Have you made progress towards reimagining the purpose of the health system employed medical group? No? That’s understandable – we’re all still plagued by COVID, inflation is hitting levels not seen in 30+ years, and the workforce is exhausted and leaving in droves.
Time is not our friend, especially as physicians now have more options outside the traditional health system employment model (with many leaving medicine altogether). Without a clear tie to the purpose of the organization, the value proposition becomes transactional.
Private equity has a distinct advantage over the health system: they can articulate a clear economic value proposition. And while it might not appear to be as noble as the health system's mission, it is well-defined. Health system leaders, ask yourself: how is your physician compensation model aligned with your mission? Why are physicians paid like factory workers? Why would the economic model collapse if you pay them like any other health system executive? What happens when Hospital Outpatient Department (HOPD) procedures and ancillaries shift to a free-standing setting, either through site-neutral payment reform or private equity force? Do you have a path to profitability for your physician enterprise?
The Good News: Health Systems Win on Purpose
The good news is that health systems have an incredible asset with the employed medical group. A large, multispecialty group with a physician-led, professionally managed infrastructure is far more attractive than trying to cobble together an array of small groups on disparate systems (often the private equity playbook). Do you want to unlock the value of your medical group? Align its business reality with its true purpose through the following seven-step framework:
Step 1: Clearly articulate the purpose of the employed medical group
The employed medical group is inspiring and compelling when aligned with the health system’s mission. It also opens doors for a new economic framework where the medical group functions as a profitable growth engine. Feeding the acute care enterprise (a failed strategy of the early 2000s) isn’t inspirational, financially sustainable, or consistent with the health system's mission.
Step 2: Define the objective of the subgroups within the medical group
Different subsets of your medical group serve different goals that inform how they need to be managed. For example, the purpose of hospital-based specialties (cost of doing business) may be different from primary care (network building, adding lives), which may be different from specialty care (grow service offerings convenient for patients). This is a shift in mindset away from managing a large multi-specialty group where the squeaky wheel gets the grease to intentional management of business units with unique jobs to be done.
Step 3: Develop a business model that is consistent with the purpose
To support long-term ambulatory growth, health systems must look at the economics beyond a professional fee enterprise. Managing a loss per physician without the bigger economic picture in mind prevents you from making meaningful investments in growth. For example, the goal of private equity Ambulatory Surgical Center (ASC) management and Physician Practice Management (PPM) companies isn’t to lose money.
Step 4: Define and measure success for the purpose
Physicians should be well versed in the economics of the practice, i.e., how money is made and spent. When challenging times arise, as they always do, your physicians will understand why decisions are being made, allowing the organization to pivot quickly. This also means the medical group should share outcomes consistently and transparently through physician scorecards or other operational reporting. If you’re bold enough, also include an unblinded comparison to peers.
Step 5: Establish a compact with your physicians
Collaborate with your physicians to define what it means to be part of your organization, especially the non-negotiables. Document expectations of the management services team (revenue cycle, IT, analytics, operations, etc.) and how risk is distributed across the business. For example, under a net income model, physicians have significant risk and thus will need to have more control over business decisions. Compare this to a wRVU compensation plan where the risk lies more with the management services team (as it relates to payer mix, managed care contracting, revenue cycle, and operating expenses).
Step 6: Pressure test your culture’s readiness for change
Health systems are facing workforce issues and pandemic burnout, and we’ve heard from colleagues that their organizations can only handle so much change right now. While this is true, remember that the redefined purpose is refreshing, reinvigorating, and can be used to help recruit and retain top talent. Void of purpose, health systems will lose on a financial-only value proposition every time.
Step 7: Evaluate existing management services that support the medical group
Defining the purpose is not enough to realize value. Medical group leaders need to design management services and incentives in a way that supports their goals and drives the value of the medical group. This includes, but is not limited to, data and analytics to measure success, physician compensation to reward progress, and transparent reporting to promote engagement and best practice.
In our conversations, medical group leaders are excited about this journey of reimagining the purpose of the employed medical group but are often held back by inertia (aka politics and an iron cage mentality). After all, defining the purpose is not just important for physicians, but it will also be essential to all clinical and non-clinical staff that support them every day. Taking a step forward doesn’t have to be complex. Use these seven steps to develop a roadmap for growth that leverages the power and purpose of your medical group.
When you’re ready to begin this journey, contact us: