The evolving role of the medical director.

A medical group, be it under one roof, as a single or multispecialty group, or in separate offices, as an independent practice association, develops with the size and make-up of its patient base. In this article we document the growth of selective contracting by third-party payers with medical groups in California and discuss the implications of these trends on the structure and management of medical practices. Specifically, we focus on the emerging role of the medical director.

Hospitals have a well-developed administrative and management structure that has evolved over time in response to a changing environment. Their scale of operation has allowed them to employ more specialized resources, such as a medical director, vice president of medical affairs, or other such chief medical officer title. It is instructive to examine the current role of the hospital medical director to understand the evolving role of the medical director of a group. Within the hospital setting, the full-time medical director is responsible to the administration for carrying out that part of the administrative task that allows the medical staff to function efficiently. The medical director, as a hospital employee, does not practice medicine and usually does not serve as chief of the medical staff. Generally speaking, when there is a medical director, the chief of staff is a short-term elected or appointed position. This reduces the opportunity for a strong physician leader to emerge from the medical staff and become a divisive force between practicing physicians and hospital administrators.

Nevertheless, the medical director and chief of staff roles are different. Indeed, the business and operational responsibilities that are the bailiwick of the medical director may conflict at times with the roles and responsibilities of the chief of staff. The role of the medical director is to be involved in price/quality trade-offs. The hospital medical director attempts to represent the administration's point of view to the medical staff. The chief of staff, on the other hand, is involved in the practice of medicine or the integration of quality assurance and utilization review. In this latter role, the chief of staff attempts to have a staff that practices the best medicine that it can and provides input to the board of trustees on ways in which patient care may be better addressed.'

In the early part of 1988, we conducted a telephone survey of medical groups in California. We obtained listings of approximately 400 groups from the Medical Group Management Association; 110 groups were selected by a stratified random sample from all of California. The 51 groups that responded were questioned about the characteristics of their practice, with special emphasis on contracting with third-party payers. Tables 1 and 2, following page, summarize the findings of the survey.

It is a truism to state that, as the medical group grows in size, as measured by the number of physicians that are employed or by the number of patients that it services, organizational complexity also increw& Not only are the traditional medical management roles and responsibilities of physician recruitment and credentialing present, but also the roles that in the hospital setting are accomplished by both the medical director and the chief of staff are necessary. The growth of selective contracting by third-party payers has added a whole host of new responsibilities, such as:

*Evaluate, monitor, and manage contracts.

*Balance resources with needed services.

*Develop and monitor utilization review and quality assurance mechanisms.

*Develop and manage subcontractor networks.

*Develop marketing and financial plans

Implicit in all of these tasks are two major cross-cutting responsibilities, which can be classified broadly as the business of medicine and the practice of medicine, namely:

Managing price/quality tradeoffs.

Integrating quality assurance and utilization review

Managing Price/Quality Tradeoffs

Most physicians do not like to think of the business aspects of medicine. However, when we take the responsibility, particularly as we work with other physicians, for providing care in the current environment of competition and fixed price contracting, we must have some idea of the cost of doing business and of sources of revenue. We found from our survey that there was a positive correlation between the size of the medical group measured in terms of full-time equivalent physicians and the percentage of revenue derived from prepaid and fixed price contracts. Contract Evaluation, Monitoring, and Managing The number and types of contracts in medical groups is already large and is growing. As can be seen in table 1, the total number of contracts ranges from 11 to 27, and the percentage of patients covered by contracts ranges from 29 to 56 percent. The larger the group, the greater the number of HMO contracts. The fact that the smallest group size, 1 - 5 physicians, has on average more contracts than the next size group probably reflects the fact that the smallest groups are more dependent on HMO-IPA contracts. The decreasing number of PPO contracts with the increasing size of the group probably reflects the greater bargaining power of larger groups. The data on PPO contracting reveal that groups with fewer than 40 physicians have on average more than 20 contracts, whereas the larger groups have on average only 5 PPO contracts. This suggests that the larger groups will only contract when there is an almost certain guarantee of substantial business. As shown in table 2, the survey also revealed that medical groups anticipate that the percentage of their patients covered by HMO and PPO contracts will increase from 30 percent in 1987 to 45 percent in 1989. PPO business is anticipated to grow faster than HMO business.

