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Physician managers can play key financial management role.

Physician Managers Can Play Key Financial Management Role

Societal and technological changes experienced in the past few years have been instrumental in the creation of a new medical specialty--medical management. In this age of scarce resources for health care, physicians must be involved in management and leadership roles in the financial, managerial, and strategic planning aspects of their institutions.

Medical practice has become more scientific and technological, contributing to procedures that are more successful and, consequently, more expensive. Added to these technological improvements has been an increase in health care services demand, which, in turn, has resulted in skyrocketing costs in the health care industry. Society believes that access to adequate health care is a human right, and politicians stress the "right" to health care in many cases to meet their private agendas. Those statements fuel the demand for health care services. The increases have been so great that health care consumes about 12 percent of the GNP. The challenge is to deliver high-quality care at a reasonable cost without placing barriers to access to any member of our society. Schultze identified five ages in the history of health care financial management: the ages of negotiation, justification, documentation, litigation, and legislation.[1] The age of negotiation is considered to be the period passage of the Medicare legislation. It was characterized by the realization that resources were finite and there was a need to negotiate with providers for services. In turn, to protect their reimbursement from third-party payers and goverment, providers entered the ages of justification and documentation. The ages of litigation and legislation were the answer to the dissatisfaction of special interest groups trying to cope with the increasing demand for medical care and cost of providing health services. A sixth age, the age of competition, must be added. In this period, health providers are competing for the same patients and the same scarce resources. The changes in the financial picture of health care are so radical that today, in an effort to survive, an organization must do better than just break even.[2]

Cost Containment and Physicians

The government has attempted, especially in years of enormous deficit, to reduce the percentage of health care costs for which it is responsible. Among the futile attempts have been "price freezing" under President Nixon. Physicians and hospitals simply raised their prices in preparation for the price freeze, negating any benefit from the legislation. Later came professional standards review organizations and utilization review. Although both initiatives diminished the average length of stay (ALOS) in acute hospitals, general health care costs still increased. To compensate for the changes in ALOS and admission restrictions, physicians and hospitals increased the volume of services rendered per patient, the number of patients admitted, and the prices of services. Increased competitive forces in the mid-1980s were considered the cure for health care cost increases. In areas of great competition among physicians, fees increased to compensate for the lower volume of patients, resulting in increased total costs for health care. Physicians have been conditioned to treat each case as unique and to do the utmost for each patient regardless of the resources consumed. Any attempt to systematize the delivery of medical care has been resisted as being "cookbook medicine." Rubin indicates that physician managers must express what they want and allow physicians to do things their own way so that there is no open confrontation with physicians' long held beliefs.[3] Another major factor in unwarranted physician consumption of resources has been the legal profession. Lawyers, in an effort to win cases, have helped to create standards of care that are unreasonable and very expensive. With the present system, physicians and hospitals pass malpractice costs to patients; demand unnecessary admissions and diagnostic tests; and, in some cases, withhold care when they feel procedures may become a source of malpractice liability. Increasing the cost of medical care through malpractice recoveries is not the solution to monitoring physician competence. Rather it is through forced retraining or loss of licensure, both achievable at very little cost to the nation's health care system. Through passage of P.L. 98-21, the federal government introduced prospective pricing as a major source of payment in the United States. The law was sold to the public as an effort to deliver better and more accessible care. This law shifted risk and responsibility for health care costs from the government to provider institutions. The result was cost-shifting to nonregulated patients and denial of care to regulated patients whose diagnoses indicated that they would consume large amounts of resources.

Keys to Containment

Key to cost containment is to force physicians to assume responsibility for their actions when they affect the financial welfare of the institution. The principal role of the physician manager is to ensure that the goals of the institution are not being violated, while allowing free rein in the decision-making process of the physicians they supervise. Kinzer compared the relationship between a medical staff and the hospital to the one present among the pilots and the aircraft carrier on which they serve.[4] To be effective, physicians (pilots) must be able to express their personalities. Any attempt to standardize them, such as is done to the lower ranking hospital employees (crew of the carrier), will only result in mediocrity, because their creativity will be stifled. Physicians and lawyers must be educated to understand that delivery of services of maximum quality with no restraints eventually produces an economic disaster. A more effective method is to deliver a "satisfying" level of care planned in accordance with economic reality. This level of resource utilization will allow delivery of a mix of services not only to satisfy patient's needs, but also to preserve the financial health of the organization. The cooperation of physician managers and administration will result in modifications in the strategic planning of the health service organization. Questions will be asked: Do we need to keep our obstetric service, or should we close it and let a nearby hospital do it? Should we consider a joint venture to provide obstetric services? Do we really need a renal dialysis unit or is it only an ego trip for the nephrology department and some members of the board? This mindset will result in a shift of some diagnoses to large public hospitals or to university hospitals. The reimbursement scheme for health care will have to be modified to address the needs of those organizations that will receive the most resource-consuming diagnoses. A lack of understanding by payers will result in denial of access to health care to those who need it the most, merely on the basis of economics. The issue of increased demand for services because of physicians' actions has never been fully understood. Until physicians' incomes are dissociated from the volume and price of the care they deliver, their actions will adversely affect the cost of health care. A partial solution to the problem is paying the physicians a fee related to the diagnosis, modified by the severity of the case. As good as this idea maybe, however, physicians will manage to increase the volume of their services to preserve their incomes. At the same time, health service organizations are becoming more sophisticated in the analysis of costs related to each service rendered and the amount of services needed for each diagnostic category. The physician manager must determine the "real" needs for a specific service and must help to create alternative services that are less resource consuming. The need for the institution to make a profit has become most evident in the past few years, especially with the economic crunch and the scarcity of donations and grants. Profits are needed for growth, to replace and update equipment, etc. This "profit-making" within not-for-profit organizations is very difficult for the average physician to understand. Physicians have been conditioned to feel that "it is evil to profit from the sick." Prior to the financial revolution in health care, the main recognized cost was of doing business. Today, we have not only the cost of doing business, but also the cost of staying in business--the maintenance of assets and working capital; changing to meet competitor threats and take advantage of new opportunities; attracting and/or holding capital; and payment of debt, debt interest, and returns to equity holders. The new cost structure for health care institutions is no different from the structure in any other organization in the business world.[2]

