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Building and Maintaining Physician-Hospital Partnerships- Richard Krohn
Building and Maintaining Physician-Hospital Partnerships- Richard Krohn

Richard Krohn
Mr. Krohn is a seasoned health care business development and management consultant who has guided physicians, health care systems, and HMOs in their transition to manage care. He is the President of HealthSense; a managed health care business development and management-consulting firm located in Guyton, GA. Client engagements have included strategic and business planning, market research, capital acquisition, single and multi-specialty network development, managed care contracting, risk based compensation plan development, operations management, finance, process reengineering, information systems, product development, and managed care business development. Rick has worked extensively with hospital executives, physicians, HMO executives, support staff, and vendors in a wide range of professional orientations, from new venture business planning and execution to physician specialty network development, to provider education, to HMO restructuring, to managed care contracting and risk based product development. During his career, Rick has developed an expertise in providing solutions to managed care issues and challenges faced by hospital executives, physicians, and payors.

Rick has written extensively on a wide range of managed care subjects for publications such as the Group Practice Journal (AMGA), the Medical Group Management Association Journal (MGMA), and Healthcare Financial Management (HFMA). He has also written a guidebook published by the VHA titled Succeeding in Managed Care: Capitation Management (1995), a chapter titled "Organizing and Managing Specialty Networks" in the Aspen book Building and Managing Effective Physician Organizations Under Capitation, (I996), and a chapter titled "Specialty Capitation" in the Faulkner and Gray book, Risk Management for Healthcare Provider Groups 1998 (I997). He has recently completed a book titled Physician Networks: Strategy, Startup, and Operations, published by the American College of Healthcare Executives(1998). Rick currently writes a monthly column on physician networking strategies for the Group Practice Journal. In addition to writing, Rick also speaks to physician and health care executive audiences such as VHA, Prem n and organization development issues.

Prior to launching his own company, Rick was vice president of Medical Alliances (1994-98), a national health care business development consulting firm. His responsibilities included management of the healthcare business development and management services consulting division, as well as active management of individual consulting engagements. Earlier industry experience was gained in administrative posts at the Bon Secours Health System (I992-94), Johns Hopkins Hospital (I990-91), and Sinai Hospital of Baltimore (I990).

Rick graduated from Towson State University with a degree in Economics and Political Science. He completed additional advanced study at the American University and Johns Hopkins University, earning a Masters degree in International Finance and a Masters in Business Administration, respectively.

Richard Krohn, M.A., M.A.S.
President, HealthSense, Inc.
P.O. Box 116
Guyton, GA 31312

Question 1 - What have you found to be a successful business relationship between Hospitals and Physician Organizations? Do these relationships involve risk contracting arrangements? Are there other models which are based on clinical integration? Have they been successful? Are they profitable? Rose B. by rose on March 20, 2000

Answer 1 - Rosemary - I've found no single business model of physician hospital integration that serves every economic climate - however the underlying principle of any such relationship must be sustained value - with the following features
1. shared ownership, vision, and governance
2. high quality management and physician leadership
3. focus on patient services as the true value proposition, not economic division of a dwindling pie
4. risk management and performance incentives
5. contracting, clinical quality improvement, communicatons infrastructure - business and clinical information systems

Risk management is often a feature - since the enterprise will hopefully create brand distinction by offering service capabilities beyond those of the competition. Again, risk management entails strong information management capabilties, strong incemtive compensation plans linked to performance, and measurable quality improvement programs.

A growing trend is toward virtual integration, which liks providers informationally and clinically without an overarching asset merger or host entity. Usually cast as a network organization, the virtual organization allows docs and facitilities to communicate, share information, and again- focus on the customer.