Can the group comply with the contractual requirements? The following issues are important in the evaluation and management of contracts:

*Physicians. Is the specialty mix of physicians in the group diverse enough to service the contract? Are subcontracts with additional physicians needed? Do physicians have the appropriate facilities, staff, hours, coverage, etc.?

*Utilization Review/Quality Assurance. Do the group's current policies on quality assurance and utilization review comply with the contractual obligations?

* Finance. Is the contract rate, either fee-for-service or prepaid, appropriate? Will the rate compromise patient care? Does the contract have to be accepted as a loss leader? Indeed, what is the cost of doing business, and which services operate at the greatest profit margin?

*Contracts. Are there other contracts or subcontracts that have to be developed with other physicians and providers or with hospitals?

*Education. What educational effort will be required to teach physicians about the complexities of each specific contract and how will this affect other business? Is patient education required?

*Administration. What are the reporting functions that are required for the contract? Does the information system have to be modified?

Each of these six areas must be addressed not only for evaluation of the contract but also for monitoring and managing purposes. There is no doubt that certain contracts with third-party payers are similar to one another but that others require considerably more administrative expenditure. For the medical director of a group, it is important to be able to have an idea of the terms and conditions of a contract that can be accepted for the group.

Balance Resources with Needed Services

Whether the medical group receives compensation as fee-for-service or as prepayment based upon a capitation formula, a budget has to be developed and adhered to. The budget must include both capital and noncapital expenditures. It must reflect the resources required to comply with contractual obligations.

Develop and Monitor UR and QA Mechanisms Utilization review performed in medical groups has at least two major business (i.e., nonmedical) reasons. The first is primarily in the prepaid arena. Utilization review of the more expensive requests for service provides an estimate of the funds that will be spent on these services. The other major nonmedical reason is that an auditable utilization review system is often a prerequisite for a PPO contract. In the business sense, and not primarily for medical reasons, a quality assurance program will be useful to identify alternate and more cost- efficient ways to deliver care and at the same time be a tool for risk management.

Develop and Manage Subcontractor Networks

As mentioned above, the signing of a contract to provide medical care to a population will almost certainly involve integration with other contracts, because, at the very least, there win be a hospital portion of the resources required for the contract. At the other extreme, it may be necessary to subcontract with nonphysician providers, such as podiatrists, chiropractors, dentists, etc. The medical director has the responsibility to supply these subcontractors and to evaluate them for quality and cost efficiency.

Marketing and Financial Planning 

The breakdown of the amount of thirdparty payer contracts that we found that medical groups in California had signed is shown in table 1. It can be imagined that there is potentially much competition in the securing of contracts. Marketing becomes important. Likewise, financial planning becomes crucial, particularly when a significant amount of the business is done in a prepaid setting. It is this latter situation that causes the biggest dilemma. The larger the amount of monies that are remitted before the services are rendered, the larger the bank balance. However, the potential financial liability that accrues from the performance of services, particularly those that are performed outside the direct control of the medical group, also is larger.

Integrating QA and UR

In the delivery of health care, there is both overuse and underuse of resources. Quality assurance programs, if well designed and not merely cosmetic, will identify underuse. The process of quality assurance develops solutions and implements them. In an analagous fashion, utilization review, first through a sentinel effect and then through a specific program of peer review, reduces unnecessary services and performs an educational role, if the program is credible.

Although quality assurance has outcome parameters, broadly described above as the proper use of services, that are a responsibility of the medical director, the structure of the delivery system and the process by which health care is delivered are also very important areas to which the medical director of a group must attend. Structure. Are physicians credentialed appropriately? Do their specialties tie in with the requirements of the medical group? Are nursing and allied health worker ratios correct?

Process. Is there appropriate access to physicians on a properly scheduled basis? Do physicians routinely review laboratory and pathology reports? Do physicians request an appropriate number of consultations?

Outcome. Does the aggregate outcome performance of the medical group equal that of other institutions and of solo practitioners in the area? Does the individual physician in the medical group provide care that is acceptable to colleagues and the community?