Ties to Privileges

The need for cost consciousness within health institutions has resulted in a more thorough credentialing process. Evidence of cooperation with corporate goals, as much as medical education and professional proficiency, is being required for appointment to a medical staff.[5] Broyles extended the premise by suggesting that commitment to hospital goals be a factor in the selection of physicians to occupy positions of power and influence.[6] In the business world, management would never consider promoting an individual unless the person had demonstrated the capacity to follow and live within corporate goals. Not long ago, physicians who understood and followed corporate goals were called traitors and were ostracized by their peers. Physician managers have an enormous task in helping physicians understand that the survival and success of the organization are desirable goals and will help in their own quests for survival and success. All physicians in the future will have to be conversant in business matters. They will have to negotiate with or for HMOs, PPOs, and IPAs; be intimately involved in joint ventures; understand cost-benefit analysis and cash flow problems; etc. They will have to be involved in the three stages of management; planning, implementing, and controlling. Beyond that, physicians in positions of power and control should be able to clearly define terms such as internal rate of return, net present value, opportunity cost of funds, etc.[2] Physicians on any medical staff must review at least two sets of reports: those that relate to the portion of the revenue variance attributable to admitting and prescribing decisions and those that show the effects of admitting and prescribing decisions on the costs of providing services. Further study of the variances will indicate the need for price changes on any nonregulated areas.[6] Internal control of the organization demands that every variance be examined and that a question be answered: Is the deviation correctable or not? If the variance is correctable, all actions should be taken to correct it. Physicians can no longer ignore the need for their cooperation in internal control mechanisms. Organizational goals must be considered and followed at all times, allowing for a negotiated give and take that results in an adequate level of satisfaction among all parties involved. Physicians in positions of responsibility will also have be able to deal with labor issues, i.e., work stoppages, union grievances, unionization efforts, strikes, etc. Mistakes in the area of labor relations can be very costly for an organization and accentuate the need for physicians to have training in business and management. Medical persons have complained bitterly about the stupidity of federal and state regulations and rules. Market changes produce alterations in the demand patterns of the public, to which politicians are forced to respond or forgo reelection. The politicians' answers, aimed to satisfy their constituents, lack the input of physicians, who, understanding that resources are finite, can recommend choices that will result in the greatest, still reasonable, benefit to society.


