P
ROFITABILITY IS UP
23% in just one year at
Peachtree Orthopedic Clinic
(POC) in
Atlanta thanks to a decision by the 48-year-
old multi-subspecialty group. It converted from a
traditional model of physician practice to one that
emphasizes personal autonomy and entrepreneur-
ship for each of the 22 doctors on the team.
“Not only has it improved our bottom line, but
our embrace of the new model of practice has
dramatically increased morale and retention,”
says Michael J. Pulaski, FACMPE, administrator.
“No longer do physicians bicker among them-
selves about who is using too many resources or
who is taking more time off. Gone is the waste-
fulness and disharmony caused by those trying to
buck the system.
“What we’ve done is unleash power—the
power of productivity.” Basically, each Peachtree
orthopod has been granted permission to operate
as quasi-solo practitioner within the confines of a
group setting. This, in turn, supplies each one an
irresistible economic and emotional incentive to
work extraordinarily hard at achieving better
patient care, lower overhead and greater income,
Pulaski argues.
“This new model of ours says in essence to
each physician, ‘Look, we’re going to give you
the freedom to sink or swim. But we have tools
for you—tools which will continually be
improved—to help you swim and to swim well,’”
he explains.
Source Of Inefficiency
In Pulaski’s view, the loss of physician autonomy is
the primary source of the disharmony and dysfunc-
tion that cripples so many group practices today.
Most orthopedic surgery groups operate under
a business model that tries to make everyone happy. Atlanta’s
Peachtree Orthopedic Clinic tossed just such a model after it was
determined to have contributed to the group’s problems several
years ago. In its place, Peachtree introduced a business method-
ology known as the interdependent physician-practice model.
Doing so has brought the group new prosperity, raised morale
and improved care. Proponents say this model can be adopted
successfully by groups of virtually any size or type.
CEO S
UMMARY
Practice Concept
D
raw
s Attention
Michael J. Pulaski
“What we’ve
done is unleash
power—the
power of
productivity.”
From th e R
AKE
O
RTHOPEDIC
I
NTELLIGENCE
G
ROUP
…
Important Private Intelligence, Gathered Exclusively
For Orthopedists, CEOs, and Practice Administrators
Reprinted with permission.
© Copyright 2000 by the Rake
Orthopedic Intelligence Group;
ALL RIGHTS RESERVED.
Monday, October 9, 2000
Volume 3, Number 14
From collectivism to entrepreneurship
Peachtree Orthopedic shows the way
pg_0002
2 • October 9, 2000
R
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“Most medical groups are organized top-down,” he says.
“Policies are formulated by a benign and enlightened ‘dicta-
tor’ or by a central ruling body. Unfortunately, these policies
serve the needs of a group’s majority, not each member as an
individual. Consequently, those individuals who aren’t served
by policies of the one-size-fits-all variety usually find overt or
covert ways to undermine them.
“This causes business inefficiencies as well as poor physi-
cian and staff morale. In the worst cases, groups splinter and
individuals seek employment elsewhere.”
These fundamental problems, says Pulaski, are inherent
to the medical group business model developed decades ago.
“Ironically, the traditional medical-group business model
places independent-minded physicians into an organization
where they are expected to become and act as dependent
units,” says Pulaski. “This is inherently a step backward in the
physician’s personal development, and explains why so many
of them become difficult to deal with. Trying to coerce or
mediate truculent physicians by fancy rhetoric or charismatic
leadership produces short-term results at best.
“What’s needed is a new business model—one that gives
each individual physician the ability to better fulfill his or her
own unique preferences while increasing profitability.
“People are happy, cooperative and productive when they
feel they have control over their immediate business environ-
ment and are being reasonably compensated.”
Bottom-line Driven
Pulaski calls this new approach the interdependent physician-
practice model.
It is his conviction that the restructuring of organizations in
ways that encourage interdependence rather than dependence
(or even plain old independence) results in an environment
that motivates each physician to grow, produce and achieve.
“A key element of this new business model is the idea that
you pay each physician based on his or her individual bottom
line—in other words, each physician is treated as a profit cen-
ter,” he says. “At the same time, the group functions as a man-
agement service organization, providing administrative sup-
port to each physician in a way that is exclusive for that par-
ticular doctor’s interdependent practice. Each physician con-
tracts on his or her own with the group for clinical, secretari-
al, accounting, appointments and billing services. The physi-
cian decides the form and scope of the services he or she will
receive.
“For example, it’s up to the physician to specify how many
patients he or she wants us to schedule for him or her in a ses-
sion, the clinic hours he or she desires to keep, the payor pan-
els in which he or she wishes to participate, which collections
policy to employ, and whether he or she wants to hire a mid-
level provider. All of these have a direct impact on how much
income the physician can generate.
