Hospitals are focusing intensely on their physician alignment efforts, and our firm is helping many of them with that focus. In thinking about that challenge and the puzzle pieces that must be in place to achieve success, it is clear that there is a hierarchy of issues to address. This article outlines those elements of success.

Defining and pursing an effective strategy is the foundation upon which a successful physician alignment effort is built, and is, therefore, the base of our pyramid.  The strategy should address overall market positioning and priorities, factors that will differentiate the organization, service line priorities and objectives, geographic priorities, and include both marketing and financial strategies.

Each of these factors will help define which physicians the organization should work with and how those relationships should be structured. Without such thought and guidance from a strategic planning process, it is very likely that the physician strategy will be unfocused, reactive, and ineffective.

Physician Manpower Planning.  
No first-class hospital has a marginal medical staff. And no hospital will meet its potential for quality of care and financial performance without an intense focus on physician manpower.  The reasons for this, whether driven by the shortage of physicians or the growth in demand that will result from healthcare reform, are well known.

Hospitals that are well-managed are defining the physicians they will need to be successful (as determined by their strategy) and to serve their community.  Then they are aggressively pursuing recruitment, whether to private practice or employment, and the allocation of resources is focused on goal achievement.

The driver here should be the strategy.  What primary care base must the organization have in order to meet its goals?  What specialists, with what subspecialty capabilities, must the organization attract?  And how does the hospital attract them?

Medical Staff Growth and Development.  
Once physician needs are defined and the recruitment effort begun, other questions loom:

First:  How does the organization help drive volume to the new physicians? How does the marketing effort anticipated in the strategic plan support this objective? How do you promote the physicians with the relevant service lines? How do you promote specialists to referring physicians?

Second:  How does the organization develop a sustained and successful recruitment effort? Organizations that excel in this  arena will have a competitive advantage.  What resources and staff capabilities are required to consistently excel?  And, what executive behavior is required to sustain and drive such an effort?

The final challenge we see in this area is a human resources issue: How does the organization grow and develop physician leaders? No issue will be more important to hospitals in the new age of accountability for cost and quality. It is impossible to conceive of a hospital excelling without physicians who are able to help bridge the realities of the market with the realities of medical practice.

Economic Integration Options.  
Driven by the fee-for-service system, the lack of common incentives among physicians and hospitals has been a barrier to improvements in quality and cost. And, it is accepted that this reality must change if real improvements are to be made.

Over time, integration with physicians will grow, and the changes needed to support that integration are coming.  Medicare is experimenting with bundled pricing and gain sharing. Hospitals and physicians are working in co-management arrangements that drive mutual discussions and reward physicians for changed behavior. On the state level, Massachusetts is moving toward total elimination of fee-for-service, with Blue Cross in that state moving to capitation in January of 2010.

Traditional methods of economic integration, such as medical directorships and recruitment assistance have built loyalty but not fundamentally changed the way care was delivered. But approaches such as employment, co- management arrangements, and joint ventures, are all driving change at an increasing pace.

Physician Employment Strategy.
From the array of physician alignment options, it appears to us that employment of physicians will be the winning strategy in most markets. Simply put, it allows the greatest integration and structuring of mutual incentives.

In defining an employment strategy, we first ask the client to go back to their overall hospital strategy. That strategy should provide insights concerning priority specialties to be employed, and the size of the primary care base to be employed.

In addition to that strategic review, hospitals need to address a number of other issues in their employment strategy.  Among the most important are:

•  The infrastructure needed to manage the new venture and support the newly employed physicians, including practice management expertise
•  A compensation plan designed to incent needed behavior and performance
•  Governance models to outline physician responsibilities and ensure their continued engagement
•  Physician leadership and role development
•  Development of a strategy for the group in support of the corporate strategy

In some ways, a physician employment strategy may be a misnomer. Models will vary; in some situations the physicians may own the hospital or a holding company may own both. The principle of shared focus is not important, under all of those scenarios.

Building a Common Vision and Culture.
Many hospital CEOs and medical staff leaders work on this issue today, but its importance grows exponentially with the employment of physicians by hospital organizations. Long term, if hospitals are to achieve the value of these employment relationships, the physician groups must develop cultures that focus on and reward improvements in quality, service, and efficiency.

Creating a common vision is important at two levels:  There must be a shared vision concerning how the physicians will work with the hospital/health system to improve the way care is delivered.  And, there must be a vision among the physicians concerning how the group will perform and the group norms under which it will operate.

That latter vision relates directly to the group culture.  Anyone who has worked with physicians knows, instinctively, that the best groups – those that provide consistent care, steadily grow, and serve their customers well – have a strong culture. That culture has generally developed over a number of years, shaped by physician leaders with a strong internal compass and vision for the group.

For this reason, it is important that it be recognized that group culture will take time to develop. This is especially true if the employment strategy involves multiple, previously independent groups.  Given the complexity, it may take five or more years for the culture development efforts of physician leaders to bear real fruit.  But, ultimately, that culture will be critical to the success of the physician employment efforts.

Improving Care Processes.
Early on, many physician alignment efforts are designed to drive volume to hospitals. But, in the long term, their ability to improve the quality and efficiency of care will be the most important return of these strategies.  The ability to truly integrate through electronic medical records and mutually work to integrate best demonstrated practices will distinguish effective integration models.

To do this, the quality of physician leadership will need to be exceptional.  And while those physician leaders are building group culture, recruiting gifted physicians, guiding group strategy in support of the system strategy, and working to integrate best demonstrated practices, their value to the system will grow, as well.

Mutual Success.
Well integrated physician alignment models will lead to success at a number of levels. Those will include financial and clinical success at their core. But they will also include success that grows out of being a member of a nimble organization, one that can navigate the changing demands of an evolving healthcare system.



David W. Miller

Founder, Board Member