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The time is now.


"We have attempted to control health care costs through utilization review, managed care, labor and provider negotiations, certificate of need, service cutbacks, third party administration, co-pays duductibles, second opinions, and even pleading ... we are (now) seeking proposals to establish a win-win partnership (to) provide health services... We are wiling to fund this (five-to-seven-year) arrangement in a way that will provide maximum flexibility ... to provide services in a way (providers) deem efficient and effective. The only strings that we will insist upon will be periodic reports reflecting the quality, appropriateness, and timeliness of services provided." - from a June 2, 1992, half-page Wall Street Journal advertisement, place by the Director of Purchasing for the County of Kenosha, Wisconsin.

"...Physicians were caught off guard; the managed care revolution rolled over them without their having been prepared for it. But they're very smart. At the moment they're being taught the art of risk-taking by the HMOs in California. Once medical groups have learned how to manage risk, they'll probably say, `We'll deal directly with the employers.' It seems to be a natural evolution in the end; physicians will be in the driver's seat."

- Uwe Reinhardt, PhD, James Madison Professor of Political Economy at Princeton University, from a December 1995 interview in Modern Healthcare.[1]

What happened?

Three current developments create a unique opportunity for physician leaders to take t commanding role in shaping the emerging American health care system. These events are:

* The failure of all intervention methods to control rampant cost escalation of the late 20th Century.

* The resultant emergence and empowerment of major health care purchasers.

* The structural transformation of health care delivery, which is occurring as a result of this purchaser empowerment specifically, the emergence of integrated delivery systems.

The cost escalation of health care, dating roughly to 1965's "Great Society" legislation that created Medicare and Medicaid, has finally reached a transformational point. As the preceding Wall Street Journal ad suggests, over the past 30 years, the imposition upon the traditional health care system of virtually every imaginable form of external cost controls has occurred. They have all failed. And now those paying the bills - the large-scale health care purchasers - have finally seized control. They are fomenting fundamental structural change in the health care system.

The most obvious target of these frustrated and sometimes angry purchasers is the fragmentation that characterizes the traditional fee-for-service health care system. Those paying the bills have become knowledgeable about how a system of tens of thousands of isolated health care providers, all optimizing their participation in a fee-for-service system, has both created enormously expensive inefficiency, and reduced accountability for both cost and quality of care.

The result of this learning on the part of now-empowered health care purchasers? In order to continue doing business, health care providers, are finding that they must form alliances to present a comprehensive "package" of health services for the constituents of these purchasers. In short, they must form integrated delivery systems.

Integrated delivery essentials

An integrated delivery system is "a patient-oriented assemblage of care elements, comprising both services and linking mechanisms, that guides and tracks patients over time through a comprehensive array of health, mental health, and social services spanning all levels of care, with formal arrangements and common financial incentives among all providers, payers, and consumers."[2] It is already clear that linking formerly isolated caregivers into an integrated whole offers purchasers several advantages over the prior, fragmented system. This integration:

* Reduces the costs inherent in the fragmentation of the old system.

* Allows better coordination of various health services, thus both reducing costs and improving service.

* Dampens the tendency of isolated elements of the prior fragmented health care system to optimize its economic benefit, without consideration of total costs of the (non)system. Such behavior is actually harmful to an integrated system, which must balance the interests of all elements, and do so at a total cost acceptable to purchasers.

* Provides a "central nervous system," a leadership system that can provide rational management and accountability for the whole assemblage of provider elements.

Because of these advantages, purchasers are increasingly of one voice as they attempt to influence the restructuring of health care delivery throughout the United States. While they are demonstrating flexibility in allowing various forms of systems integration, they all want to purchase care from a system that has compelling incentives to control costs and maintain high quality: that is, delivery of high value health care (value = quality/cost).

To say the least, this restructuring from isolated provider units with virtually no value accountability into highly accountable integrated systems is posing a challenge for both administrative and clinical leaders. But clinical leaders, particularly physicians, have an extraordinary opportunity to positively influence the structure, governance, and process of newly forming integrated systems. Figure 1 illustrates why. It depicts health care futurist Jeff Goldsmith's recently developed model of how integrated systems are likely to evolve over time.[3] This article focuses on Stages 1 and 2 of Goldsmith's model, particularly upon the formation of physician networks (Stage 1) and the redesign of the patient-system interface (Stage 2). Each of these phases implies major changes in certain physician behaviors - and it is well known that physician behavior change is best fostered from within the profession.
Evolution of integrated health care
as envisioned by Jeff Goldsmith, PhD



Hospital Control Population
usage resource based

Primary Redesign Pooled risk
care system-patient capitation
networks interface

Compete Total quality Health
on price - clinical status
 paths, appraisal

 Capitate Targeted
 specialists intervention

End of old Bridge Start of new

Stage 1

The major behavioral challenges of stage 1 are moving physicians from isolated practices into larger networks and altering their practice patterns from "doing everything for everyone, hang the cost," to "doing the right things for the right people, in the most cost-effective manner." In linking physician practices into integrated networks, it is already evident that physicians do not necessarily have to be regimented into salaried, all-under-one-roof "medical factories."

Some of the loosely-linked California physician networks are achieving cost savings matching, and sometimes exceeding, those of more centrally-managed physician groups. It is already evident that core elements of this successful change are leadership needed to link physicians into any form of alliance and information systems that can offer physicians feedback regarding their practice patterns

A recent New England Journal of Medicine commentary summarizes five key elements in changing physician behavior:[4]

1. Education

2. Involvement in the change process

3. Feedback of information

4. Administrative changes

5. Incentives, both positive (reward and recognition) and negative (sanctions, punishment, disenrollment, etc.)

It is ironic that efforts to "control physicians," especially by those outside the profession, start with the last two, when it is clear that physicians prefer the first three by far. In actually mobilizing physicians toward successful new organizational configuration, there will be necessarily a host of detailed factors. The evidence suggests, however, that the most successful efforts will be solidly grounded in the principles and genuine practice of education, involvement in the change process, and constant flow of relevant information. If leaders can succeed in fostering these key elements of successful change, detailed tasks of crossing the T's and dotting the I's of new organizational development become relatively straightforward.

Stage 2

The driving force of this phase is increasing the value of health care - both to purchasers and to those served by the system. The value equation reads value = quality/cost. While it is possible to increase value either by improving quality or decreasing cost, it seems obvious that the latter will attract greatest attention during this stage. There are two basic approaches to cutting costs:

* "downsize" through layoffs and "reengineering" (generally hoping that those left will not compromise quality)

* employ modern quality management science to "redesign the system-patient interface"

Goldsmith correctly chooses the latter. Modern quality management science is the only approach to cost cutting that genuinely maintains quality, not just as a concern, but as a continuing, central priority. This is the core of the philosophy and practices that quality legends W. Edwards Deming and Joseph Juran carried to Japan in the 1950s - and it is the only approach that has any possibility of being embraced by physicians.

As noted, education, participation in change, and information feedback can alone assist physicians in their desire to maintain high quality care, while reducing costs. But there are limits to individual and collective changes in practice patterns. At some point, physicians will need to become more involved in redesigning the systems of care in which they participate. This is the point at which it will be necessary for leaders to "get serious" about the tremendous power that modern quality science - the combination of industrial quality improvement and outcomes research - holds for enhancing physicians' ability to deliver not just high quality, but the highest value health care.

A growing cadre of nationally-recognized physician leaders now articulate the (so far undeveloped) potential of modern quality science. According to David Blumenthal, MD, MPP, Chief of Health Policy and Research and Development Unit, and Associate Physician at Massachusetts General Hospital; Associate Professor of Medicine and Associate Professor of Health Care Policy at Harvard Medical School.[5]

"The body of knowledge applied in TQM (total quality management) is the most complete theoretical and practical guide to understanding and improving the quality of care that currently exists. . . The fundamental source of the power of TQM lies in (the) simultaneous commitment to the scientific method on the one band and to applying that method in real-world settings on the other. The result is a remarkable blending and interaction of theory and practice that is now available to physicians and other health care practitioners interested in taking advantage of it. The purpose of this volume is to make the connections between TQM and the daily work of quality managers, clinicians, and researchers in improving quality of care and service in health care organizations."

