Attracting and retaining physicians in academic medical groups requires new sources of revenue.

A colleague asked William Mazzei, MD, medical director of perioperative services at the University of California-San Diego, how his academic medical group generated new sources of revenue. Mazzei smiled wryly and said, "I think some have taken to panhandling."

While Mazzei's tongue-in-cheek response deserves a laugh, it also reflects a troubling reality: academic medical groups are worried about financial viability and out-migration of physicians. As a result, they are searching for new ways to generate revenue and attract and retain quality physicians, say the authors of an article in the March/April issue of Health Affairs. (1)

Academic medical groups have always had complex, multiple missions: teaching, advanced clinical practice and research. Now, however, shifting social, economic, regulatory and technological demands complicate academic medical group decision making. How can each of these missions continue to receive support?

The fate of academic medical groups

One of the most formidable crises facing academic medical groups involves physician resources. Medical centers are increasingly losing academic physicians to the greener, more lucrative pastures of private practice. Fresh out of residencies and burdened with debt, younger physicians are reluctant to commit to the lower-paying and sometimes bureaucratic environment of academic medicine.

From a purely financial viewpoint, the reasons are easy to understand. Academic medical groups simply can't compete with private practices regarding compensation. This is especially true in high-demand specialties and subspecialties, such as anesthesia, cardiology, interventional radiology, obstetrics and gynecology and orthopedics.

The differences in compensation are dramatic. For example, trauma surgeons make $263,059 annually in academic practice and $315,100 in private practice, according to Medical Group Management Association (MGMA) statistics. Meanwhile, ob/gyns make $191,082 annually in academic environments, versus $237,191 in private practice.

Overall, academic family care physicians make $140,944 annually, compared to $152,478 made by private family practice physicians.

As a result, academic medical practices are searching for new sources of revenue that go beyond professional fees and other traditional sources, such as philanthropy, funding of chairs and research grants from entities such as the National Institutes of Health.

Current revenue diversification trends involve ventures such as ambulatory surgery centers, freestanding diagnostic centers and cancer treatment centers. Academic physician groups benefit from such ventures through technical fees with 25 percent returns on investment, as well as professional fees.

Here's a case example that describes how an academic medical group can join forces with a medical center:

Challenge: Diagnostic, invasive radiologists typically make $285,325 annually in academic practice and $428,582 in private practice. Given these statistics, the department of radiology at a leading northeastern medical center became motivated to increase radiologist compensation as a means of retaining and attracting physicians to the group.

Strategy: In response to long wait times for imaging services and capacity constraints at the hospital, the radiology faculty group approached the hospital about developing a freestanding, off-campus CT center. The hospital declined the joint venture offer and allowed the radiologists to own and operate the center and share the hospital's scheduling system and other infrastructure/management services. For example, a patient who calls for an appointment is scheduled for an exam either at the hospital or at the freestanding diagnostic center, depending on which location is most convenient for the patient.

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Results: Having achieved profitability after two years in operation, the off-campus CT center is able to supplement the radiologists' salaries, invest in new equipment and reimburse the hospital for support services. The strategy was a "win-win" situation for the hospital, the radiology group and the patients who benefit from more convenient services and shorter wait times.

Unfortunately, not all joint ventures reach this level of success. How can academic medical groups avoid the problems that have plagued many revenue-generating ventures?

They would be wise to consider these steps:

* Work with physician and hospital leadership to build organizational support around the imperative of generating new sources of revenue.

* Offer physicians and executives well-illustrated data from objective sources such as the Medical Group Management Association (MGMA) and the American Association of Medical Colleges (AAMC).

* Explain and invite physicians and executives to discuss gaps in revenue, government funding and increases in malpractice premiums and costs.

* Find and publicly announce an internal physician champion.

* Give the physician champion support through well-trained staff members who can evaluate markets, build proformas, develop implementation plans and secure capital.

Here's another case study that describes how an academic medical group put these recommendations into place and bridged a rift with the medical center.

Challenge: Since 1999, executives at 450-member, Omaha-based University Medical Associates (UMA) have sought alternative revenue sources to offset the disparity between compensation offered by the academic medical group and private practice. UMA sets compensation targets for its physicians based on the 75th percentile of the MGMA Academic Practice and Compensation Production Survey. According to the 2004 survey, UMA's target compensation for gastroenterologists is $179,000. But, private gastroenterologists in the Omaha area earn more than $600,000 annually. "Without access to ancillary revenues, our physicians could work in clinic six days a week, 15 hours a day and never come close to the kind of income they could realize in private practice," says Cory Shaw, chief administrative officer of UMA.