The record of physician-hospital integration is a mixed one - IDNs are divesting themselves, employed physicians have been an earnings nightmare, PHOs and MSOs have failed to live up to expectations - because the value theat they adde to the economics of healthcare delivery were simply insufficient. The profitable organizxations are those that can create brand distinction through acknowledged quality, operating efficiency, and a laser-like focus on the customer. by Rick Krohn on March 20, 2000
Question 2 Hi Rick, Value is a much touted word in healthcare today. When I became an examiner for the state quality award (with a focus on healthcare), I explored further the notions of Value, Quality and Cost. It appears that Value is simply a relative term describing a proportional relationship between a unit of Quality and a unit of Cost.

That being the case, you can actually achieve remarkable Value in healthcare while ACTUALLY reducing Quality!!! You simply have to reduce cost a bit more than you reduce quality.

One of the conundrums that patients face is that both doctors and hospitals, in an attempt to "stay competitive", diminish their level of products and services (clearly impacting quality) while diminishing cost (to appeal to the marketplace), all the while claiming "Great Value!". And, according to this proportional definition of Value (Value = Quality / $), they may in fact be technically correct.

How might we get back to ensuring that true Quality doesn't continue to erode at the mercy of "Value" ?

Could you offer some further light on these key concepts of Value, Quality, Cost?

Kernan Manion, MD
by ktmann on March 20, 2000

Answer 2 - Dr. Manion - thanks for your question. From a striclty economic perspective, and with recent history as our guide, I would agree that quality has been subsumed as a market driver of health care delivery and the interpretation of value has been cast as a synthesis of "doing more clinically with less" coupled with ongoing operating efficiencies. Inevitably this equation yields less resource capacity and quality must suffer as a result. The inflation in health care premiums of the past two years, coupled with the signals being sent by the commercial insurers that they do not want fall victim to an avalanche of lawsuits related to the restraint of health care services and the quality issues raised by such legal actions,suggests that the market is recognizing that there are limits to the kinds of streamlining of health care services that can reasonably occur without impacting quality of care. But providers can never leave it to third party intermediaries to guarantee that the services that they can econimically deliver will meet their personal standards of quality, and for this reason it makes continued sense for physicians, hospitals, and all manner of health care providers to organize and create products that achieve patient satisfaction and economic rationality criteria. Its a balancing act, but as health care consumers become more sophisticated about their health stsus and demand more in terms of service and measurable outcomes (the Internet is propelling this trend forward at breakneck pace), quality as a market driver - independent of value as an economic proposition - will rise to the forefront of consumer choice. by Rick Krohn on March 20, 2000
Question 3 - Three to five years ago I read of many systems promising to serve patients with quality care at less cost. During the last two years I have read of many systems which have folded, downsized, or loosing money to the point of threatening their existance.

Do you know of any IDS which are thriving long enough to use as models for physicians, hospitals, and industry interested in serving their employees with adequate access, good outcomes (at least short term) and at reduced costs?

Do you know of any systems serving the Medicaid population with quality care at a reducecd cost?

I live and worked in Tennessee and am a student of TennCare.

Visit: as an example of a group of pediatricians serving the middle TN area.
Harold Vann, MD, FAAP
by Hvann on March 20, 2000

Answer 3 - Dr. Vann - there are a host of good examples describing successful provider -led integration strategies, ranging from IPA model networks (Morgan, Atlanta) to physician owned HMOs (Scott and White, San Francisco).The common success characteristics are market penetration, quality as a brand identifier, good contracts, efficient operations, physician ledership, adequate capital resources,,,,etc. Some others...
Sentara Health System (Norfolk, VA), Sagamore Health System (Indianapois, IN), Sutter Health, Mayo Clinic, Allina Health System ......there are literally dozens of examples, each with its own particular spin on the medical delivery business model.

I can't point to any companies other thqn some for profit startups that are leaping inot the medicaid market ( Amerigroup, Virginia Beach, VA). In fact, if anything the market trend has been toward exiting the medicaid market - note the run for the exits last year in the state of Maryland among others......TennCare, of course adds an additional layer of difficulty to what is becoming an intractable reimbursement dilemma...... by Rick Krohn on March 20, 2000
Question 4 - Dear Rick: We are an Internet-based medical finance company, MediqFinancial.Com. Our web is

We have an interest in offering financing to provider networks who wish to use take advantage of the Internet in the fullest manner and to defend themselves against companies like WebMD and DrKoop.Com who are competing for their patients' attention.

