The Enterprise Circle.

IT'S NO SECRET THAT many physician enterprises are struggling, with less than adequate financial and clinical results. One of the main reasons is that the business of health care is rapidly replacing the practice of medicine. Many physicians find themselves part of larger systems that pretend to understand what motivates and encourages the "right" physician behaviors.

In addition, the new health care marketplace requires flexibility, open mindedness, and change readiness. These aren't particularly strong suits for physicians whose training emphasized autonomy, independent thinking, and self-sufficiency.

System-physician partnerships aren't working. If these partnerships are to become successful, here's an overview of what needs to happen:

* It will be essential for everyone to "get back to basics."

* Physicians and systems will need to find a way to work together.

* Values and vision will precede positive financial outcomes, not follow them.

* Physician buy-in will lead organizational change (not be a byproduct of it).

* The new physician enterprise will be driven by a return to the values so eloquently described on each medical graduate's diploma--the Hippocratic Oath.

Working together or going it alone?

Physicians and hospitals collectively suffer from "mural dyslexia," characterized by an inability to read the handwriting on the wall. The handwriting is indeed clear. To survive, hospitals must collaborate with doctors because the most expensive piece of medical technology is the physician's pen. In turn, to survive, doctors must collaborate with someone, and the hospital remains the natural partner.

Many physician-hospital partnerships flounder because the focus is on negotiating how the partnership is structured, who wins in governance issues, and how all the involved parties get paid. It is far more important to decide whether or not you want to work together, and why, than it is to negotiate the deal.

In addition, physicians' values as practitioners often compete with system values. Population-based medicine within a managed care setting is at odds with individually based doctor-patient relationships. Care customization, entrepreneurial attitudes, teaching, and research compete with standardization, patient care, and downside protection. These opposing forces lead naturally to the results we see today.

A holistic approach: the enterprise circle

Can successful physician-hospital partnerships really be created? Based on years of serving health care clients, practicing within and leading physician groups, and being part of the faculty at academic medical centers, I believe it is possible.

The enterprise circle in Figure 1 depicts the stages, steps, and strategies that must be in place for successful collaboration to occur. Successful entities start at the center of the circle and work out toward the perimeter. For any physician/ hospital organization, the key steps include:

1. Formulating a vision

2. Focusing on value creation

3. Finding and cultivating physician leaders

4. Instituting a medical management program

The circle should be viewed as a multi-tiered, integrated solution. The inner circle provides the strategic underpinnings for the entire enterprise. Organizations will have a difficult time if they rush to implementation, rather than spending time in the center of the circle. The middle circle represents the tactical solutions required to be successful. And the outer circle provides an operational structure around which the enterprise is run. Knowledge sharing and communication enable all enterprise functionality.

I. Formulate a vision

Physicians and systems should invest time up-front to agree on a common vision. There's no doubt it is time well spent. Physicians can step back and understand what values are critical to their care delivery processes. A practitioner's view of the system is colored by how easily patients can access it, its reputation in the community, and the quality of care it allows him or her to deliver. The practitioner's vision is to be the best and most nimble.

On the other hand, the system's vision may be to become the biggest and fastest. The system may try to embrace fee-for-service for as long as possible. However, the practitioner believes a rapid transition to risk-sharing guarantees his or her future. System executives value tangible, bricks and mortar assets; physicians value intangibles, like employees and information.

It may not be possible to reconcile all differences; however, sometimes it takes a leap of faith, because there is no trust. After all, a successful group is completely different than a group of successful individuals.

Some characteristics of successful groups include:

* Common vision and group cohesion

* Commitment of individuals to group success

* A proactive, positive approach versus reactive negativity

* An appropriate balance of democracy and delegation of responsibility to leaders

* Statesmanship

* Decisiveness at the appropriate times

* Good communication from the leaders to members and back

* Strong committee participation

Many organizations rush to develop and implement system strategies without a vision that all parties have developed. Again, do not rush to implementation. Do not embrace models that are incompatible with the thinking of physicians.

Instead, solicit physician input and act upon it. Demonstrate quantifiable actions that effectively lead to true partnerships. Above all, communicate the vision every chance you get and make it a living, breathing part of the organization that is obvious to all who visit for the first time.

2. Focus on value creation

After defining a system vision, the next step is to embrace a value creation mentality. Value creation simply recognizes all of an organization's assets, not just those captured on the traditional balance sheet by generally accepted accounting principles (GAAP).