In sum, physicians are absolutely core to the current and future evolution of integrated delivery systems. While in many parts of the country aggressive, skilled entrepreneurs (some of whom, of course, are physician/businessmen themselves) have taken the early lead in health care restructuring, physicians are, as noted by health economist Uwe Reinhardt, learning rapidly. These physician leaders now stand on the threshold of a historic opportunity to regain influence over their profession's future and become architects of core elements of the future health care system, including:

* the evolution of physicians into high value-added linkages and organizations.

* the creation of new delivery systems that can enhance patient care quality, control costs, and produce far greater professional satisfaction than many physicians are experiencing today.

Key learnings

As integrated systems form - and not infrequently break up - around the United States, a number of learnings are lighting the way toward emerging opportunities for physicians who are willing to supplement their clinical skills with those of leadership.

* First, and perhaps foremost, no one really knows the "right" way to form an integrated system. Even successful pioneer models, such as Kaiser Permanente's, are experiencing enormous stress and destabilization as a result of the pressures that modern markets are exerting. A proliferation of both successful and unsuccessful models is likely in the near future, and a fluid environment creates opportunities to experiment, sense and correct errors, and reformulate.

* While it may be possible to "slamdunk" anxious physicians, both primary care and specialist, into a variety of organizational affiliations, those with strong physician leadership, and who are most successful in preserving medical professional-values, are likely to be more enduring. The loyalty of physicians to organizations that ignore their professional values is proving paper-thin in many areas.

* While many physicians still prefer not to be "led" by anyone, including their colleagues, virtually all feel more comfortable in organizations with visible, substantive physician leadership and governance.

* Much of prior management science, especially the notion of authoritarian, hierarchical management structures, no longer works well in any organization. It seems that we are witnessing a global shift of management paradigms. As a consequence, physicians who start off with zero knowledge of prior management science are not at that much of a disadvantage compared to their administrative counterparts as they pursue new leadership and management skills.

* Through all the chaos of physician integration - and not infrequent organizational disintegration - medicine still remains a profession. And, as such, it vehemently insists upon managing itself. This doesn't refer to the American Medical Association or medical politics as usual. It means that for integrated delivery system organization, primary care physicians need to work out issues with each other and specialists, and the two groups need to work out issues between their different orientations.

While forward-looking physicians are willing to accept much outside help and administrative expertise in organizational matters, even work effectively in the more interdependent team environment of modern quality management science, physicians will continue to have a distinct profession for the foreseeable future, with certain rules and norms.

Core qualifications

Given these learnings, what is organizational task faces physician leaders now and in the future? Yes, these leaders must now succeed in mobilizing colleagues in pursuit of organizational goals, be they specifically more efficient practice patterns, implementation of TQM, or more globally, a particular institutional vision. But to accomplish these tasks, physicians cannot simply be cheerleaders of the new order. Several characteristics will define successful physician leaders.

1. Sense of mission and vision. Leaders must be strongly grounded in values truly important to quality medical practice. While the core mission of healthcare is expanding beyond "disease care" to a serious focus upon prevention and wellness, leaders must be unwavering in their sense that health care is fundamentally about caring for people - and caring deeply about the system in which one expresses this mission. They must be able to think globally, act locally. While the precise nature of future health care can't be known, they must be able to articulate a meaningful vision of what at least their local or regional system might be.

2. Communication skills. Leaders must be able not only to articulate, they must be able to genuinely communicate mission and vision. That is, action must follow articulation. Action will follow only if would-be leaders not only articulate vision and mission, but also hear their colleagues. Many specific tasks must be accomplished as people in organizations move toward their shared vision. Moving forward will occur only in the context of true dialogue and discussion between leaders and constituents - this means speaking and listening well, so that all ultimately move in the same direction.

3. Integrity. Integrity implies clarity of values and/or direction, and behaviors consistent with them. While flexibility in thinking and approaches to challenges is an enormous asset for today's leaders, those who would follow them must be able to perceive in these leaders a core consistency in their fundamental values and actions.