“Each physician also needs to decide, among other things,
how many people he or she wants to employ, how much he or
she is willing to pay each of those employed individuals, and
how much malpractice insurance coverage to carry. All of
these will affect the expense side of the physician’s balance
sheet.”
Peachtree physicians are compensated on a receipts-minus-
expenses basis. As such, they must make these decisions with
their individual bottom-line results clearly in mind, Pulaski
insists.
Worth noting is the fact that the resources consumed by
each physician are tracked to the nth degree by a sophisti-
cated dynamic cost-accounting system Pulaski spent years
creating.
“It’s known around here as ABC—that stands for activity-
based cost accounting—and we use it to ensure that no physi-
cian is charged too much or too little for the services and sup-
plies he or she uses,” Pulaski explains. “Our ABC system is
programmed to track each doctor’s consumption of supplies,
his or her share of the rent, telephone usage, and all other
expenses. The physicians, in turn, are charged according to
the number of billing transactions, appointments scheduled
and words transcribed.”
Incentives Are Aligned
The doctors aren’t the only ones at Peachtree with an incen-
tive to be productive and efficient. Pulaski, for instance, prof-
its only when the physicians do. Thus, he as administrator has
reason to give them the best guidance possible and the finest
available support tools.
“With this new model, the administrator’s role becomes
more of a consultant and less of a line manager,” he says.
“Since each interdependent physician contracts for specific
levels of administrative services which are unique to that
physician, the relationship with the administrator is now all
about receiving advice on the most efficient use of
resources—advice that will enable the physician to maximize
his or her profits.
“It’s advantageous to the administrator for another reason,
too. Since the interdependent physicians control most of the
overhead, I’m not called to task for expenses I have no con-
trol over, such as a physician demanding more clinical help or
using expensive name-brand supplies.”
Employees as well are encouraged to excel at what they do
because they make money when their services are in demand.
“Most of the time, a specific employee will be shared by two
pg_0003
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October 9, 2000 • 3
or more physicians,” says Pulaski. “The shared employee has
certain physicians as his or her customers, and therefore must
render services consistent with each customer’s preferences.”
What all of this does is produce synergism, Pulaski
contends.
“The synergism,” he says, “serves to increase productivity
overall and, by extension, drives down the overhead of both the
group and its individual physicians. Because each interdepend-
ent physician recognizes that there exists a direct and fair link
between individual effort and compensation, he or she will be
prone to manage his or her clinical and business affairs with
greater efficiency than if managed centrally.”
Prodded By Hard Times
P.O.C. launched in 1952. That makes it today one of Atlanta’s
oldest and most highly respected groups. It was co-founded
by F. James Funk Jr., MD, and Robert E. Wells, MD, both
now retired from practice.
Peachtree—the South’s first orthopedic group with multi-
ple subspecialties—now consists of 22 physicians whose
areas of interest include arthroscopic surgery, total joint
replacement, arthritis surgery, treatment of deformities and
diseases of the spine, pediatric orthopedics, hand surgery,
shoulder and elbow surgery, foot surgery, trauma surgery, and
sports medicine.
Most of Peachtree’s sports medicine focus is upon the
needs of recreational athletes. However, Peachtree doctors
also serve as orthopedists for sports organizations including
the
Atlanta Braves, Atlanta Hawks
,
Atlanta Falcons
and
the teams at
Georgia State University
. Additionally, the
group provides orthopedic advice to the
Atlanta Ballet.
Financial hardship in the mid-1990s led Peachtree
to embrace the interdependent physician-practice model of
business.
“We were on the verge of collapse, that’s how bad things
stood,” says spine surgeon Lee A. Kelley, MD, a member of
Peachtree’s executive committee and the group’s treasurer. “It
was time for drastic measures.”
The problems stemmed in part from poor management in
general and a decision to team up with another group that was
in virtually every way Peachtree’s polar opposite. But, main-
ly, the money woes were attributable to the group’s reliance
on the traditional model of practice, Kelley believes.
“In our former model of practice, everything was demo-
cratic in the extreme,” he says. “We basically could not move
forward on anything unless we had unanimous agreement. If
there was even one person who did not agree, then the matter
on the table would be dropped because we were so intent on
preserving group harmony. I can attest that this approach to
doing business cost us quite a few lost opportunities and no
small amount of income.”
That the group should have experienced financial difficul-
ty at all was particularly galling in light of the relatively
robust market at the time.
• SWITCHING TO NEW MODEL •
Some advice to groups considering adoption of the interde-
pendent physician-practice model:
1. Approach the undertaking with an open mind.
2. Be patient during the one to two years it will take to get
acclimated to the new system.
3. Don’t pursue freedom for individuals so ardently that the
well-being of the group is overlooked.