The position that best exemplifies the functions of the medical administrator is the Vice President for Medical Affairs (VPMA). The VPMA is a liaison and/or buffer between physicians, especially those in positions of responsibility, and the administration and/or the board. The VPMA educates physicians to respond to the expectations of society and the board of directors and monitors the time limits in which those expectations are supposed to be fulfilled. The delicate problem of medical staff discipline maybe simplified by the VPMA by clarifying the rules and regulations and establishing adequate protocols so that deviations are addressed in a nondiscriminatory and egalitarian fashion. In the past few years, the courts have ruled that responsibility for any occurrence related to a health service organization is borne by the board of directors, stressing the importance of actions of physicians beyond the scope of their medical practices. This change in societal rules has made it necessary for the board of directors and the chief executive officer to be involved in any disciplinary action that must be taken against any member of the medical staff. Because the legal profession can make organizational mistakes very costly, the role of the VPMA becomes that of liaison, coordinator, and educator for newly elected members of the medical staff in disciplinary matters and above all in "due process." It is not uncommon for a court to rebuff the will of the medical staff on the basis that "due process" has not been carried out. The courts shy away from making any judgments on medical issues without expert witnesses, but they insist that previously established procedures be followed to the letter. Another important function of the VPMA is to ensure that the work of committees is done in a timely fashion, since reimbursement depends in many cases on the report of staff committees. Physicians in the typical fee-for-service set-up are not compensated for the time they spend doing committee work and, until very recently, did not consider committee work a cost of doing business. Appointments to committees are made to junior staff members, and learning is "on-the-job." As committee work is not directly revenue-producing to physicians, the chairmanship is transferred almost yearly to another junior member of the staff. This careless attitude produces costly delays in executive or board action and problems with regulators. Quality assurance is bringing to a head the issue of staff privileging/credentialing and utilization review. Recent court decisions have called attention to antitrust and conspiracy issues. It is not difficult to perceive that the physician whose requests for privileges have been denied will feel wronged and will seek litigation for what he feels is his "right." The issue is not so much that credentials are inadequate, but that the individual feels there was a conspiracy to restrain his trade. The eventual credentialing and privileging decisions must be made by the medical staff, but the VPMA must ensure that proper, preestablished procedures have been followed in a nondiscriminatory way. The situation has grown more complex because of changes in the standards of the Joint Commission of Accreditation of Hospitals, which demands that other professionals be admitted to the medical staff and be able to practice without supervision. The new standards involve dentists, podiatrists, psychologists, etc. Added to the financial threat is the new emphasis on the respondeat superior rule, which makes the chairman of the department or division and members of the medical executive committee responsible for the actions of all professionals working in a health care organization. The sophistication required in today's world demands that the VPMA be involved in all privileging and credentialing, especially when there is a possibility of a denial. The health service organization has a defense, "the independent business justification." The organization that acts in its best interests is not guilty of conspiracy. Quality of care is a legitimate independent business reason for refusing to extend hospital privileges. In Dos Santos v. Columbus-Cuneo-Cabrini Medical Center, the Federal Seventh Circuit Court of Appeals affirmed that a hospital may have an exclusive contract for anesthesia, under the rule of reason, because it increases operating efficiency and makes the hospital more competitive as an entity."[7] Whenever privileges or appointments are denied on the basis of organizational efficiency and/or quality of care, the key issue is to prove that these are the real reasons. The organization, with the help of the VPMA, must have carefully spelled out its business goals and objectives in the pursuit of excellence and efficiency. The pursuit of excellence by a medical staff is an example of a legitimate business goal. The Board of Directors should never temper its actions by fear of alienating the medical staff or any of its members. A physician may attempt to block the admission of another physician to protect turf, and this may not be considered a tort in court. But when the physician's actions are endorsed by commission or omission by the board, management, or the medical staff, a "conspiracy" to restrain trade may be found. The VPMA must ensure that there is no selective denial of privileges, that the proceedings are exactly as specified by the bylaws, and that they are not to be faulted by lack of "due process." Another pitfall that the physician manager must look for is loose talk, threats, or even jokes. They may be misinterpreted (or correctly interpreted) and end up as evidence of conspiracy in a court of law. Finally, the VPMA is the main buffer between the medical staff and management. Physicians are trained to see things only in black or white and expect results immediately. In the management world, there are many tones of grey and results may take years. Explaining these differences will occupy a large amount of the working day of the VPMA. In many other instances, the physician manager will deny requests from a department or its chair because the requests are parochial and fail to mesh with the total picture of the organization. The VPMA position is not without its pitfalls. The role must be clearly delineated, along with the expectations of both the medical staff and the administration and board. When expectations conflict, it is almost certain that someone will be dissatisfied. The position should not be considered secretary to the medical staff or a place to "dump" paperwork. Last, the understanding that systemic solutions take time and may produce alienations in certain areas must be realized. There is no solution in the real world that satisfies all.


[1].Schultze, R. Unpublished paper. [2].Neumann, B., and others. Financial Management, Concepts and Applications for Health Care Providers. Owing Mills, Md.: National Health Publishing, 1988. [3].Rubin, l.(1987). "The Profession of Managing Professionals." Physician Executive 13(1):9-13, Jan.-Feb. 1987. [4].Kinzer, D. "Constructive Tension: Hospital Medical Staff Relations." Physician Executive 12(1):7-9, Jan.-Feb. 1986. [5].Shortell, S., and others. "The Medical Staff of the Future." Frontiers in Health Services Management 1(3): 3-48, Feb. 1985. [6].Broyles, R., and Rosko, M. Planning and Internal Control under Prospective Payment Rockville, Md.: Aspen Publications, 1986. [7].Dos Santos v. Columbus-Cuneo-Cabrini Medical Center, #684 F.2d 1346 (7th Cir. 1982).

Albert E. Trentalance, MD, is Medical Director, Blue Cross and Blue Shield of Florida, Jacksonville.
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Title Annotation:cost containment
Author:Trentalance, Albert E.
Publication:Physician Executive
Date:Jan 1, 1990
Previous Article:The chief of staff and the medical director.
Next Article:Views of a new physician.

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