4. Trust It seems that many confuse trust with faith. Trust is not a starting point - indeed, health care has probably never experienced such a generally low trust environment as exists today - it is an end result. No one can be convinced to trust a potential leader up front. Trust accrues to those who make and consistently keep commitments. While a high integrity individual might start out "trustworthy," even he or she must earn trust. Leaders follow through on commitments - consistently. They "walk their talk."

5. Courage. Leaders foster change. They take people to unknown places, some of which may be perceived as threatening. In their willingness to break new ground, leaders are inherently risk-takers. No matter how strong the sense of mission, or how compelling the vision, no one really knows or can predict the future. By definition, risk implies potential loss. The wise leader understands this and weighs specific-risks carefully. This willingness to face uncertainty and potential loss defines the leader as a person of courage.

Physician leaders should not take this role expecting appreciation. Quite the contrary. Conflict and resistance from colleagues are the norm, especially early in the change process. Leaders must be able to weigh negative feedback objectively, not allowing even strong resistance to intimidate them. Resistance and conflict must be accepted as normal, managed well and, above all, not taken personally.

At first impression, this list may appear unrealistic, overly idealistic. But aren't these exactly the traits that patients desire in their personal physicians? If these traits are so central to the profession as a whole, how can leaders aspire to anything less?

And now action

In his recent book, Crisis and Renewal: Meeting the Challenge of Organizational Change, author David Hurst offers a challenge that should resonate among present and aspiring physician leaders "Renewal - changing a performance organization into a learning organization - demands the restoration of the excitement, emotional commitment, and values often missing from large enterprises. It involves returning to founding principles ... to reconnect the past with the present."[6]

What values-based physicians wouldn't respond to the potential "restoration of the excitement, emotional commitment, and values" that surrounded their initial decision and efforts to enter the profession? And who doesn't long to "return to founding principles, . . to reconnect the past with the present?" This "reconnecting" most certainly doesn't mean returning to the past true leaders intuitively see the folly of such intentions. It means something far more exciting: Taking the best values of the past, and "re-birthing" them within the frameworks of emerging delivery systems. What is changing right now is not the caring for people that lies at the heart of medical practice it is simply (well, maybe not quite so simply) the method of organizing and paying for this care. There may be far more potential than many physicians realize for retaining the best values of medicine in future delivery systems.

Physicians who feel the call to lead emerging systems might initiate some action steps

1. They might ask themselves, "Do I really have hope, and do I still wish for a better future for my practice, my patients, my profession, the health care system?" Many physicians are truly "burned out" or otherwise terminally depressed regarding the future prospects of medicine. They need not to lead, but to grieve.

2. If the answer to this first question is affirmative, ask: "Do I possess, or might I seek the core qualifications?" While no one doubts that some are more naturally inclined toward leadership than others, a large body of literature affirms that leadership skills can be acquired. Many good resources exist, and the list grows steadily. For example, Warren Bennis' On Becoming a Leader is a highly readable volume offering explicit direction in both understanding and acquiring leadership skills.

3. "Book learning" is only one approach. Short of degree programs, there is a large and growing body of educational resources targeted toward physician education in leadership and management. Many physicians are surprised to learn that their own training in scientific method, diagnosis, therapeutic formulation, and action based upon evolving information" (i.e., patient therapy), has parallels in organizational "diagnosis and management." In other words, they may find themselves better prepared for organizational leadership than they had imagined.

4. Attend conferences, subscribe to journals and newsletters, network with colleagues, and consider new organizational affiliations. Most physicians are fully attuned to these actions - but only as they apply to their own clinical specialty. Again, it doesn't take a master's of business administration degree to:

* Attend conferences on health care leadership issues, managed care, and integrated systems

* Subscribe to integrated systems and quality management journals and newsletter - they abound and their quality increases steadily as these fields mature

* Call/correspond/E-mail with friends and colleagues in leadership positions. A wealth of experience is being gained by physician leaders "in the trenches" of the de facto "health care reform" that is taking place throughout the U.S.

