Physician governance--the strength behind St. John's Clinic.

St. John's Clinic (formerly St. John's Physicians and Clinics, SJP & C) is a multispecialty clinic employing approximately 460 physicians, 130 mid-level and allied clinical professionals, and 1,900 employees. The clinic service area is located in 13 counties within Southwest Missouri.

Partnered with St. John's Hospital and St. John's Health Plans, it forms St. John's Health System (SJHS), which is one of the largest health care organizations in the state. With over 46 medical/surgical specialties housed in 70 offices, the clinic offers comprehensive medical services with special acclaim in cardiology, urology, sport medicine, oncology and pediatrics.

The system is part of the larger not-for-profit Sisters of Mercy Health System based in St. Louis, MO. SJHS has been named by Modern Healthcare magazine as 14th in the "Top 100 Integrated Healthcare Networks" in the United States.

In the beginning

In the early 1990s, SJHS embarked on a presumptive strategy to improve hospital-physician alignment by attempting to create an integrated health care delivery system (IDS) through the purchase of desirable local and regional physician offices.

Senior hospital management felt such purchases would position the hospital for the future, help gain a competitive business advantage, ensure physician referrals, provide leverage for controlling costs and access to capital and offer opportunities to improve quality of care.

Through physician employment agreements, a steady flow of hospital patients would be secured. Three years into the development of the hospital integrated health care delivery system, significant financial and physician relationship problems began to emerge.

SJHS grew quickly into the largest provider of health care within the region. The hospital had, over a two-year period, slowly begun to purchase physician practices in the rural counties of its service area. The rural network originally consisted only of 20 practices. This initial strategy seemed to provide the hospital with an improved patient flow for hospital specialty care and procedures.

In 1993, with the external environment seeming to push for further integration development, the hospital again began to purchase key high-volume physician practices, with an emphasis on primary care. With the decision to vertically integrate, negotiations were pursued with the largest medical group in the city: Smith Glynn Callaway (SGC) Clinic. SGC was a large, 120-physician, multispecialty group that was the largest physician-owned group and medical building in the state.

By early 1995, SJHS had agreed to a buyout of Smith Glynn Callaway. This brought the total number of physician employees to approximately 280.

With the acquisition of SGC, the organization now had increasing leverage with which to approach the smaller, single- and multispecialty groups within the region. These smaller clinics ranged in size from three to 10 physicians and were mostly located within clinic space owned by the hospital, on their medical campus. Over the next year more offices joined the hospital system with little hesitancy.

Darkness looms

As practice acquisitions proceeded for the hospital-based system several problems began to arise. Although physician recruitment was successful, physicians were lured into a false sense of security with promises of freedom from management worries." We'll run your practice ... all you have to do is practice medicine."

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But the message also brought with it several problems. Physicians took less and less interest in the performance of their practices. Patient access declined and accounts receivable soared due to the inadequately managed central business office, poorly communicated new billing and collection procedures and inattention to point of service collections.

Another area of concern was physician compensation. The compensation formula was based on gross patient charges. Although physicians were responsible for reporting only their gross patient charges for salary determination, these charges were only loosely aligned with physician income and the bottom line (net revenue income).

For each physician specialty a linear graph was created to help convert gross charges to income. The slope of the graph correlated with some estimate of operating expenses as a percentage of gross charges. The y income axis intercept represented the "income value" of each medical specialty as determined by the health system. These amounts ranged from $10,000 to $35,000.

By focusing physician attention on gross charges instead of net revenue, it was easy for physicians to mistakenly believe their incomes could be maintained by the treatment of fewer patients with increased billed charges.

In the beginning, little attention had been paid to the establishment of a new organizational culture and governance structure. Physician governance within the system was extremely limited. Senior physician leadership consisted of a physician on the SJHS board, a senior physician VP/chief medical officer for managed care and quality and a medical executive committee. Physicians also chaired the usual clinical departments and sections.

Between 1997 and 1998 the image of the health system suffered. Physician and hospital staff discontent began to grow. Physician calls for improved, clear communication and increased input into system decision making went unanswered. The perceived centralized authoritative leadership approach of senior administration continued to fuel a fire of personnel unrest.

Several events, including a strike by operating room personnel and the unionization of rural emergency medical technicians, placed the health system leadership in an unfavorable public light. The turmoil was surfacing. Open hostility erupted at physician-administration meetings and many physicians discussed opting out of their employment contracts.