Do you think that provider networks should move quickly to become Web-based providers? Is their fear of WebMD and the others justified.

With best wishes,

Dr. John Raffetto
Phone: 760-641-0505
by mediq on March 21, 2000

Answer 4 - Dr. Raffetto - thanks for your question - I absolutely believe that provider networks must leverage the Internet to create brand identity, establish clinical connectivity and information sharing among peers, and to reestablish direct relations with the health care consumer. I devote an article to virtual networking of provider netowrks in the April issue of the AMGA's Group Practice Journal (copies available upon request). I'm not sure that the WebMd's and DrKoops of the world pose a direct threat to provider networks - in many cases they can provide cost effective, rapid launch services.

It's obvious that the Web is going to redefine the way that providers relate to payers, to each other, and to the health care customer - and for this reason there is an urgency for provider networks to create and execute an Internet strategy while the market is not dominated by few players. by Rick Krohn on March 21, 2000
Question 5 - Hi Rick, I’ve been involved with a small hospital that is trying to keep staff physicians for their satellite clinics in rural GA.

From a business perspective does it not make more sense for a physician to be in a private practice where he/she can, frankly, bury income in capital investments in their businesses and avoid high income taxes? How does a hospital, trying to attract staff physicians, compete with a tax system that provides an incentive to do things so inefficiently without the benefit to the consumer that the economy of scale a hospital can bring… and when the doctor’s accountants are rightly advising them to do otherwise? by BenDover on March 21, 2000

Answer 5 - Mr.(ahem)Dover - I also live in a rural county, and our community hospital is wrestling with the same issue. From a business perspective, I don't beleive physicians make great employees, and the record of physician employment by hospitals has been amply demonstrated to be a flawed model. Unless there is a compelling economic rationality to attracting physicians with guaranteed employment, I would be inclined to recommend alternate methods of introducing physicians to the area (i.e. seeding practices, creating a joint venture physician organization, matching physician resource requirements to population demand. In my county, the hospital has elected to support the introduction of several new primary care practices, as a strategy to channel more patient services to the hospital.

From a financial perspective, consider some issues and options. Physicians recognize the limited market clout they wield as independent practitioners, but the hospital can help bootstrap a provider integration strategy aimed at recasting this economic equation. For your hospital trying to retain physicians in rural clinics - what incentives can be employed to keep them there? What recruitment efforts are underway to attract new physicians to the area? What support is the hospital providing to assist their efforts in what they may consider to be a very lonely outpost? by Rick Krohn on March 22, 2000
Question 6 - Sorry about the pseudonym... it evolved from a comment about government intrusion many months ago and it, how shall I say, stuck... anyway back to the topic.

Thanks for the suggestions. The particular hospital with which I am dealing is a well managed small non-profit with money coming out of its ears. They already have some of the lowest procedure rates in GA. They want to put the extra money (good problem to have I guess) back into the community in the most effective ways and these satellite clinics are one method they have chosen. The communities they service are small towns within 50 miles of the main hospital each town having 5,000 to 10,000 people. I guess the problem rises mostly from the fact that both the hospital and the doctors need to bury income and they both want to do it in capital appreciating assets. Recruitment is not too much of a problem... it is retention that poses an issue when they figure out that half of their $200,000 salary goes to uncle sam.

The joint venture suggestion may work very well if we can structure it so that they have an unrealized interest in charter organization and maybe also we can focus on quality of life issues making their jobs less frustrating...

Thank you for the input! by BenDover on March 22, 2000

Answer 6 - The scenario you describe suggests even grater reason to form a for -profit joint venture for the docs, and to give them equity in the entity. Use the entity as a growth vehicle to launch exploded clinical services management infrastructure, community based internet health portal, etc.

I don't know enough about the hospital or docs, or locations, to comment on quality of life issues. by Rick Krohn on March 22, 2000

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