Aspen Pub.

/JACM AS131-02 August 30, 2002 15:21 Char Count= 0

Physician Leaders of Medical Groups

Face Increasing Challenges
Zack Gerbarg, MD

Physician leadership has emerged as one of the biggest challenges and opportunities for medical
group success. The environment for medical groups has become increasingly complex as the result of
five major factors: 1) varying reimbursement methods, 2) growth in the size of groups, 3) technology
investments, 4) sale and merger of groups, and 5) regulatory and legal issues. Striking the right
balance between too little or too much physician involvement in leading medical groups is a key
business decision. Most large, successful businesses view investment in their leaders as critical for
success. Medical groups can learn from other businesses that investment in education, coaching,
and succession planning for leaders is a key to long-term success. Key words: group practice, group
practice leadership, leadership, leadership coaching, leadership development, physician coaching,
physician leaders, physician leadership, practice management, medical group leadership

VER THE PAST decade there have

O been a number of major challenges and
decisions that medical groups have faced that
have had a profound impact on their suc-
cess. For many years, groups were able to do
reasonably well with a single strong physi-
cian leader who could understand key issues,
deal with the internal politics, interface with
the outside community, create a culture of
service to patients, and oversee the finan-
cial decisions of the practice. But, as the
pace of change has accelerated and as the
health care environment has become more
complex, it has become increasingly diffi-
cult for one physician leader to do all that is
required.
FIVE MAJOR CHALLENGES
THAT HAVE CHANGED THE
ENVIRONMENT FOR
MEDICAL GROUPS
There have been five major challenges that
have significantly changed the health care
environment and put tremendous pressure on
medical groups and their leaders to respond.
The five factors: 1) varying reimbursement
methods, 2) growth in the size of groups,
3) technology investments, 4) sale and
merger of groups, and 5) regulatory and legal
issues are detailed below.
Varying reimbursement methods
The first major challenge came when
the government, insurance companies, and
HMOs instituted a variety of reimbursement
methods, including discounted fee sched-
ules, primary care capitation, specialty sub-
capitation, risk pools for hospital and phar-
macy utilization, and global capitation. Most
of these financial arrangements are much
more complex than understanding simple
Zack Gerbarg, MD, Cofounder and Principal, Eagle Medical
Management, LLC, Scottsdale, Arizona
J Ambulatory Care Manage 2002, 25(4), 1–6
°c 2002 Lippincott Williams & Wilkins, Inc.

