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The medical practice as business organization.

The current restructuring of the health care industry, with an increasing emphasis on managed care, die power of health services buyers, and competition based on quality and price, is having a profound affect on all who have a stake in this industry, including physicians and their practices. To meet this challenge, each stakeholder must create an organization that allows it to effectively respond. Our view is that the typical MPO is not aligned with its environment and thus is not in a position to reengineer itself to thrive as a business entity in a restructured industry.

Perrow points out that organizations evolve through natural forces dictated by "basic needs" that can limit their ability to change.[1] For the medical practice, maintenance of the traditional form of organization allowed the practice to meet the needs reflected in its own self-interest and to reject forces that would alter this desired state of affairs. The choice of organizational design should fit together and integrate internal and external factors influencing the organization, a fit that is critical to organizational effectiveness. Organizations that focus on internal needs and fail to respond to the needs of their enviroiunents become increasingly irrelevant to their communities and their markets. For the medical practice today, this is suicidal. They most look at how they fit within a delivery system made up of many stakeholders, including patients, managed care plans, insurers, other providers, hospitals, and employers.

Descriptive Model of the Medical Practice

The MPO is a relatively small business unit and continues to be perceived as a cottage industry by many organization theorists. The median group practice consists of 5 physicians, with a mean of 11.5. The mean number of nonphysician staff per physician is 3.2.[2] Multispecialty group practices tend to be larger. Practice group size and composition vary by geographic location. Solo practices and specialty groups of five to six physicians characterize much of the East. This situation, however, is changing as physicians combine and join larger groups in response to the increasing presence of managed care and the need to share overheads and expenses in light of capitation. In other areas, where managed care plans have already captured a larger market share, large single-specialty practices and even larger multispecialty practices are more prevalent.

We suggest a model we believe describes many practices today. The model reflects deficiencies in four elements of their organizational design, referred to as generic subsystems by Katz and Kahn.[3] When applied to the MPO as a business entity, a theoretical and practical examination of the four subsystems suggests that the typical practice fails as a business entity to interact well with the changing world surrounding it, to communicate effectively among the people who work in it, and to make informed decisions regarding its other strategic interests.

Adaptive Subsystem

This subsystem senses and interprets the environment for the organization.

The Issue--Organizations may choose to act as closed systems to buffer or protect themselves from environmental disturbances.[4] Many practices are characterized by restricted openness to the environment, which we identify as negative gatekeeping. This culture evolved in an effort to protect physicians' time and their relationships with patients. As a result, many practices become isolated from external events and trends that now challenge their management assumptions and their ability to anticipate and react to change. The negative gatekeeper also limits opportunities to learn as well as to accept feedback from the environment about the practice itself. It also limits access of the staff to new information needed to do their jobs effectively.

Theoretical Considerations--Theoretically, the medical practice is an open system, meaning it interacts with its environment. The medical practice, however, often denies the importance of its business environment and thus acts as a closed system. For example, quality and cost are becoming increasing important factors in the selection of providers. Few practices, however, have adopted the principles of total quality management, instituted processes to better understand their internal cost structures as they relate to services provided, or created practice environments that can be described as patient-centered.

Burns and Stalker[5] studied the relationship between certain environmental characteristics and resulting managerial practices. They concluded that there were two types of organizational structure: mechanistic and organic. A mechanistic management structure is characterized by routinization of tasks, formal rules and procedures regulating work-centralized decision making, a high degree of job specialization, and a strict authoritarian hierarchy. Mechanistic systems are ideal for organizations operating in fairly stable environments with limited work-flow and task uncertainties. Communication in this systems structure is vertical, because decision making is centralized.

Organic structural systems are characterized by broadly defined job descriptions, few rules and procedures, decentralized decision making, and few levels of authority. Organic systems are ideal in environments where there is a high degree of task and work flow uncertainty because of the environment's unstable and heterogeneous qualities. Communication is horizontal as well as vertical.

MPOs are increasingly affected by the growing complexity and uncertainty of their environments. MPOS will be driven by trends toward managed care, cost containment, pressure for quality, accountability, and increased involvement of buyers and customers. These effects of environmental turbulence suggest that MPOS should function as organic organizations. As organic organizations, practices would monitor their external environments and be better able to assess and adjust to uncertainty.