Similar scenarios were found in cardiology, neurology, primary care and oncology. While hard-core academicians dug in and stayed with the academic medical group, recruitment and retention of other physicians was troubled. The academic group needed new sources of clinical income to offset the lure of private practice salaries.

Strategy: UMA decided to forge a partnership strategy to create an outpatient cancer center on the west side of Omaha. While hospital executives were initially cool to the planned venture, their thinking shifted over time--due in large part to the confidence of medical group leadership. "When it became clear that we were committed to moving ahead with this strategically important project, they chose to partner with us," says Shaw.

Results: To relieve capacity issues at the main campus in central Omaha, the medical center now plans to build an inpatient hospital and medical office building on the same site occupied by the 80,000-square-foot cancer center. Both parties are committed to partnering together with private physicians in the Omaha market to develop the new medical campus. "Through these discussions with Nebraska Medical Center we have collectively reached an understanding about how to achieve meaningful alignment between hospital, academic and private physician practices. We are excited about the future of our partnership," Shaw adds.

UMA is meeting its goals by giving physicians a new source of revenue while motivating the hospital to deliver services in an area where it had low market share. However, little would have happened without UMA's vision and determination to build the cancer center.

Having developed its own sources of capital, UMA had the ability to move independently of the medical center, but recognized the importance of both groups working together. In the end, UMA's commitment worked to the benefit of both parties.

In contrast to the success achieved at UMA, an academic medical group in the Midwest has yet to reach a comparable state of partnership. The academic medical group hoped to develop an ambulatory diagnostic treatment center offering ambulatory surgery, CT and MRI.

However, despite support from the vice chair of radiology and the chief operating officer of the medical group, as well as two full years of discussion, the project has yet to win approval. The chair of anesthesia feared the venture would precipitate physician disloyalty to the medical center. Meanwhile, the chair of radiology worried that even if the center were to generate high rates of return, it could jeopardize hospital funding of future multi-million dollar equipment purchases. The medical center is reviewing a more modestly scaled joint venture imaging project, but political hurdles remain.

This case illustrates two points:

1. The need to recruit a strong physician champion. Rely on that individual's interpersonal skills, experience and credibility to build consensus among formal and informal medical group leadership. This group typically comprises deans, chairs and high-profile physicians.

2. The need to exercise patience, remaining aware of the complex political and financial conflicts that often arise between medical centers and faculty plans.

At the same time, it's important to help medical center executives and board members understand why a new revenue-generating project is so essential. The key argument: without a strong faculty, the medical center faces financial failure, as well as failure in its core missions of teaching, clinical practice and research.

Paying for performance

A growing number of health plans and academic medical groups have initiated pay-for-performance program plans to address gaps in compensation.

Consider this example:

Challenge: Motivated to continue to improve patient care and boost revenues due to declining reimbursement, the Physician's Organization at Boston Children's Hospital initiated a pay-for-performance program with Blue Cross and Blue Shield of Massachusetts (BCBSMA). While a pay-for-performance agreement is typically initiated by a health plan, BCBSMA was excited by the prospect of working with a prestigious pediatric medical center and physician group that demonstrated a flair for identifying new clinical opportunities.

Strategy: The medical group and hospital researched diagnosis-related groups across varied specialties, choosing those that would most likely influence physician behavior and enhance the quality of patient care across a broad range of specialties. The medical group decided to focus on asthma, computer order entry and patient safety, as well as reductions in post-surgical infections.

Anticipated Results: If both the physician group and the hospital meet identified targets and reduce costs, they will each receive incentives above standard payment rates. In the interest of reinforcing physician involvement, physicians will receive a higher percentage than the hospital. Although the specific amounts of these bonuses remain confidential, "The opportunities are significant," says Irene Paresky, chief operating officer of the Physician's Organization at Children's Hospital, Inc.

