function as an MSO for each physician, who in turn, operates as an Interdependent Practice (IP).  Each IP contracts with the group for clinical, secretarial, accounting, appointments, and billing services on an exclusive basis.  The IP dictates the unique policies each of these functions should follow, e.g., how many patients to schedule per session, whether to dun delinquent patient accounts, etc.  Since each IP is compensated on a receipts minus expenses basis, every policy decision made by the IP considers its unique “bottom line” result.

The “glue” that holds the IP model together is Activity Based Cost accounting (ABC).  While it is not within the scope of this article to fully describe ABC, an understanding of this accounting method is critical to appreciating the new business model.

Significantly, ABC tracks each IP as a profit center, permitting each physician to be compensated based on his or her own “bottom line.”  ABC channels total expenses of the MSO (group) into individual allocations to each IP.  Gone are the traditional concepts of “fixed” and “variable” or “general” and “specific” expenses with ABC.  All expenses are allocated to each IP using precise methodologies developed by the Center for Research in Ambulatory Health Care Administration. [ii] 

As an example, ABC allocates all rent (including hallways, supply closets, bathrooms and waiting rooms) to each IP proportionate to the number of patient visits each IP has.  MIS and administrative staff expenses (office manager, accounting staff, human resources) are allocated proportionate to each IP’s staff count.  Therefore, if IP (x) has a direct staff count of 3, and the sum of all IP staff count is 18, then IP (x) pays 3/18 of the MIS and administrative expenses.  Thus, for each type of expense, there is a corresponding method of allocation prescribed under ABC.

Individual Preferences

The interdependent physician is encouraged to focus on his or her preferences regarding practice style and operations policy.  The IP fully understands the impact these preferences have on the bottom line before they are implemented.  A few examples of preferences that affect income generation:

·        What payor panels does the IP want to participate?

·        What collections policy does the IP want to follow?

·        What clinic hours does the IP want to keep?

·        Does the IP want to increase production by the employment of a mid-level provider?

Some examples of preferences that affect an IP’s expenses are:

·        How much staff does the IP want to employ?

·        How much does the IP want to pay for the services of each staff member?

·        How much malpractice insurance coverage is the IP willing to purchase?

·        Can the IP support the employment of a mid-level provider?

Impact on the Group

Implementing this new business model has wide impact not only on the operational structure of the group (its functioning as an MSO) but on its internal politics, on the role of administration, on resource allocation, on contracting with payors, on productivity, and on morale.

Internal politics.  When the new model is implemented, relationships change.  No longer do physicians bicker among themselves about who is using too many resources or who is taking more time off.  Similarly, since IPs control most of the overhead, the administration is not called to task for expenses they cannot control in the traditional setting (such as a physician demanding more clinical help or using expensive name brand supplies).

Administrator’s role.  The Administrator's role becomes more of a consultant and less of a line manager.  Since each IP contracts for specific levels of administrative services, the administrator is now positioned to consult with each IP, making business suggestions that focus on the most efficient use of resources that will in turn maximize profit when considering the IP’s preferences.

Resource allocation. The group, operating as an MSO, must maintain appropriate levels of staffing to satisfy the individual preferences of all its IP clients.  Most of the time, this entails a specific employee being shared by two or more IPs. The shared employee then has specific IPs as customers and renders services consistent with each IP’s preferences.  The IPs in turn are charged according to the ABC prescription, e.g., number of transactions for billing, number of patient visits for appointment schedulers, and number of typed words for transcription.  ABC is programmed to track the IP’s use of supplies as well as his or her rent, telephone use, and all other expenses.

Contracting with payors.  Not all IPs may wish to participate on certain payor panels.  With the exception of instances involving group call, this is permitted.  Therefore, an IP may not accept certain patients with certain insurance coverage normally, but when taking group call, will see and follow all patients of the group.

Productivity.  The synergism produced by the interdependent behavior of each “practice” within the group increases productivity overall, which in turn drives overhead downward.  Since each IP recognizes that there is a direct and fair link between individual effort and compensation, each IP manages its clinical and business affairs with greater efficiency than if it were managed centrally.  One could make the analogy that the IP model is similar to a free market enterprise, whereas, the traditional model is similar to the centrally controlled communes of the former USSR.

Morale.  When human beings feel they have control over their immediate business environment and are reasonably compensated at the same time, they are happy, cooperative, and productive.  With the IP model, physicians have more autonomy.  Support staff assumes proprietary interest in their IP customers.  Administrators are not put in a structurally antagonistic relationship with the physicians; instead, they become consulting partners to each IP.

Interdependence

Stephen Covey’s book, The 7 Habits of Highly Effective People, places each of the seven habits into one of three broad categories of human and organizational behavior:  Dependent, Independent, and Interdependent. [iii]  Dependent behavior traits are considered basic, relegated to lower levels of personal and organizational maturity.

Independent behavior assumes that an individual or organization has mastered some of the habits Covey prescribes for effectiveness.  One would assume that any person who successfully completes medical school, internship, and residency has mastered the habits of an independent person.

Interdependence is the highest form of personal and organizational behavior.  In order to function interdependently, one must have mastered all those traits attributable to dependent and independent behavior.  Interdependence is described as the behavior that creates Win:Win situations, while producing synergistic, more productive relationships.

Ironically, the traditional medical group business model places independent-minded physicians into an organization in which they are expected to be dependent.  This is inherently a step backward in the physician’s personal development, and explains why so many of them become difficult “management problems.”

Trying to coerce or mediate truculent physicians by fancy rhetoric or charismatic leadership produces short-term results at best.  However, restructuring the organization – to enable interdependent behavior – produces an environment that motivates each physician to practice the personal growth and dynamic productivity gains associated with interdependent behavior.  As Covey states: “The most important thing we put into a relationship is what we are, not what we say or what we do.” [iv]

If we enhance our human resources, we will enhance productivity.  This new model is in itself a Win:Win.  It is a win for the individual physician and a win for the group.

Ask yourself the question: “In my group, how much energy is wasted in ’bucking the system‘ and in the ensuing counterattack politics?”  Then allow yourself to muse: “If only that energy could be put to productive use!”

Consider the IP model as an option that could very well transform wasted energy into productive energy.