Burns and Stalker[5] further note the difference between mechanistic and organic structures in terms of the individual's participation in the organization. Mechanistic systems set clear boundaries on workers. In organic systems, specific demands on the individual disappear and are replaced by a need to work with others. In terms of the MPO, while specialized skills are obviously required, it is increasingly apparent that the entire staff must work together and share information. For example, the billing and reimbursement process is not built simply on the technical skills of the biller; it depends on physicians' understanding codes that best describe the actual diagnosis and treatment, on proper registration of patients by receptionists, and correct staff interpretation of claims rejected by payers. This necessity for team-oriented work supports the conclusion that the medical practice organization should function as an organic organization.

Practical Implications--Physicians and the staffs of their practices must be more sensitive and responsive to their environments. Patients expect a different level of care. Managed care plans require a new approach to the care of patients. Employers want high-quality care for their employees. Medical practices may compete for patients. On each of these points, physicians and their practice staffs need to recognize that the world has changed. Patients cannot be taken for granted. Thus, practices need to reach out to patients and provide them with timely access, high-quality treatment, and informative follow-up.

Managerial Subsystem

This subsystem coordinates and controls relationships within the organization as well as between the organization and the environment.

The Issue--This subsystem is not well developed in the typical MPO, as evidenced by the typical lack of teamwork among physicians.1 While there is often an adequate system for communication of clinical information, there is poor internal communication on business issues, and this limits the ability of the practice to think long term, to define its vision and its values, and to set clear goals.

To make this point, we can compare two practices. The first is a group practice in name only. In reality, it is made up of five individuals working without any common direction or vision for the practice. They also fail to deal with their differences or individual needs that affect others in the practice. As a result, the staff is paralyzed by different instructions from each physician. Office productivity is low. The physicians believe this is the fault of employees. Patients feel the tension in the office, and some opt to leave the practice. A second practice has spent considerable effort in forming a team among physicians and the staff. The goals for the practice are well understood and communicated. Meetings are productive. This practice is able to deal with change. At a one-day planning retreat, the physicians and their staff were able to focus on the issues facing the practice and to develop a list of priorities for change. They were able to move forward with the shift to managed care, to develop programs that help them better understand their costs, and to consider networks with other physicians to enhance their negotiating position with managed care providers.

Theoretical Considerations--Physicians in private practice do not work as a management team. The management of the practice is seen as secondary to clinical interest in their patients. Little time is devoted to managing the practice's business, and even less time is devoted to learning how to better manage and design a structure that facilitates the overall management process, including thinking strategically, introducing changes. that are consistent with a changing external world, and dealing with the issue of succession in the practice. Decisions are dictated by crisis, instead of being based on vision and goals. As a result, important strategic decisions are delayed or never made. This management deficit' is, in part, a reflection of the fact that physicians do not have the background to work well as a business team and are often not interested in or trained in how to deal with business issues. Many physicians work as independent contractors, sharing income on the basis of individual productivity, with little attention given to the direction of the practice as a business enterprise.

The clinical practice of medicine, by its very nature, carries considerable task uncertainty.[7] While the practice of medicine may be characterized by continual attempts to reduce uncertainties through clinical pathways and practice guidelines, physicians seek to deal with medical care uncertainties primarily through colleague networks and partners in practice who may serve as problem-solving collaborators or as consultants and referral specialists.[8] Thus, in clinical situations, teamwork among physicians is not only appropriate, but also an essential reality. When physicians, however, are asked or expected to work as members of interdisciplinary teams, consultation and collaboration are more difficult because of differences between disciplines and their perceived roles.[9] This is even more true when physicians are called upon to be members of multidisciplinary business teams.

Practical Implications--Physicians need to recognize that a clear strategy reflects a clear vision. This vision must incorporate the ideas of all physicians and address their common values and their commitment to high-quality care. When physicians do not act as a team and share their ideas about the direction of the practice, the practice is at a competitive disadvantage. Further, the lack of communication and direction is a source of stress, because issues that affect their lives are not addressed.

Maintenance Subsystem

This subsystem is responsible for development and maintenance Of human and capital resources and promotion of internal stability.

The Issue--A professional caste system limits physicians' understanding of the roles others play in the practice, as well as the importance and meaningfulness of their work. This can overlook the need for staff training, create poor employee morale, and result in lack of support for important administrative tasks.

Physicians often believe that they must control their practices by controlling the work of the people who work for them. The office staff of a five-physician group was constantly frustrated by the daily intrusion of physicians in their work. Without respect for the work of the staff of die practice or knowledge of their tasks, physicians spent time asking for reports concerning die operations of the practice without any knowledge of the work that people did. With time, the physicians understood the work that others did and recognized the value of their work to the practice. A relationship built on trust and respect allowed physicians time to create a strategy for the group.

