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The Enduring Physician Network
The Enduring Physician Network

Rick Krohn
Building and launching the physician led network is only the first leg of a long journey on a storm tossed sea. The network is not an end stage strategy - it is a now stage strategy. The network must constantly be attuned to its' customer base, and prepared to adapt to changes in the fundamental drivers of market behavior. The disappointing performance of such integration strategies as PPMCs (Professional Practice Management Companies), hospital owned physician networks, provider owned MSOs and PHOs, among others, suggests that the physicians must harness their collective strength in innovative ways, with a weather eye continually focused on changes in the competitive environment. It's a daunting challenge, and one, which demands superior strategic and tactical planning. This strategizing must then be translated into action by talented business and clinical managers. If these qualities can be imbedded into the daily life of the network, it will succeed in the long term.

There is seldom a single factor that torpedoes either a nascent or functional physician organization, just as there is no single formula for network success. But there are common attributes that contribute to ongoing survival and prosperity.

Market Driven and Medically Directed
The physician network is a business enterprise, and must observe the rules of successful business management. There must be a rational economic purpose to network activities, and a business sensibility to the delivery of network products and services. The business environment will shift over time, and the network must be poised to react, or even better, anticipates such changes, and positions the network accordingly.

A fundamental value proposition of the physician led network is that physicians are integral to strategic and tactical decision making throughout the organization. This is vital for several reasons: it reasserts medical decision making authority to physicians; it promotes a shared clinical culture; it creates trust and support among the rank and file for network management; it lends credibility to network claims of clinical excellence; and it ensures that physician interests are being represented at each level of network operations. Physician leadership often must be nurtured, and the development of a cadre of physician leaders is dependent on effective education and communication. To this end the network should consciously become a learning organization - one that educates and empowers its' management and membership to adapt to a changing health care business environment.

Focus on the Customer
An unfortunate by-product of managed care has been a blurring of provider accountability. Who is the true customer - the payer or the patient? The hard truth is that in many markets, the payer is the customer and the patient is the consumer. Unless the network can gain direct access to the consumer, it cannot ignore the decision criteria of the purchasing intermediary. Logic suggests that payer criteria merely reflect consumer demand as expressed by the ultimate purchaser of health care services - the patient. The recent history of managed care would suggest that this dynamic has not been strictly observed, but the patient is becoming resurgent as the true purchasing decision driver of health care services. The network must satisfy each of these customers on the basis of value - service cost, clinical excellence, convenience, personal attention, etc.

In the near term, the network must strike a balance between its' obligation to meet the purchasing criteria of the payer market and the demands of the true customer, the patient. This dynamic will change dramatically as healthcare consumerism, spearheaded by the Internet, propels the patient to the forefront of healthcare marketing and customer retention efforts.

Medical Management
Increasingly, clinical quality is becoming a defining characteristic of physician organizations, particularly in markets where excess cost has been removed as a market driver. As quality indicators become a factor in consumer choice of health care services, payers and purchasers will seek to gain competitive advantage on the basis of measurably superior outcomes and patient satisfaction, and will want to acquire the services of proven quality providers.

The network must efficiently manage clinical resources, particularly in a risk contracting environment. Medical management programs are central to the creation of a common clinical culture and consistently improved outcomes. As managed care markets mature, it is these distinctions that will be the drivers of health care purchasing.

Cost Efficiency
The physician network is a business enterprise, and must conform to the rules of successful enterprise management. The engine of growth for managed care has traditionally been cost compression - purchasers have been offered more attractive rates in exchange for less access. Price cuts have filtered down to the provider level - creating that familiar paradox "doing more with less". This strategy is well entrenched, and in some markets thoroughly exhausted, as a means of establishing competitive advantage. Nevertheless cost efficiency remains an expectation of health care purchasers, and is a decision driver between equivalent product alternatives. Networks must be operationally efficient - and must support operating efficiencies among their constituent members, in order to compete on the basis of price. These efficiencies occur as a result of efficient daily operations, efficient human resource allocation, efficient purchasing and capital spending, and efficient utilization management.

A Common Clinical Culture
Physician members of the network should be actively engaged in fulfilling the network value propositions of quality and clinical efficiency. The network must promote adherence to quality standards by creating financial incentives, in the form of risk sharing and bonus payments, and structuring compensation plans to encourage compliance with quality and utilization goals. Phys-cians must also be given the tools to implement changes in clinical behavior - in the form of information such as performance reports and clinical decision support tools. Physicians should also have access to education programs, and be encouraged to share information with their colleagues. The network should be prepared to exercise panel selection - and deselection - in order to adhere to the principle of a single standard of clinical behavior.