A severe crisis of confidence emerged.

Is the grass greener?

Given the difficult problems facing them, physicians had three choices:

1. Do nothing. The physicians could accept their current compensation instability as part of the changing medical market trends and hope for a financial rebound. This option did not address any of the fundamental problems facing the physicians or the hospital system and would have left the system to eventually implode.

2. Leave the system and reenter private medical practice as non-affiliates with the local hospital system. This option presented two difficult problems to resolve. Most of the physicians were not in a legal or financial position to leave the hospital system. The physician contracts allowed for elective physician termination of the employment contract two years from the original signing date. However upon termination a non-compete clause became active for a two-year period. Simply stated, a physician could not practice medicine within a 25-air-mile radius of the main hospital campus and within 25-air-mile radius from the physicians primary work location. Furthermore, physicians could not buy out of the contract without hospital consent. A legal challenge to the non-compete clause faced an uncertain outcome. Finally, the personal capital investment necessary to establish similar practice was limited for many system physicians.

3. The last and ultimately successful option was to work with the hospital and system for radical change. Since senior leadership would not listen to a call for a change, it became apparent radical change directed towards system reorganization was required. A strong physician governing body on an equal level with the hospital was needed to promote fundamental operational change and develop a unified culture upon which an integrated health care system could be built. Such change would only occur if the parent system became aware of the need for such change.

Letters of no confidence were drafted and sent to the local hospital leadership and the chairman of the board for the parent system with signatures from many physicians including the entire pediatric section. Other influential physicians with the local system were contacted. Over the next two weeks more than 100 primary care and specialty physicians signed a letter supporting system leadership change.

The strategy of constructing an IDS merely through medical practice acquisition had been successful as a delivering alignment but had failed from a relationship enhancing standpoint. (1)

Search for equality

During the late '90s, many hospital-centric systems and their physicians had undergone similar crises to the point of disintegration. This would not be the case for SJHS.

In a visionary decision the SJHS parent corporation, the Sisters of Mercy Health Systems (SMHS), committed to developing a solution for SJHS survival. Seeking to create a truly integrated health care system with physicians, the hospital and a managed care plan as equal partners focused on quality patient care, an internal study to determine SJHS problems was undertaken. Critical to the process was the effort of physician work groups.

The many problems plaguing SJHS, could largely be placed in the following categories:

* Failure of the organizational structure to create a sense of culture, with absences of a feeling of ownership among physicians and management

* A compensation plan that was too complex and not market based

* Failure to align organizational incentives with physician goals

A 2001 article in Medical Care Research and Review points out that the case for hospital system reengineering is influenced by economic and institutional factors, but that institutional factors play a greater role given the high degree of uncertainty in health care and the anticipatory actions of hospitals attempting to position themselves in a rapidly changing environment. (2) The case was no different for SJHS and SJP & C.

The reengineering process took over 18 months and consisted of several phases. The first phase involved the development of a restructuring plan. Central to this effort was to foster an atmosphere of trust, shift the decision making paradigm to open thinking, push collaboration as the leadership style and find a balance between individual physician and organizational needs.

In February of 1999, with the decision to reengineer St. John's Physicians and Clinics, five focused restructuring workgroups were formed along with a restructuring oversight committee. The goal of each committee (restructuring oversight, organizational structure and governance, operations and management, compensation and communication) was to address the three key issues that created the necessity for fundamental change.

Emphasis was placed on creating an organization that would allow for greater physician authority and accountability in the management of their practices as well as develop a sustainable future financial model for the clinic.

After three months of great effort, several important restructuring recommendations were made. Not surprisingly, among the recommendations were the following:

* Physicians would have a greater degree of authority and accountability for SJP & C operations through the creation of separate clinic governance and individual physician business units.

* Although separate by legal constructs and governance, the clinic and the hospital should be integrated as co-equal corporations of the system to pursue the system mission of health care excellence and community service.

* Physician compensation should be on a net production basis-tied to collections from clinic operations with two years of transitional support, allowing time for improvement in clinic operations.

* A culture that encourages physicians to participate in and benefit from the success derived from creating financially efficient clinical and medical management activities would be developed.