Theoretical Considerations--Communication barriers exist between physicians and their staffs.[6] We refer to this barrier as a professional caste system. Physicians-see themselves as different from others who work with them to deliver care. Practice managers, billers, and receptionists are often viewed as less important and their work less meaningful to patient care, despite the fact that they often spend more time with patients than does the physician.

Physicians who fail to work cooperatively and communicate openly with their staffs or who fail to understand what others do in the practice insulate themselves from the very information they need in order to better manage their practices. Problems are ignored and opportunities are lost. The fact that this "lower class" of the organization is disengaged from the management process means that information flow is limited, decision making is time-consuming and impaired, productivity is decreased, and the overall performance of the practice is negatively affected.

Caste system mentalities and systems have been described recently by others. Sonneberg and Goldberg[10] note that belief in a caste system as part of an organization's culture erects barriers to creativity and resistance to change. Crosby[11] states that individual or cultural arrogance has led many businesses to fail. Arrogance is both expensive and destructive and has a limiting effect on organizational performance. Pratt and Kleiner[12] suggest that an organization can be improved only if there is a common vision for the organization that energizes others in the organization and creates a "teaming" effect by giving ownership of the vision to all and dissolving the caste system mentality.

Practical Implications--Managing a medical practice today is far more complex than it was even a few years ago. This means that all members of the staff must be involved in the work of the practice and motivated to achieve a higher level of performance. Physicians need to endorse this concept and to adjust their behavior accordingly. They need to enroll and empower their employees. Without them, the performance of the practice declines, quality deteriorates, and all in the practice are frustrated by the tension and anxiety created by a poor working relationship between physicians and staff.

Production Subsystem

This subsystem produces the products or services of the system.

The Issue--Many physicians see their work as independent from the work of others. This perhaps is due to the fact,that physicians tend to work alone and that the different styles of physicians dictate different behaviors of the people who work in the practice. As a result, information is not shared, limiting the ability of the practice to successfully deal with change.

Billing and reimbursement is a process that all too often is viewed as simply a number of different responsibilities of people in a practice. The result is often rejected claims, lack of follow up on claims, and errors in clinical records. When a practice chose to study this process as a series of interdependent steps, it was clear that the work of everyone concerned with the billing process depended on the work of others. The staff responsible for billing needed to work with physicians so that the clinical record was an accurate reflection of the codes used for billing. Further, receptionists learned that their work to obtain complete insurance information on patients was critical to the success of the billing process.

Theoretical Considerations--Lawrence and Lorsch[13] described the "state of segmentation of organizational systems into subsystems" as differentiation, and the process of "achieving unity among the various subsystems" as integration. In MPOS, differentiation is a reality, while integration is not. Thus, unity within the system is not achieved. The need for coordination and integration within MPOS and between MPOS and other health care service organizations has increased as the health care environment has become more complex. As a consequence, MPOS must adopt structures that support higher levels of coordination and integration.

The uncertainties created by variations in workflow and the types of tasks required by the MPO suggest that the current form of organization is not appropriate to the demands placed on it. Analyzing sources of uncertainty helps the manager understand how to structure an organization.[14] In the MPO, sources of uncertainty include schedule inter-ruptions, different severities of illness of patients, and changing coding and billing rules and regulations. If workflow uncertainty is high, the group has limited knowledge of how and when the job will be done. Task uncertainty is defined in terms of the degree to which specific knowledge is required to perfor-m the group's assigned work. If tasks performed are routine and consistently produce desired outputs, task uncertainty is low. When there is high task uncertainty, outcomes are unpredictable, requiring continual adaptation of processes. Under conditions of high task uncertainty, the work group must use its experience, judgment, and intuition to jointly define and solve problems in order to produce desired outcomes.

The clinical dimensions of medical practices are characterized by degrees of work flow and task uncertainty. Unique treatment programs, patient variability, different insurance coverages, the need to accommodate emergencies, patient cancellations, the difference between hospital and office visits, a variety of referring resources, and different physician schedules require that the practice staff be in constant communication to confirm and verify what work is do be done and how it should be scheduled. Each of these sources of uncertainty can be exacerbated or reduced through the collaborative efforts of physicians, nurses, other health professionals, and business support staff within the practice. Not only do uncertainties exist, but also the tasks themselves are interdependent. Practical Implications--The work of a medical practice is no longer defined in terms of specific tasks requiring the work of individuals. While specialized knowledge is necessary, the work of a practice is now seen as a process, a series of events that collectively affect productivity and performance. Clinical pathways, outcome measures, case management, billing and reimbursement, and patient management are all processes within the practice that also connect with other providers. Process management requires teamwork and information sharing. Thus, when the people in a practice see their work as isolated from the work of their colleagues, the performance of the practice is less than optimal.