Implications: Never easy to implement and monitor, these programs require strong data-tracking mechanisms and data management systems. Both the medical center and medical group must commit to tracking data, which calls for additional financial investment. Physicians, in turn, must identify diagnoses that provide opportunities for continued improvement, then develop achievable targets. Although the concept of pay for performance is relatively new, there is reason to be optimistic. "The collaborative approach between our health plan, hospitals and physicians offers significant opportunities to improve the health care experience of every member and to provide cost-effective care," says Deb Devaux, senior vice president of provider contracting at BCBSMA.

A similar scenario is taking place at a leading academic medical center in the South that established hospital financial targets, such as net income, as well as quality targets, such as administration of antibiotics, reduction in medication errors and patient satisfaction.

When the medical center meets its financial and quality targets, it gives 25 percent of the bottom line to the academic medical group. The dean of the medical group can use these unrestricted funds to support programs such as recruitment of subspecialty faculty or early stage research.

New avenues

Other methods of revenue generation will undoubtedly surface in the years ahead. The Department of Orthopedics at the University of Florida in Gainesville has already benefited from commercial research. In the early 1990s, department leaders established a framework to develop a tissue bank with an outside partnership.

When the company realized its financial goals and went public, the department used proceeds from the initial public offering to create a freestanding sports medicine and orthopedic center.

In the same way, the Medical College of Georgia has created a business incubator called the Life Sciences Business Development Center. The Center provides space, equipment, access to campus resources and business advice. Each new business is paired with a mentor and group of advisors who grow the business with the goal of developing products or services that satisfy unmet needs and generate return to investors.

On the East Coast, Harvard University, Harvard Medical School and seven affiliated hospitals have formed the Harvard Biomedical Community to manage technology licensing, industry-sponsored research and material transfer agreements.

The group's Web site fosters access to Harvard biomedical technologies and materials, which are managed by the Office of Technology Licensing at Harvard Medical School.

Lessons learned

Here are just some of the lessons learned in creating ventures that involve an academic medical group and medical center:

* Address medical center concerns about cannibalization of profitable services. Executives are justifiably worried that faculty will focus on services with high margins, leaving the hospital to provide services with little or no return.

* Make the case for partnership and a "win-win" scenario. The academic medical group must argue that the medical center depends on the faculty for its patients. If the medical center is unable to pay faculty salaries that compete favorably with those offered in private practice, the medical center is putting its future at risk.

* Focus on the benefits of improving patient satisfaction through faster and better service. Making services more accessible to patients benefits everyone.

* Be patient. It could take months, if not years, to develop a workable strategy that meets the needs of all parties.

* Address faculty fears. Physicians often assume that a medical center joint venture will force them into a productivity "pressure cooker." They fear that a medical center's obsession with financial performance will detract them from their primary missions: teaching and research. Let them know that the medical center is committed to sustaining its reputation through strong programs in research and teaching.

* Find an entrepreneurial physician to launch the venture. This individual must have experience running a for-profit venture as well as a national track record in clinical research and teaching. He or she should also have the ability to build consensus and develop solid business plans. If the physician has gaps in knowledge, skill or experience, retain outside consultants to complete specific tasks and projects.

* Hire an executive with operations experience to run the venture. Look for someone who can build a patient- and physician-focused service and run it at profit levels comparable to those realized in the private sector.

As payer revenues and research funds decline, medical school deans will demand that department faculty focus on performance and sustain financial viability. Academic medical groups will come to view profitable clinical ventures not as financial band-aids, but as indispensable strategies in achieving the more traditional academic mission.

Hopefully, the health care equivalent of panhandling will never have to occur.

Jeffry Peters is president of Health Directions, LLC, consulting firm based in Chicago, Ill. He can be reached at 312-396-5403 or [e-mail]

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References

1. Pham, HH, Devers, KJ, May, JH, and Berenson, R. "Financial Pressures Spur Physician Entrepreneurialism." Health Affairs, Vol. 23, Issue 2, March/April 2004.

2. MGMA Academic Practice Compensation and Production Survey, 2005 Report Based on 2004 Data.

Total Median Compensation*

                          Academic  Private Practice

Anesthesia                $240,489  $317,481
Cardiology-Inv-Int        $239,042  $439,221
Internal Medicine         $135,126  $159,252
OB/Gyn-Gen                $191,082  $237,191
Interventional Radiology  $285,325  $428,582
Orthopedic Surgery        $250,000  $385,000
Trauma Surgeon            $263,059  $315,100

*Source: MGMA Academic Practice Compensation and Production Survey for
Faculty and Management, 2005 Report based on 2004 data