Empowered physicians

The organizational restructuring proposal recommended that equal and separate urban and rural clinic and hospital corporate entities be created, each with separate physician presidents and physician-dominated boards. Physicians and their business units would be organized under the new St. John's Clinic.

A new managed care contracting committee (SJ Health Plans Board) with a physician majority was created to oversee and approve all contract negotiations and approvals. Physician membership on the system and hospital boards was also increased.

Finally, a new system CEO, system CFO and clinic COO were recruited, each with a history of building strong trusting collaborative relationships with physicians.

The next phase involved finalization of the new modified bottom line physician compensation plan, based on net revenue and expenses. Using the initial compensation committee recommendation, the clinic board, through a chartered committee, established compensation targets for each specialty using Medical Group Management Association (MGMA) and American Medical Group Association (AMGA) data.

Business unit expenses were also evaluated. A clinic goal to help each physician maintain his or her current income was agreed upon. Individual income plans were created for each employed physician. One stressed needed changes in physician productivity, coding improvements, service fee adjustments and office expense reduction needed to increase physician net revenue over the two-year transitional support period.

A primary care value support plan funded by specialty physicians was also instituted using supporting MGMA data that demonstrated the income value of the primary care physician base to specialty physician referral volumes. These payments were tied to physician productivity, patient volume and patient care relative value units per clinical discipline.

A time window to allow physicians to buy out of their employment contracts, at the cost of their original signing bonus, was approved by both the clinic and system boards but the incentives of a change in governance structure and improved financial stability encouraged the overwhelming majority (95 percent) to stay.

A new clinic and system

By early 2000, the reengineering process resulted in the election of a clinic board and the selection of both an urban and rural physician clinic president and a clinic COO.

As clinic senior management and department and section leaders worked to further empower physicians and slowly change attitudes from disillusionment to doubt and even guarded optimism, five key clinic initiatives were developed and communicated to the physician body.

1. Improve physician satisfaction

2. Improve employee satisfaction

3. Identify patient health needs and disease management programs

4. Improve patient satisfaction

5. Improve clinic image and identity

These initiatives were developed in keeping with the five essential elements of board/physician staff relationships:

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1. Strategy setting

2. Capital planning

3. Credentialing and privileging

4. Ensuring clinical quality

5. Measuring staff satisfaction (4, 5)

In addition to the new initiatives, a new management plan was unveiled. Major compenents included:

1. Practice improvement teams to aid physician business units in streamlining office operations and improving billing collection

2. The creation of the clinic billing office (CBO) to develop a new clear and concise billing process

3. Development of a new management team of clinic operational VPs to provide leadership and operational experience to physician offices

Physicians now were being encouraged and incentivized to reinvest themselves in their respective medical practices with the strategic support of an all physician board. Additional administrative support services were also developed to improve clinic operational cohesions including clinic accounting, human resources and physician recruiting departments.

Finally, to improve physician understanding and analysis of complex health care issues, a 12-month leadership development educational program was crafted between SJC and a local university for current and future physician leaders. The third class of 40+ students began its first session in 2005.

Dawn of a new day

The most important task following clinic restructuring was the need to rebuild physician trust in SJHS. After two years of targeted work by the restructuring workgroups, the focused initiatives of the physician boards had largely been operationally accomplished.

To create a collaborative relationship between governing boards and management, and thereby improve medical staff relation, look at the three strategies of engagement, demonstrable investment and camaraderie.

By fostering qualified knowledgeable physician boards senior management can begin to make tough decisions in a collaborative manner. Resources can be allocated in a way to support medical practices through linking information technology and increased organization efficiency and effectiveness.

Finally, physician-governing boards must communicate with their staff colleagues through consistent two-way listening, shared concern and a relaxed socialization. (5,6,7)

To this end, current system leadership has communicated frequently and honestly with the clinic board and the physician staff. Senior system leadership has encouraged the reorganization of key committees such as the health plans board with majority physician membership.

Resource allocation is no longer based on who can shout the loudest but on formally constructed business plans developed by physician/administrative teams. The clinic board and president have further provided increased opportunities for the physician base to socialize with physician leadership and engage in critical listening through the creation of a quarterly "culture club" social gathering.

The year 2002 saw remarkable change for SJ Clinic. Financial stability improved as key financial indicators such as days in AR declined and net collection rates increased. Total physician compensation increased by 30 percent as physician productivity increased by 9 percent per year.

