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    David W. Miller
    David W. Miller, MHA, FACHE

    The explosion of hospital-owned physician networks has created dramatic changes in the physician community. Driven by challenges to private practice including the growing complexity of physician practice management, increasing numbers of physicians have sought employment relationships with hospitals. In many markets, hospital employment predominates.

    While market-based challenges are driving this trend, the hospital employment model has inherent challenges as well. Fundamentally, most hospitals pursue physician employment with limited experience and capabilities managing physician practices. Hospital executives often do not know what questions to ask, and hospital managers may not have the experience or knowledge to manage a physician enterprise.

    Most hospitals are defining success as building a group that can serve patient needs and generate volume for the hospital. Organizations that understand the potential of these groups have a more ambitious definition of success: building a group that can reliably produce quality outcomes and predictable costs.

    Hospital-employed networks have to overcome several barriers to achieve their objectives. The two biggest are lack of management infrastructure and lack of shared vision for the network. A close third is lack of physician leadership. In addition, there are six common, but not pervasive, issues. 

    Lack of management infrastructure

    As hospitals and health systems accumulate physicians, they rarely create the robust management infrastructure required to manage an integrated group. Hospitals assemble a business with tens of millions of dollars of revenue and allow practices to operate as they always have.

    This mindset is often driven by the hospitals’ focus on full-time-equivalent (FTE) providers and the desire to contain costs, deciding not to augment management at the time of an acquisition, which entails not adding expensive executives who know how to organize a large group. It necessitates supporting the group in areas such as quality, revenue cycle, financial analytics and information technology (IT) support. It warrants being penny wise and pound foolish.

    In reality, hospitals are in a catch-22. As they build large groups, the managers with the breadth of experience needed often do not exist. The group assembled by the hospital is much larger than any preceding group in almost any market. As a result, inexperienced hospital executives are left to project which managers can meet the needs of a much larger physician enterprise.

    Best practice is to invest in an executive with experience and build the management infrastructure from two perspectives. First, develop the capabilities of the managers at the individual practice level and the supervisory support to make them successful. Second, employ subject matter experts who can help manage functions across the network. Industry benchmarks can help identify needed resources.

    Lack of shared vision

    As hospital-employed networks evolve, most of the initial focus is on growth, followed by mitigating losses as the lack of management infrastructure creates operational chaos. While this is happening, management rarely asks what they need the group to be over time, which affects the group’s future success.

    When working with physicians and executives, plans should be discussed 10 years out. In doing so, each cohort needs to address a couple of fundamental questions. 

    On the hospital side:  

    • How must the group evolve to help the hospital/system achieve its mission? 
    • What does the hospital need from the group to recoup its investment? 

    On the physician side:

    • How can the group be mutually beneficial?
    • How must the group evolve to meet physician and patient needs? 

    Answering these questions can lead to an understanding of the capabilities that must be built for long-term success.

    While elements of the vision may vary by network, there are generally commonalities. The group needs to develop physician leaders. It must build clinical informatics to help guide implementation of best practices. It must address provider well-being to develop and retain clinical talent. It must focus on care coordination, whether with group physicians or private practitioners in the community. As these discussions progress, hospital executives and physicians will become better aligned. 

    Lack of physician leadership

    While there are many physicians who are good leaders, their development tends to be organic, rather than systematic. They have become good leaders despite a lack of formal leadership development and poorly defined roles.

    To address this challenge, a more formal approach is needed. Leaders in these groups need to be developed and groomed around four core elements: 

    1. More formal and rigorous selection process, with clear definition of skills needed and formal testing of those skills. 
    2. Greater leadership development, to include experience, formal mentoring, and classroom education and training. 
    3. Clear role definition, built around achievement of the shared vision, particularly in dyad relationships. 
    4. Accountability for results, built around those roles and the vision.

    Six other issues create barriers to the performance of physician groups. Although not universal, these occur frequently enough to warrant mention.

    1. Failure of due diligence, which results in poor acquisitions. Essentially the hospital is inheriting the problems of a private practice and bringing them into the new network. Hospitals should have a comprehensive process to vet practices.
    2. Failure to employ the right doctors. Not developing a plan that targets clinically strong and strategically important doctors who fit the practice’s culture can lead to failure. Always remember it is easier to avoid this mistake than to divest a physician once he or she is employed.
    3. Promising the physicians “nothing will change.” To build a successful group, inappropriate variation in clinical care and practice operations must be tackled, scheduling templates and practices need to evolve, and so on. This promise creates a dynamic that makes it difficult to make needed changes.
    4. The group going rogue. Sometimes employed networks do their own thing and have no shared vision or plan with the hospital. They take no accountability and are an island to themselves. By doing so, they hinder the development of the group.
    5. Lack of IT infrastructure. Integrated patient data is crucial to building a group that can coordinate care and pursue best practices in a disciplined way. Failure to invest in that capability and to standardize IT is inconsistent with the development of a successful group.
    6. Failure to work with private physicians. Private practices still have an important place in most communities. A physician group committed to building the capabilities to produce predictable outcomes and costs must deal with this reality. Working with group physicians to coordinate care and to meet quality and cost requirements is an endeavor worth pursuing to achieve success. 

    Failure to plan for these factors, or bungled implementation, will slow the progress of your group. If the group has a physician advisory council, engage that leadership in a discussion of these factors and build a plan to remove them as barriers. 

    David W. Miller

    Written By

    David W. Miller, MHA, FACHE

    HSG Managing Partner David W. Miller primarily focuses on strategy development, including strategic plans for hospitals & health systems and employed physician groups, affiliation/merger strategies, physician alignment strategies, primary care strategies, and service line planning.  He also provides board and medical staff education and retreat facilitation.  Before co-founding HSG in 1999, David spent four years as a Partner with the Galvagni-Miller Strategy Group and fifteen years as an executive with Norton Healthcare in Louisville. David is a Fellow of the American College of Healthcare Executives (ACHE) and serves on the board of the organization’s Kentucky chapter. He holds a Master’s Degree in Health Administration from The Ohio State University and a Bachelor’s Degree in Management from Virginia Tech.

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