Above all, quality assurance and utilization review functions provide an invaluable educational forum for physicians and allied health care workers in the group. The well-organized and efficient medical group in which morale is high, pride of working is infectious, and clinical and business support exists is an invaluable asset that is not easy to replicate. a

T H E A U T H O R S

Nigel K. Roberts, MD, is Associate Clinical Professor of Medicine and Pediatrics, UCLA School of Medicine, Los Angeles, Calif., and Director of Research and Development, CAPP CARE, Fountain Valley, Calif. Glenn Melnick, PhD, is Assistant Professor, School of Public Health, UCLA, and Resident Consultant, Economics and Statistics Department, RAND Corp., Santa Monica, Calif.

Further Reading

The following additional sources of information on the roles and responsibilities of the physician executive were obtained through a computerized search of databases. Copies of cited articles may be purchased from the College for a nominal charge. For further information on a citation, please contact Gwen Zins, Director of information Services, at College headquarters, 813/287-2000.

Angermeier, I. "Establishing an Appropriate Role for Physician Involvement in Hospital Department Operations." Hospital and Health Services Administration 28(6):59-76, Nov.Dee. 1983.

Belton, D. "Profile of the HMO Medical Director." Medical Group Management 34(2):1722, March-April 1987.

Brady, T. "Defining the Management Role of the Department Medical Director." Hospital and Health Services Administration 31 (5):6985, Sept.-Oct, 1986.

Burns, J. "Company Physicians Can Play a Role as Health Managers, Communicators." Business and Health 4 (7):60, May 1987.

Cohn, R. "Hospital Management's Linchpin: The Medical Director." Physician Executive 14(2):18-20, March- April 1988.

Cohn, R. "The Medical Director-the Untapped Potential of the Position." Hospital and Health Services Administration 31 (6):51 61, Nov.-Dec. 19".

Downs, R. "The Role of Physician Managers in Larger Multispecialty Groups." College Review 1(2):83-95, Autumn 1984.

Doyne, M. "Physicians as Managers." Healthcare Forum 30(5):11-13, Sept.-Oct. 1987.

Friedman, E. Physician-Administrators Making a Comeback. Selecting a Doctor as CEO May or May Not Placate the Medical Staff." Medical World News 27(12):34-43, June 23,1986.

Fulton, A, and Longshore, G. "The PhysicianExecutive: A New Breed of Manager." Hospital Physician 24(l):41-2,44-5,48, Jan. 1988.

Gellette, R. "How Best To Train PhysicianManagers." JAMA 258(4):475-6, July 24/31, 1987.

Harris, J. "Do I Really Need an M.B.A to Practice Medicine?" Group Practice Journal 35(6):38-42, Nov.-Dec. 1986.

Kindig, D. "Administrative Medicine: A New Medical Specialty.?" Health Afairs 5(4):14656, Winter 1986.

Lepinot, A. "Does Your Hospital Need a FullTime Physician Manager?" Trustee 40(2):1923,Feb.1987. Lilja, G. "The Role of EMS Medical Directors." Emergency Medical Services 15(2):40-5,48-9, March 1986.

Matheson, G. "Good Management for Good Medicine: The Role of the Vice President for Medical Affairs." Healthcare Executive 3(5):31-3, Sept.-Oct. 1988.

McDonagh, T. "Management of an Occupational Health Program within an industrial Setting. Perspectives of a Corporate Medical Director." Journal of Occupational Medicine 26(4):263-8, April 1984.

Montgomery, K. "Today's Physician Manager: A New Breed." Physician Executive 12(5):14-17, Sept.-Oct. 1986.

Nash, D. "The Physician-Executive: Part 1: The Younger Doctor. Growing Demand for an Emerging Subspecialty." Consultant 27(11):97-8,101-2,106,108, Nov. 1987.

Ottensmeyer, D. Patterns of Medical Practice in an Era of Change." Frontiers of Health Services Management 3(l):3-29, Aug. 1986.

Robischon, T. "Physicians as Managers: A Look at the issues." Medicenter Management 2(g):51,54-5, Sept. 1985.

Ruelas, E. "The Roles of Physician-Executives in Hospitals: A Framework for Management Education." Journal of Health Administration Education 3(2 Part 1):151-69, Spring 1985.