* Affiliate with organizations such as the American College of Physician Executives, the former "Medical Directors" organization, which now plays a major role in educating future physician leaders. Such organizations are becoming virtual clearinghouses of new knowledge in developing systems.

5. Link with local administrative leaders and board members. Physicians tend to be independent by nature and training, and prior hospital cultures have tended to create distance and not infrequent power struggles between physicians and administrators. The typical hospital, with its separate and distinct clinical versus administrative lines of accountability, has often been a breeding ground of distrust. But in offsite retreat after retreat, it becomes clear that physicians, administrators, and board members often share very similar core values.

Indeed, it is these values that have brought them together in health care. Their distrust and misunderstanding thus don't represent fundamental incompatibility of values their conflicts are simply cultural artifacts of their differing training, patient versus institutional focus, and the dual line of hospital accountability. In fact, physician and administrative leaders need one another, and collaborative leadership outperforms power struggles for who's in charge every time.[8]

6. Become actively involved in some form of organization development. If one seeks to lead or maintain influence in times of rapid change, it is vital to be in motion. This implies risk taking, making errors, learning from both success and mistakes, and changing course as necessary. The motto is "Ready, Fire, Aim!" - prepare as wisely as time allows, then launch, learn, and constantly correct your course. What management author Tom Peters terms the "bias for action" confers an advantage to those who seek to lead and influence change.[9]

This list is by no means exhaustive, but it offers a start. Physicians who explore such actions will find paths to many others.


Events interpreted by many physicians as "the end of medicine as we have known it" may paradoxically herald the beginning of a new era of potential physician leadership and influence. But there is no guarantee that the medical profession will return to the "driver's seat" envisioned by Uwe Reinhardt in the opening quotes of this article.

In addition to those health care administrators trained in the best traditions of health management and policy, there is now an extraordinary array of bright, talented managers who have found their way from other industries and the business schools into health care. A trillion-dollar industry attracts a lot of talent. While Ira Magaziner and the White House Task Force of 1994 failed to achieve their health care reform goals in the political arena, there is no shortage of those willing to take their place in designing the American health care system of the 21st Century.

If physicians, individually and collectively, choose either to hunker down in doomed attempts to recreate the past or, evolve simply as operatives and/or technicians of emerging health systems, they will likely find themselves not in Dr. Reinhardt's "driver's seat," but bumping along behind in the "rumble seat" of health care transformation.


[1.] Interview with Uwe Reinhardt. PhD, James Madison Professor of Political Economy, Woodrow Wilson School, Princeton University. Modern Healthcare, Vol. 72 No. 24, 1995. [2.] Greene, J. Provider group execs vary on key elements of integrated systems. Modern Healthcare, Vol. 71. 1994. [3.] Goldsmith, J. Managed Care Comes of Age. Healthcare Forum Journal, Vol. 38, No. 5. [4.] Greco, P. J. and Eisenberg, J. M. Changing Physician Practices. NEJM, Vol. 329, No. 17. [5.] Blumenthal, D. and Scheck, A. C. Improving Clinical Practice: Total Quality Management & the Physician. San Francisco, CA: Jossey-Bass Publishers, 1995. [6.] Hurst, D. K. Crisis and Renewal Meeting the Challenge of Organizational Change. Cambridge, MA: Harvard Business School Press, 1995. [7.] Bennis, W. On Becoming a Leader. Reading. MA: Addison-Wesley Publishing Company, 1989. [8.] Merry, M. D. Shared Leadership in Health Care Organizations. Topics in Health Care Financing, Vol. 20, No. 4,Summer, 1994. [9.] Peters, T. J. and R. H. Waterman. In Search of Excellence: Lessons From America's Best-Run Companies. New York, NY: Harper & Row, 1982.
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Title Annotation:physician, health care providers and purchasers cooperation in financial aspects of American healthcare delivery systems
Author:Merry, Martin
Publication:Physician Executive
Date:Sep 1, 1996
Previous Article:The era of accountability.
Next Article:Learning to be a leader.

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