A joint study performed by Arthur Andersen, The Healthcare Forum, and DYG, "Leadership for a Healthy 21st Century--Creating Value Through Relationships," [1] shows that health care executives give lip service to the value of patients, employees, physicians, and information technology. But their investments are in buildings and programs to reduce costs. Arthur Andersen research demonstrates that value is created by the complex intermingling of quality and cost.

Organizations today find a significant gap in GAAP. Assets must include:

* Patient lives

* Information

* Employee, physician, and patient satisfaction

* Name branding

* Reputation

These valuable assets traditionally have been unaccounted for and have been poorly measured by the organization's financial arm. Quantifiable measures are needed to allow intelligent capital allocation decisions.

In other words, pieces of the organization that were once viewed as expenses--for example, employees--are now valuable assets. Information systems, once considered depreciating assets, become more valuable as payer contract negotiations become critical. Brand name recognition and reputation determine whether groups are included within networks. Intangibles become more valuable in many ways.

At issue is the natural divergence of what hospitals and physicians value. Again, hospitals tend to value the tangibles while physicians gravitate towards the intangibles. Can a partnership be successful if physicians are measured against asset generation they do not value or control?

The key is to find common ground--those assets that are required to make both partners successful. These include:

* Medical management programs

* Leadership training

* Relationships with patients and employees

* Customer service

* Connectivity

Incentive misalignment contributes to a dysfunctional relationship as well. For example, under DRG payments to hospitals and fee-for-service payments to physicians, the more services generated the less the hospital makes and the more the physicians make. The fewer services generated leads to hospital success and physician failure. And here's the real dilemma: the more the hospital encourages physicians to reduce costs, the more distrustful they become. But if it doesn't encourage physicians to reduce costs, the hospital is less successful.

A better way is to evaluate physicians on specific behaviors that are part of a comprehensive performance management system. Physicians are compensated to cultivate loyal customers and to be aligned with system goals and values. They staff warm and friendly facilities in targeted yet convenient locations, resulting in fanatical patient loyalty. This approach creates a differentiating advantage to payers for which they will pay a premium.

3. Find and cultivate physician leaders

Traditionally, the largest void in physician organizations has been decisive leadership. Physicians tend not to confront their peers or hold them accountable. Leadership requires innovation and courage--getting people to go where they never would have gone alone. Successful medical leaders can be trained and nourished by their organizations.

What defines an effective medical leader?

* Clinical competence

* Clinically respected leadership

* Management experience and expertise

* Leadership "natural ability"

* Leadership experience

* Desire to lead and be accountable

There are significant differences between leaders and bosses:

Leaders...

Govern

Stress mission and vision, strategy and goals, guiding principles, positioning, the "40,000 feet view," moral high ground, and relationships.

Bosses...

Manage

Embrace business purpose, tactics, negotiation points, views from the "trenches," tasks, and tangible outcomes.

People will follow leaders, even when the endpoint isn't clear. People believe in them. Leaders inspire others to greatness and to achieve in ways they never imagined possible. And, last but not least, leaders can articulate vision and purpose, a critical success factor in today's turbulent health care marketplace. Take time to find a true leader within your organization. Assist him or her to gain valuable experience and further learning. No organization has ever succeeded without true leadership.

4. Institute a medical management program

The value of quality care delivery cannot be more obvious than when one looks at successfully managing that care. Managing cost is significantly different from managing care.

Successful medical management requires the integration of (please see Figure 2):

* Finance

* Information technology

* Care delivery redesign

* Outcomes measurement

* Education

Aligning incentives implies the creation of a true collaboration between physicians and the partner, with equal sharing of both upside and downside. Opportunities for revenue enhancements from risk sharing and joint ventures are quantifiable indicators of whether the physician's partner truly views him or her as an equal within the relationship. A good principle to follow: "Measure what you say you value, but don't measure something if you say it's not valuable."

If medical management is viewed as a priority and a part of the vision, then spend adequate resources to support it. Make sure to send a clear message. For example, don't make it the responsibility of a non-clinical administrator.

In addition, information technology design should have adequate input from multiple clinical users. Reports must be physician-friendly and usable. They should lead to behavior changes in a clear and concise way. They should be both data-driven and graphical to allow for multiple preferences.