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Aspen Pub./JACM AS131-02 August 30, 2002 15:21 Char Count= 0
2 JOURNAL OF AMBULATORY CARE MANAGEMENT/OCTOBER 2002
discounts from a fee schedule. In addi-
tion, medical groups faced mixed incentives:
for their fee-for-service patients, increased
volume of services meant more profit; for
their capitated patients, decreased volume
of services resulted in more profit. Impor-
tant decisions also had to be made about
stop/loss insurance and which networks to
join.
All these changes have been occurring
amidst the backdrop of decreasing physi-
cian reimbursements, including Medicare,
which in 2002 proposed a reduction in
physician payments of 5.4% (Pear, 2002).
While expenses for overhead and malprac-
tice have been rising, reimbursements have
been falling, thus requiring much better de-
cision making by the leadership of med-
ical practices. Some medical groups that
seemed on solid ground only five years ago
are now struggling or have gone out of
business.
Growth in the size of medical groups
There was significant pressure to increase
the size of medical groups in the 1990s to
protect and grow market share. It was be-
lieved that larger groups could be more ef-
ficient in terms of overhead and that mul-
tispecialty groups could provide a ready
referral source for specialists. Many felt that
large medical groups would have enough
volume to justify adding ancillary services
that would provide “one-stop shopping” for
patients and enhanced revenue for the prac-
tice. Large numbers of physicians began
joining group practices.
As a result of the growth in size of med-
ical groups came the challenges of manag-
ing a larger organization with an increased
complexity of organizational dynamics and
culture. In some cases, groups that had been
fierce competitors merged. Fearful of being
left out of important contracts, many solo
physicians joined group practices while still
hoping to maintain their autonomy. In order
to fill vacancies or to start satellite clinics,
new physicians were often added to exist-
ing groups. Most medical groups underesti-
mated the amount of time, energy, and skill
that is required to lead larger organizations
with changing personnel. They also had to
contend with the increasing complexity of a
much larger support staff. Groups could no
longer be run as “mom and pop” businesses
and now needed professional management
that could provide the necessary structure,
including policies and procedures, recruit-
ing and retention programs, and staff devel-
opment and training.
Technology investments
During this time, changes in technol-
ogy offered potential help for the growing
size and complexity of medical practices.
However, technology also brought its own
risks, including significant capital expendi-
tures, disruption of established workflows,
and possible depersonalization of services.
Physicians were no longer just buying a per-
sonal computer to do simple billing. They
were now looking at integrated systems that
could manage schedules, billings, capitation
contracts, patient demographics, health plan
eligibility, and in some cases even a mod-
ified electronic medical record. This trend
has continued, with capabilities now includ-
ing online ordering of medications and tests,
e-mail communication with colleagues and
patients, Web-based research, and commu-
nication of billing and clinical information
via personal data assistants. Relatively sim-
ple medical practice needs, such as ade-
quate and patient-friendly phone systems,
became a significant challenge, especially
for larger medical groups with multiple
sites.
Sale and merger of medical groups
The next major challenge came in the
form of significant opportunities for the sale
and consolidation of medical groups. At the
same time that many practices faced sig-
nificant pressure for capital expenses—new
Aspen Pub./JACM AS131-02 August 30, 2002 15:21 Char Count= 0
Physician Leaders Face Increasing Challenges
computer systems, updating the physical
plant, starting new satellites, hiring more
physicians—there emerged a number of op-
portunities to raise money by selling the
practice. Another factor that favored looking
for a sale was that senior physicians could
find few opportunities to cash out or realize
the “sweat equity” they had built up in their
practices. Here was a golden opportunity.
The stock market, which had been on a
nearly straight upward path, was also allur-
ing. Physician practice management compa-
nies (PPMs) were expanding rapidly, armed
with venture-backed capital and equity from
rising stock prices. What did a PPM offer
a physician? The deal was something like
this: sell the assets of your practice (every-
thing except the doctor, who has a contract to
continue practicing); be paid with some cash
and stock in the PPM; have money invested
in the practice to update the physical plant,
implement new technology, and expand the
group; participate in joint governance; and
leave the contracting and business manage-
ment of the practice to the PPM.
At the same time, a second bidder emerged
for physician practices—hospitals. Fearful
of losing their referral base or of being
marginalized in contracting with HMOs,
many hospitals embarked on a strategy of
buying physician practices. In some com-
munities, this happened at a rapid pace.
Often, once one hospital began to buy
practices, the other hospitals in the same
community adopted and followed the same
approach. Unlike the PPMs, which usu-
ally targeted large group practices, hospitals