Physician satisfaction increased as communication about clinic operations expanded from quarterly meetings to a variety of monthly and weekly formats. Physician recruitment increased annually to a high of 50 new physicians in 2003. Physician turnover decreased to less than 4 percent per year from a high of 16 percent in 1999.

Physician suggestions to improve individual and clinic operations were acted upon. System managed care capitation rates were adjusted for physician specialties to reflect more accurately the health care demands of the populations served and physician work effort. As can be expected, employee satisfaction scores followed suit.

With renewed intra-organizational trust and culture, patient satisfaction became an important focus of the clinic strategic plan. Clinic patient satisfaction scores, as measured through regular standardized questionnaires, dramatically increased.

In the spring of 2004, St. John's Clinic was named a Top 10 clinic in patient satisfaction. Ranked No. 1 nationwide for clinics with more than 100 providers, the patient satisfaction surveys were conducted by Press Ganey, an independent polling firm based in Indiana.

The clinic also received the 2003 Preeminence Award from the American Medical Group Association in the large clinic category, further attesting to the clinic's exceptional leadership, innovation and vision, contributions to medical quality advancement, effective health care delivery practices and structure, and contributions to the local community.

Today the clinic patient satisfaction scores continue to rank SJ Clinic as number one in the nation in the over 100-physician clinic category.

Michael Goler, MD, MBA, CPE, FACHE, CMPE, CPHQ, is director of system performance improvement at St. Joseph/ Candler Hospital System, Savannah, Ga. He can be reached at 912-819-8563 or [e-mail].

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Donn Sorensen is senior vice president and chief executive officer of St. John's Clinic in Springfield, Mo. He can be reached at 417-820-2218 or [e-mail]

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References

1. Green, T. "New strategies required to improve hospital--physician alignment." Health Care Strategic Management. May 2003, 15-17.

2. Watson, SL, Kimberly, JR, and Burns, LR. "Institutional and economic influences on the adoption and extensiveness of managerial innovation in hospital: the case of reengineering." Medical Care Research and Review, June 2001, 194-233.

3. Course Notes--Ambulatory Care, Professor F. Wenzel, Executive MBA program, University Colorado at Denver, Spring 1999.

4. Pointer-O'Grady, T, and Afable, R. "Accountability and action: affirming the five key elements of the board-medical staff relationship." Health Progress, January-February 2004, 44-48.

5. Rice, JA. "Developing a partnering culture: the role of board and management in improving medical staff relations." Healthcare Executive, May/June 2002, 6-10.

By Michael R. Goler, MD, MBA, CPE, CHE, CMPE, and Donn E. Sorensen, MBA, FACMPE

RELATED ARTICLE: Key IDS characteristics

Physicians play a key role in the overall leadership of the organization.

The organizational structure provides common management and coordination of all elements of the integrated system.

Primary care physicians are economically tied to the clinic and system.

Physicians themselves are integrated.

The system controls its own financing mechanisms and/or has the ability to enter into "single signature contracts" with other health plans or large employers.

The financial incentives of physicians, hospital and health plans are aligned. (3)

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St. John's Clinic

Patient satisfaction and service clinic ranking in peer group 100+
providers

             Number of Clinics

May-Jul 01   13.53
Aug-Oct 01   17
Nov-Jan 02   13
Feb-Apr 02   12
May-Jul 02    8
Aug-Oct 02    8
Nov-Jan 03   10
Feb-Apr 03    5
May-Jul 03    2
Aug-Oct 03    2
Nov-Dec 03    3
Jan-Mar 04    2
Apr-Jun 04    3
Jul-Sept 04   3
Oct-Dec 04    1

Patient satisfaction and service raw score

              Actual  Goal

May-Jul 01    86.9    90.0
Aug-Oct 01    87.2    90.0
Nov-Jan 02    88.4    90.0
Feb-April 02  88.7    90.0
May-July 02   88.9    90.0
Aug-Oct 02    89.4    90.0
Nov-Jan 03    89.3    90.0
Feb-Apr 03    90.1    90.0
May-Jul 03    90.5    91.5
Aug-Oct 03    91.0    91.5
Nov-Dec 03    91.5    91.5
Jan-Mar 04    91.4    91.5
Apr-June 04   91.7    91.5
Jul-Sept 04   91.5    91.5
Oct-Dec 04    91.7    91.5

Note: Table made from line graph.