A successful medical management program empowers hospitals, integrated health systems, medical group practices, employers, HMOS, and other managed health organizations by:

* Reducing cost per case and cost per covered life by eliminating unnecessary admissions, tests, and procedures, decreasing lengths of stay, and cost-effectively coordinating patient care.

* Improving clinical outcomes, health status, and patient satisfaction.

* Enhancing positioning to accept risk contracts, including Medicare, Medicaid, and commercial products.

Measuring outcomes, patient satisfaction, and functionality on a regular basis are key to sustained long-term change and improved patient quality of life. The physician enterprise must hold itself accountable for improvements in care delivery if it expects to reap clinical and financial rewards from its partner.

It is crucial to educate patients, buyers of health care, and physicians. This leads to efficiencies and the elimination of duplicated unnecessary services. And, finally, communicating vision, progress, goals, and outcomes helps keep all parties engaged in the process.

Physicians want to do the right thing, at the right time, in the right place, to the right patient. They need both the tools and the incentives that allow for positive behavior change.

Looking to the future

There's no question that physician leaders and systems are facing many challenges. Building successful physician enterprises means everyone--physicians, systems, and consumers--will win.

Vision, value creation, leadership, and medical management are essential components of any successful physician enterprise transformation. Few healthy organizations have achieved greatness without them. The other operational functionalities described in the enterprise circle in Figure 1 also are important, but cannot by themselves create a solution that works.

It's easier said than done. Transformation involves change. Vision requires strength and commitment. Leadership is hard. But if physicians are to regain the stewardship and passion that served as hallmarks of our profession, the transformational strategies described in this article will be necessary.

Charles A. Peck, MD, FACP, is an internist with 20 years of health care Experience as a clinician, an administrator, and a medical director for a national managed care company. He is a Partner with Arthur Andersen in Atlanta.

Reference

(1.) Arthur Andersen, DYG, Health Forum, The Healthhcare Forum Foundation. "Leadership for a Healthy 21st Century--Creating value Through Relationships," 1999.

KEY CONCEPTS

* Building Successful Physician Enterprises

* The Business of Health Care

* Successful System-Physician Partnerships

* Competing Physician and System Values

* The Value of Tangible and Intangible Assets

System-physician partnerships aren't working. This article outlines what needs to happen for these partnerships to become successful. It is essential for everyone to "get back to basics." Physicians and systems need to find a way to work together. Values and vision need to precede positive financial outcomes, not follow them. Physician buy-in will lead organizational change (not be a byproduct of it). The new physician enterprise will be driven by a return to the values so eloquently described in the Hippocratic Oath. By first addressing if you want to work together and why you should partner versus rushing to close the deal, physicians and hospitals can use the enterprise circle--looking at strategy and then working outwards to structure and tactics--to ensure a successful, long-term collaboration. For any physician/hospital organization, the key steps include the following: (1) Formulate a vision; (2) focus on value creation; (3) Find and cultivate physician leaders; and (4) Institute a medical management p rogram.

Results We See Today               Results the Health
                                   Care System Needs
High physician autonomy            Substantial physician input
                                   into strategic planning
Focus on individual                Recognition and reward for
versus system performance          leadership, loyalty, and
                                   commitment
Significant variations in          Continued high physician
physician productivity             productivity
Lack of uniform                    Emphasis on quality and
expectations performance           outcomes
Economic disincentives             Aligned economic incentives
and significant financial losses   and financial success
Detachment from business realities Improved utilization and
                                   efficiency
Individual decisions               Emphasis on group
superceding group interests        and system success
Sporadic system success            Continued system success

What Makes a Group Successful?

* Common vision and group cohesion

* Commitment of individuals to group success

* A proactive, positive approach versus reactive negativity

* An appropriate balance of democracy and delegation of responsibility to leaders

* Statesmanship

* Decisiveness at the appropriate times

* Good communication from the leaders to members and back

* Strong committee participation

Charles A. Peck, MD, FACP

Find Common Ground

The key is to find common ground for physicians and systems-- those assets, both tangible and intangible, that are required to make both partners successful. These include:

* Medical management programs

* Leadership training

* Relationships with patients and employees

* Customer Service

* Connectivity

Charles A. Peck, MD, FACP

What Defines an Effective Medical Leader?

* Clinical competence

* Clinically respected leadership

* Management experience and expertise

* Leadership "natural ability"

* Leadership experience

* Desire to lead and be accountable

Charles A. Peck, MD, FACP