often bought solo or small groups and then
tried to put them together into larger prac-
tices. This exacerbated the challenges of try-
ing to function as a group. The organizational
and cultural issues were overlooked in the
haste to get the deals done.
Competition to purchase practices heated
up so rapidly in some communities that
prices offered per practice reached levels
that were hard to turn down. One of the
3
more lucrative hospital offers for primary
care practices included a large cash buy-out
and a guaranteed salary for three years. So
the choices many physicians and group prac-
tices faced were mainly between selling to a
PPM, selling to a local hospital, or staying in-
dependent. Throughout the 1990s thousands
of physicians chose to sell their practices
(Glabman, 1997). Now, in the wake of the
failure of several large PPMs and heavy fi-
nancial losses by hospitals in running medi-
cal groups, physicians in large numbers are
exiting from these relationships and once
again forming physician-owned practices.
Regulatory and legal issues
Regulatory and legal issues now facing
medical practice have also created a much
more complex environment. Medical groups
must handle issues related to Clinical Lab-
oratory Improvement Act (CLIA) control
of office laboratories, Stark laws governing
physician ownership and joint ventures,
Medicare fraud and abuse pertaining mostly
to coding and billing issues, and now Health
Insurance Portability and Accountability
Act (HIPAA) directives regarding patient
confidentiality. At the same time, the
medical malpractice crisis of a decade ago
is reemerging as a significant source of costs
and emotional stress for physicians in most
areas of the United States (Maguire, 2001;
American Medical Association, 2002).
PHYSICIAN LEADERSHIP
EMERGES AS ONE OF THE
BIGGEST CHALLENGES
AND OPPORTUNITIES
Hospitals and PPMs had many business
and administrative resources to apply to run-
ning group practices, but they were in short
supply of experienced physician leaders and
managers who could help to combine the
business needs and models with the reali-
ties of clinical practice. Effective physician
leadership is critical for communicating a
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4 JOURNAL OF AMBULATORY CARE MANAGEMENT/OCTOBER 2002
Effective physician leadership is critical
for communicating a clear vision and
direction, especially during times of
massive change and transition of
physician practices.
clear vision and direction, especially during
times of massive change and transition of
physician practices. Physician leaders must
also listen to input from other physicians
and help to articulate how the new busi-
ness needs can be met while also fulfill-
ing the clinical requirements of a successful
practice.
While many of the responsibilities for
managing a successful medical group can
be handled by a professional administrator,
there are others that require active physi-
cian input and leadership. For most medical
groups, at the governance level of the board,
experienced and effective physician leaders
are needed to serve the stewardship role of
helping to ensure the long-term viability and
success of the organization. These physi-
cians need be involved in developing strate-
gic direction, overseeing key financial deci-
sions, selecting and evaluating the medical
group administrative leaders, and communi-
cating effectively and constructively with the
other physicians in the practice.
It is also essential that physicians who
serve on the board of medical groups have a
good understanding of their role in promot-
ing, measuring, and improving quality medi-
cal care and service. A physician leader who
serves on the medical group board needs to
have more than a superficial understanding
of all five of the challenges listed above.
In larger medical groups, it makes sense
to involve a number of physician leaders
in developing in-depth knowledge of the
five challenges noted above as decisions are
made and initiatives implemented. Just as a
group of physicians practicing together may
each concentrate on specific areas of clini-
cal expertise, even within the same specialty,
physician leaders and their groups can ben-
efit from this approach.
For example, a physician who is serving
in a department chair or department head
role might be selected to become the med-
ical group’s physician resource on HIPAA
issues. In some groups, a physician with
an already strong background in informa-
tion systems might be tapped as a key re-
source for physician input, leadership, and
communication in decisions regarding new
technologies.
RECOGNIZE THE BENEFITS
AND COSTS OF PHYSICIAN
LEADERSHIP INVOLVEMENT
There is a difficult balance between too
little and too much involvement of physi-
cian leaders in medical groups. On the one
hand, it makes little sense to have too much
physician time spent in administrative tasks,
since this will only add to overhead costs,
recognizing that doctors are an expensive re-
source. On the other hand, too little physi-
cian leadership involvement can lead to bad
decisions that impact the clinical practice
or to difficulty implementing changes, since
physicians may not feel they have been in-
cluded. The right amount of physician lead-
ership time is best defined as the least amount
needed to meet the key challenges and op-
portunities the medical group faces. That is,
beyond the five challenges noted above, it
depends on a medical group’s current situa-
tion and needs as well as future challenges
and opportunities.
In my experience as a physician leader-
