How to successfully dissolve a hospital-owned practice.

As the medical director of a 25-physician multi-specialty group belonging to a profitable Midwestern health system, my job is, of course, to lower the bottom line.

While most of our sites are located in southwestern Indiana, we also have clinics in rural Kentucky and Illinois. All of these sites are within a 100-mile radius.

The practice administrator and I were called in to a meeting in November 2002, by the hospital's president, vice president of finance, and vice president of operations and charged with the responsibility of reducing physician support to the group by the health system.

Prior to this meeting, the practice administrator and I had already considered closing one of our rural sites. Although our individual sites do not make money, the contribution to the hospital owned by the health system far outweighs the loss, with the exception of our more remote sites.

In those areas there is generally a small community hospital that gets the primary admissions. The system's main hospital, located more than 50 miles away, might or might not get the tertiary admissions, including open heart surgeries, angioplasties and stents. In light of this it seemed like we could easily reduce our practice support to the health system by eliminating at least one of these rural sites.

There were four sites from which to choose:

* Morganfield, Kent., which has an internist and family practioner

* Eldorado, Ill., with a family practitioner and a nurse practitioner (It is also the most distant site)

* Petersburg, Ind., which has two family practitioners and a nurse practitioner

* Princeton, Ind., with three internists and one family practitioner

It was obvious to us that we needed to start with the Eldorado site. This location was in a very small, rural town with little opportunity for growth. All of its primary admissions went to a local hospital. Only some of the tertiary admissions came to our facility, the others going to a competitor in Illinois.

By our calculations, we would have a net savings of $87,000 (certainly a substantial amount) by closing this site. The practice administrator and I subsequently formulated a plan for closing this facility. Insofar as the subject of closing rural sites had come up in previous meetings, we thought there would be little or no resistance offered by administration.

In setting up our proposal, it was imperative for us to maintain good relations with the local medical community in Eldorado in order to still get the much-needed referrals. We also realized that our competitor system in the region would try to use this closing to its political advantage. We grouped this in the area of external political considerations.

Next, we examined internal political considerations including "stakeholders" and their positions. On the expense reduction side we had support from the vice president of finance. We needed to reduce expenses as quickly as possible to lessen the impact of an unproductive practice on our medical group and to the system as a whole.

To make matters more interesting we had to contend with those who wanted to maintain the status quo, including the regional network services manager whose job it is to maintain good relationships with the outlying communities in order to get referrals to the main hospital and its specialists.

[ILLUSTRATION OMITTED]

Finally, there was also an uncommitted faction whose members were the president of the hospital and the vice president of operations. It was our job to try to convince the uncommitted group to accept our plan. In preparing for our negotiations, the practice administrator and I prepared a presentation incorporating the following elements:

* Location selection criteria

* Impact on the medical group's financial condition

* Impact on referral admissions from the area of the practice selected

* Strength of relationships in the area of the practice selected

* Actual financial data to justify our premise

Surprising twists

At the negotiation meeting the proposal was put on the table and discussed. It was at this point that we realized that we did not take into consideration the feelings that would be generated by the president, vice president of operations, and regional network services manager.

We were unaware that there was a changing political climate facing our competitor system. The competitor had a major disagreement with the local hospital in Eldorado, a situation that had the potential of generating more secondary admissions and referrals to us.

Although the vice president of finance was only interested in the bottom line, the president, and vice president of operations were more interested in maintaining good relations with the medical community, as well as the doctor at that site and the rest of the medical group who they feared would see the termination as an indication of weakness, or even worse, as a plan to dissolve the group.

We were not really as prepared as we thought and the meeting ended with us going back to retool the original plan.

In preparation for our next meeting some weeks later, we met with the regional network services manger and the director of human resources--the latter being consulted since the physician and staff that would be terminated were all employees.

We felt that if we better understood the position of the regional network service manager (a long-term employee with a good relationship with administration) and had the director of human resources guide us through a termination of employment plan we could generate better support at the next meeting.

Nothing, of course, is simple. There were several other mitigating factors. As medical director, I was hired only 10 months earlier, and the practice administrator was only two months into the job. We were the new kids on the block and failed to understand and pick up on all the political nuances that come with living in the community for a long period of time--including the fact that the president of the hospital and the wife of the physician went to nursing school together. This is a strong political tie in this Midwestern community. It also became fairly obvious that the regional network services manger had the "ear" of administration.

After discussing the issue with more people, I outlined a plan to terminate the physician without cause. His contract called for a 120-day notice of termination without cause that would be extended to 150 days on the advice of the regional network services manger. In addition, we allowed the physician to keep all his charts even though they technically belonged to the system.

We also allowed the system's management service organization to continue to do his billings and collections for one year at a cost commensurate with other billing services in the area. A consultant would be provided to the physician to help him transition back into private practice.

All hard and soft assets were to be sold to him at fair market value, and if he were willing to move, we would place him at one of our other locations. Also, a severance package was put together for the staff. All benefits would continue through the 150-day transition period.

Finally, the regional network service manager was available to consult with the physician and help broker a deal with the local community hospital to see if it would like to acquire this physician as an employee.

Plan approval

We met again with the CFO, president, and vice president of operations. (The regional network services manger could not make the meeting, but had already voiced his approval of the plan.)

To minimize the impact of the divestiture, the hospital asked that we let the physician know that his contract would not be renewed instead of issuing a termination notice 150 days prior to the end of his contract. In essence, this meant that instead of terminating the physician in February of 2003, we would allow his contract to run out and not be renewed. This extended the practice until June 30, 2003.

Although carrying the site was costly to the medical group and ultimately to the system, the other administrators felt this minimized the negative perception of this move by giving the physician an additional 90 days to transition into private practice. After answering many questions and assuring these individuals that the termination would be done with as much sensitivity as possible and that we would also speak with the physician board members of the group as well as the entire group to allay any fears of group dissolution, we got our long-awaited approval.

Our next step was to actually dissolve the practice site. The practice administrator and I first spoke with the board of our medical group. We explained to them that this was a system decision to divest itself of this site, and not subject to the group's board. Although unhappy about not being part of this original decision, they understood the financial impact.

We then spoke with the physician at the site and held a meeting with the office staff. We outlined our proposal for dissolving that location. Although dismayed, the staff appreciated the time being allotted to finding new positions and the severance package offered if they could not find jobs by June 30, 2003.

The physician, while unhappy at the prospect of going into private practice, did appreciate the advance notice. He asked for a loan to help him with the transition and this was readily approved by the hospital administration. It was his hope to maintain his practice and all employees in their current positions and salaries.

During this dissolution phase, the regional network services manger identified a federally funded community health program that was interested in establishing a clinic in Eldorado. We arranged a meeting where the physician and the director of the health program discussed various options. There was almost an immediate agreement reached between the two sides.

The community health program built a new clinic in Eldorado and hired the physician and his entire staff. Their commencement date was July 1, 2003. Salaries and benefits were maintained for everyone and there was no break in continuity of care for the patients. A very positive relationship was maintained with this physician, staff and community.

This outcome was possible because of the extensive pre-planning that occurred including the decision to extend the notification date. It was also fostered by the fact that the practice with our help stayed intact. We were successful in saving money by dissolving a practice site and the outcome benefited everyone involved.

By Randy J. Gershwin, MD, MMM, CPE, FACPE 

Randy J. Gershwin, MD, MMM, CPE, FACPE is the medical director of the WeCARE Program at FEGS Health and Human Services System in New York City. He can be reached at 212-524-5629 or [e-mail]

[ILLUSTRATION OMITTED]