Discussion and Conclusions

The model we have described focuses on four areas where the medical practice organization is vulnerable in a rapidly changing environment and suggests what the medical practice needs to do to improve its prospects for survival as a business entity in the health care system. The practice must become more open to its environment. Physicians need to work together to manage and lead the practice. Physicians must better understand the work and roles of their staff. And the staff of the practice must be trained to function together as a team.

A growing body of health services literature suggests that a focus on quality management and, in particular, on customer orientation is an important base on which to reform structure and process in health care organizations. The challenge to medical practice organizations is that this requires a change in orientation from paternalism on the part of physicians to collegiality and teamwork. Education will be required to assist physicians in identifying new and more appropriate professional and organizational behavioral responses. As stated by Merry, "The new era will demand physician leaders who are both excellent clinicians and organizational artists .... The medical profession ... must either rise to the challenge or relinquish its historical leadership to those who would fill the gap left by a profession too narrowly focused."[15]


[1.] Perrow, C. Complex Organizations: A Critical Essay, Third Edition. New York, N.Y.: Random House, 1986. [2.] Havlicek, P., and others. Medical Groups in the U.S.: A Survey of Practice Characteristics. Chicago, Ill.: American Medical Association, 1990. [3.] Katz, D., and Kahn, R. The Social Psychology of Organizations. 2nd Edition. New York, N.Y.: John Wiley & Sons, 1978. [4.] Starkweather, D., and Cook, K. "Organization-Environment Relations." In Health Care Management: A Text in Organizational Theory and Behavior. Shortell, S., and Kaluzny, A., Eds. New York, N.Y.: John Wiley & Sons, 1988. [5.] Burns, T., and Stalker, G. The Management of Innovation. London, England: Social Science Paperbacks, 1961. [6.] Bender, A., and others. "Planning and Teamwork: Critical Health Care Delivery Issues." Medical Group Management Journal 37(4):30-2, July-Aug. 1990. [7.] Eddy, D. "Variations in Physician Practice." Health Affairs 3(2):74-89, Summer 1984. [8.] Altany, D. "Lead Now or Forever Rest in Peace." Industry Week 238(8):13,16-17, April 17, 1989. [9.] Friedson, E. "The Reorganization of the Medical Profession." Medical Care Review 42(1):11-35, Spring 1985. [10.] Sonnenberg, F., and Goldberg, B. "Its a Great Idea, But..." Training and Development 46(3):65-8, March 1992. [11.] Crosby, P. "Managerial Arrogance." Across the Board 29(10):32-5, Oct. 1992. [12.] Pratt, K., and Kleiner, B. "Towards Managing by a Richer Set of Organizational Values." Leadership and Organizational Development Journal 10(6):10-6, June 1989. [13.] Lawrence, P., and Lorsch, J. "Differentiation and Integration in Complex Organizations. Administrative Science Quarterly 12(1):1-47, June 1967. [14.] Thompson, J. Organizations in Action. New York, N.Y.: McGraw-Hill Book Company, 1967. [15.] Merry, M. "Physician Leadership for the 21st Century. Quality Management in Health Care 1(3):31-41, May 1993.

A. Douglas Bender, PhD, is Associate Professor of Management, School of Management, Widener University, Chester, Pa. and President, The Thayer Group, Inc., Swarthmore, Pa. William E. Aaronson, PhdD, was Associate Professor, Health and Medical Services Administration, Widener University at the time this article was written. He is now an Associate Professor, Department of Health Administration, Temple University, Philadelphia, Pa. Carla J. Krasnick, MBA, MSN, is Vice President and Jeffrey G. Bender, BA, is Associate, The Thayer Group, Inc. The authors may be reached through Dr. Bender at the Thayer Group, Inc., 100 Park Ave., Box 401, Swartmore, Pa. 19081, 610/543-2696, FAX 610/328-3717.
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Title Annotation:Organizational Theory
Author:Bender, Jeffrey G.
Publication:Physician Executive
Date:Mar 1, 1996
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