ship coach and medical management con-
sultant, I have seen medical groups at both
extremes. For example, one group was so
restrictive of their commitment to medical
leadership that no one wanted to take a lead
Aspen Pub./JACM AS131-02 August 30, 2002 15:21 Char Count= 0
Physician Leaders Face Increasing Challenges
position because the result was a significant
loss of income, more hours worked due to a
variety of meetings, and no real appreciation
for the job from colleagues. As one excel-
lent physician leader stated, “My spouse will
divorce me if I take this job.” On the other
extreme, a medical group had so much time
devoted to physicians taking on administra-
tive roles that the overall clinical productiv-
ity of the group was significantly impacted.
There were too many meetings that were
overly compensated and that required broad
physician participation, which cut into clin-
ical time. It is interesting that in some medi-
cal groups, physician leadership roles attract
excellent people who feel appreciated and
honored to serve in those roles, whereas in
other groups, physician leadership roles are
seen as only a burden that someone has to do.
Physician leadership needs to be seen as
a critical but expensive resource. The in-
vestment the medical group makes in its
physician leaders in terms of compensation,
time away from clinical practice, and lead-
ership education and coaching need to be
looked at like any other significant invest-
ment the medical group undertakes. Ques-
tions need to be asked, such as, “What is it
worth to have a physician in our group who
can help us do a better job with regulatory
and malpractice issues so that we are not sub-
ject to claims of Medicare fraud and so that
we reduce our malpractice experience?” An-
other question might be “What is it worth
to have a physician leader who can more
quickly improve the performance and reduce
the turnover of new physicians who join our
group?”
It is worthwhile to ask these types of ques-
tions for each of the five challenges listed
above as well as for other issues that may be
critical to a specific medical group in their
current situation. In some situations medical
groups have found it worthwhile to have a
physician leader who is actively involved in
community and legislative matters. Medical
5
groups should always be asking themselves
if certain leadership tasks are best accom-
plished by a physician or if they can be han-
dled as well or better by a less expensive
administrative resource.
SUCCESSION PLANNING IS
CRITICAL FOR LONG-TERM
SUCCESS
Most large, successful businesses view in-
vestment in their leaders as critical for suc-
cess. These organizations not only provide
education and coaching, but also develop
new leaders and a plan for transition from
the current leaders to the next. In the ab-
sence of any kind of succession plan, the de-
fault will be transition by crisis. What is the
plan when the current leader decides to re-
tire, returns to clinical practice, or becomes
ill? While it may not be necessary to iden-
tify in advance exactly who will take over a
top physician leadership position, it is valu-
able to seriously consider how that transition
can occur in the best interests of the medi-
cal group. One effective strategy is to de-
velop a cadre of physician leaders within the
medical group who may be available to step
up, if needed, or can provide some under-
lying leadership stability as the group con-
ducts a formal search for a new top physi-
cian leader, looking at internal and external
candidates.
CONCLUSION
Medical groups continue to face tremen-
dous challenges in the current health care
environment. In the older model, a single
strong physician could successfully lead a
medical group. However, even in this model,
without developing other physicians within
the group or without a clear succession plan,
a major crisis would occur every time a new
leader was needed. A stronger approach is
to have a lead physician but also to develop
Aspen Pub./JACM AS131-02 August 30, 2002 15:21 Char Count= 0
6 JOURNAL OF AMBULATORY CARE MANAGEMENT/OCTOBER 2002
a cadre of physician leaders, each of whom
develops specific administrative knowledge
and expertise that will benefit the group. In
doing this, it is important to maintain the
discipline of seeing physician leadership as
an investment of time and money that needs
to be justified in terms of benefits to the
group that outweighs other alternatives, such
as having the physicians spend more clinical
REFERENCES
American Medical Association. Professional Liabil-
ity Insurance: Clamoring for relief (2002, April
24). Retrieved July 29, 2002, from www.ama-assn.
org/ama/pub/print/article/3216-6145.html.
Glabman, M. (January 1997). A look at life after selling
a practice. ACP-ASIM Observer. Retrieved July 29,
2002, from www.acponline.org/journals/news/jan97/
blessing.htm.
time and having nonphysician administra-
tors perform some of the tasks. At the same
time it is important to ensure that physician
leadership positions are structured to attract
and keep the best people. Finally, medical
groups can learn from other businesses that
investments in education, coaching, and suc-
cession planning for leaders are key to long-
term success.
Maguire, P. (April 2001). With malpractice costs sky-
rocketing, some physicians are talking “crisis.” ACP-
ASIM Observer. Retrieved July 29, 2002, from www.
acponline.org/journals/news/apr01/malpractice.htm.
Pear, R. (2002, March 17). Many doctors shun patients
with Medicare. The New York Times, Late ed., Final
section, p. 1.