Those are the recommendations of Carl D. Fackler, MD,
president of Peachtree Orthopedic Clinic in Atlanta and one
of that group’s spine, scoliosis and pediatric subspecialists.
“As you bring the interdependent physician-practice model
aboard, you’ll find it helpful to view it as a work in progress,”
says Fackler, who has been with the group since 1977.
The biggest challenge Fackler found in integrating the
new model within his own group was coping with the
changes it embodied.
“Anytime physicians are confronted with a change that
affects the way they’re paid, you can expect that things are
going to become very personal and difficult for quite a while,”
he offers. “We discovered that it’s important for everyone to
really understand that the changes will not necessarily work to
the advantage of any particular individual, that they actually
work mainly to the advantage of the group. Even though you’re
trying to introduce more individual freedom, you must remem-
ber that you are still a group and not a loosely affiliated assem-
blage of individuals.”
Fackler warns that the physicians who will have the hard-
est time adapting to the new model of practice are those pos-
sessed of a closed mind—closed either in opposition to the
model or in favor of it.
“You have to give it a fair chance to prove that it can work
for you,” he says. “On the other hand, you can’t be so blind-
ly wedded to it that you’re unwilling to modify it—or even
discard it—if that proves necessary.”
pg_0004
4 • October 9, 2000
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“It was a pretty decent payor environment,” Kelley recalls.
Kelley and others who saw the end of the road in sight for
Peachtree pushed hard to go with Pulaski’s new model.
“Mike had the right credentials and the right ideas to turn
things around for us,” he says.
Lessons from Experience
Pulaski took his inspiration from many sources: the writings
of Peter Drucker and Steven Covey, the implosion of the for-
mer Soviet Union, and most importantly, “the cuts and bruis-
es I’ve received as a group practice manager for over 26 years.
“The traditional group model sponsors two battlegrounds.
The first one is the struggle to become a successful practice in
the competitive marketplace. The second is the ‘King of the
Mountain’ struggle between competing factions for control
over all clinical and business facets of the monolithic tradi-
tional business model.
“This struggle for political control of the monolith con-
sumes vast amounts of valuable human resources, which is
regrettably very wasteful.
“The interdependent practice model eliminates the sec-
ond battlefield, and allows each physician to concentrate all
his or her energy toward successful individual practice
development.”
Pulaski points out that “we can see from the former Soviet
Union that a centrally-controlled business model is doomed to
failure because of its inherent sponsorship of inefficiency and
lack of personal ownership.”
Conversion Takes Time
Pulaski formulated his interdependent physician-practice
model before joining Peachtree. In fact, he made it a condition
of his employment that Peachtree adopt the model, which he
introduced to all the physicians at a weekend retreat he
requested as part of the job-interview process. The physicians
quickly caught Pulaski’s productivity-driven vision and
became excited by what he was proposing. The retreat ended
with an agreement to hire Pulaski and convert to the interde-
pendent model.
“It took over two years for Peachtree to complete the con-
version to this new model,” says Pulaski. “It’s not an easy
process because you have to build the systems to support it
at the same time you have to continue on with the status quo.
“For example, activity-based cost accounting. An entirely
new chart of accounts was needed. The data bases to accept
that chart of accounts had to be built and programmed. This
alone took 11 months.”
Peachtree fully switched over to the new model in
January, 1999. Although the group is large and is operated as
a limited liability corporation, Pulaski maintains that the
interdependent physician-practice model can be adopted
successfully by groups of virtually any size or type.
“Any group that wants to employ this new model should
consider it a win-win,” he says. “It is a win for the individ-
ual physician and a win for the group. Think of what will be
accomplished when all the time and energy currently spent
bucking the system and engaging in office politics is put to
productive use.”
Kelley agrees. “I am utterly amazed as I look back at
where we were three years ago and compare it to where we
are today,” he says. “We are one of the best business-man-
aged groups you’ll ever find.”
The R
AKE
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EPORT
finds Pulaski’s concepts worthy of dis-
cussion and keeping a watchful eye as his practice grows.
New concepts like this do not come along every day—at least
ones that seem to work. Time will give us the answer. In the
meantime, the R
AKE
R
EPORT
will follow Peachtree
Orthopedics.
RR
Contact
Lee A. Kelley, MD at 404.355.9311x1072
Carl D. Fackler, MD at 404.355.9311x1013
Reprinted with permission. © Copyright 2000, by the Rake
Orthopedic Intelligence Group; ALL RIGHTS RESERVED.
1670 Broadway, Suite 1000, Denver, CO 80202
telephone 720.931.7380, fax 720.931.7103
The Rake Group is sponsored and underwritten by
PricewaterhouseCoopers.