Alliances and Partnerships
The elemental truth of provider networks - that there is strength in numbers, is not restricted to local, parochial organizations. Horizontal and vertical integration have become catchphrases which attempt to encapsulate the universe of provider alliances. Provider integration is not simply a matter of assembling horizontal contracting coalitions, or stacking pyramids of wholly owned health care organizations. The defining characteristic of alliances should be sustainable value, not structures and models. The nature of provider alliances may take a variety of forms to suit a diverse set of objectives, from simple contracting associations to joint venture management companies. Every alliance is driven by the unique aims of its' constituent members. Single specialty networks seek to establish primary and multi specialty physician relationships to drive referrals and gain access to broader contracting opportunities. Hospitals seek to protect admission streams and expand their economic reach beyond the hospital walls.

The challenge is to establish the correct alliances - those that bring value to the network in terms of economic opportunity, organizational development, or financial solvency. Additionally, alliance partners should be subject to scrutiny to determine their compatibility in terms of organizational vision and goals, clinical culture, managed care mentality, community benefit, etc. As the managed care marketplace continues to consolidate, it is the players with market share, capital, and infrastructure that will dominate.

Management and Infrastructure
Professional management of the network is absolutely vital to its' growth and sustained economic success. No amount of capital or quality service can reverse the damage done to a network by poor management. Conversely, capable management can infuse the network with an image of professionalism and efficiency, which is attractive to potential alliance partners, potential contractual partners, and potential capital partners. As discussed earlier, the network should match the acquisition of management talent to the evolution of network product and service capabilities.

One of the most pressing needs of providers (particularly those engaged in risk contracting) is effective management of their practices. This need extends beyond managing the clinical and financial aspects of risk and includes facilities management, staffing, internal policies and procedures, purchasing, marketing, recruitment, clinical and functional reengineering, and education. The network should offer, and acquire the means to deliver, those products and services for which there is a willing consumer and a demonstrated competitive advantage. Baseline infrastructure includes information processing, data sharing, and computing platform, contract management resources, marketing, and practice management capabilities.

Risk Management
In more advanced managed care markets, risk contracting is a fact of life and a primary determinant of practice profitability. Most practice billing systems are unsuited to risk management, and the network can contract on behalf of and manage the risk aspects of managed care contracts for physician members. The rule here is simple - the network must not accept more risk than it can comfortably manage with internal resources, or confidently off-load to subcontractors. Service areas in which the network is not capable should be carved out of the contract, and all aspects of risk (financial and medical) must be professionally managed The challenge for the network is, of course, to match professional resources to the clinical requirements of the risk-based services efficiently and profitably. A fundamental purpose of the risk contracting strategy is to capture an increasing share of the premium dollar, evolving from partial risk contracting to percent of total premium contracting. Through panel development, alliances, and infrastructure development the network can progressively "ramp up" the degree of risk it will accept, and correspondingly capture a greater volume of the associated risk based revenue.

Aggressive Marketing
In the network setting, marketing takes on a variety of roles. Marketing to increase network membership includes physician to physician contacts, educational forums, and formal presentations. Marketing to payers and purchasers includes relationship development, creation of marketing tools such as brochures, advertisements, web sites, and development of a brand identity. Marketing to patients includes direct-to-consumer advertising, direct contact in a group and individual formats, patient newsletters and information resources designed to heighten public awareness of the network and create brand preference at the grass roots level.

Patients are demanding more choice and convenience in their relations with health care providers, and employers are echoing this priority in their choice of health care delivery organizations, either directly or through insurance intermediaries. The network must be able to market itself on the basis of access, and should further differentiate itself on the basis of consumer satisfaction with the experience of health care delivery - at any point of access to network based care.

The realization that physicians control the lion's share of health care expenses, and the associated wealth generating opportunity that stems from this truth, are generating a tempest of physician integration activity. Physicians can and should be at the forefront of this market phenomenon, by executing their own network and provider integration strategies. The formula for successful network execution is relatively straightforward. With adequate physician leadership, management support, and capitalization, the framework of network execution is in place. Add to this a marketable product, a business and managed care mentality, and operating efficiency and the network creates the physical attributes of economic success. Finally, the network will succeed on the basis of value - the ability to deliver superior care and create ongoing demand for its' products and services.

Richard Krohn is a member and contributor of HealthBond. View his expert page on HealthBond.

Richard Krohn is President of HealthSense. Krohn is a widely-published managed care expert as well as a dynamic speaker providing in-depth, practical and timely information on topics such as managed care contracting, strategic positioning for provider organizations, building new provider alliances, reengineering practice operations, developing market driven products, and creating equitable physician compensation plans.

December 21, 2000

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