A Case Study in Developing a Successful Medical Group
This group thrives by keeping doctors in control and by putting the interests of primary care physicians first.
Fam Pract Manag. 1999 May;6(5):42-44.
In 1995, I was chief of the medical staff at our local hospital in High Point, N.C. Although the dominant reimbursement model in High Point was fee-for-service (FFS), several of us (primary care physicians and subspecialists alike) realized that imminent changes in the health care delivery system were going to affect not only our financial futures, but our independence and level of control as well. Encouraged by the chief executive officer of the hospital, and bolstered by what we saw happening in other parts of the country, we created a group practice, Cornerstone Healthcare PA. In three years, we have added more than 20 providers to our original group of 54, and Cornerstone has become one of the largest employers in High Point and one of the largest physician-owned medical groups in North Carolina.
The experience has taught us that building a successful group requires dedication, hard work and a willingness to make difficult choices. But for family physicians who are in a position to do so, forming a self-governing, primary-care focused medical group offers much more than increased leverage in contract negotiations. It offers a greater sense of control over your professional future. Here's how we did it.
Forming a physician-led multispecialty group has helped these physicians succeed and maintain control of their professional lives.
One of the group's guiding principles has been placing control in the hands of primary care doctors.
Other secrets of the group's success are maintaining a strong capital base and staying ahead of the managed care curve.
With the help of Delta Health Care, a consulting firm in Brentwood, Tenn., we examined our situation and decided to form a physician-equity model multispecialty group instead of an IPA, which we had originally considered. Our group of 54 (including primary care doctors and physicians from five subspecialties) then elected a seven-member steering committee. Over the next 18 months, these seven physicians, as well as many other group members, spent as many as eight hours per week in meetings, discussing both philosophical and practical issues. For example, one issue we had to resolve was the definition of primary care. In the High Point area, ob/gyns had fought to position themselves as primary care physicians; thus, in addition to family physicians, internists and pediatricians, Cornerstone included ob/gyns as primary care physicians.
After establishing the scope of primary care, we created a set of organizational bylaws that embodied the group's guiding principles. Foremost among these was our insistence that at least half the directors' positions be held by primary care physicians. This was the kind of commitment primary care physicians expected before joining the organization. To protect the interests of the group's subspecialists, the bylaws require a vote of a majority of the members of a given section to nominate a new member. The member then must be approved by 67 percent of all shareholders.
Of course, requiring this level of agreement for the approval of new group members also set up the possibility that a closed-minded section could block the approval of new members favored by most of the group. Thus, using the federal government's system of checks and balances as a model, we established an alternate nomination method: With a two-thirds vote of the board, a member may be nominated without the section's approval.
In subsequent meetings of the steering committee, we focused on issues of self-governance. We established a board of directors, which has authority in most areas, and created several committees. We required grassroots approval (two-thirds to three-fourths of the membership) for actions relating to particularly sensitive or important issues, such as incurring debt greater than $100,000, changing the income distribution formula or selling a substantial portion of group assets to nonmember entities. Additionally, because we felt so strongly that our bylaws represented our guiding philosophy, we required that two-thirds of the directors must approve even a recommendation to the group for a change in the bylaws.
Our place in the community
Once we were an official group, we set out to create relationships with the hospital, area health care plans and members of subspecialties that Cornerstone didn't represent.
We began by selling our accounts receivable to the hospital, a move that probably guaranteed Cornerstone's success. With this infusion of cash, we were able to develop the initial infrastructure necessary for any new group (primarily the computerized linkage of our practice locations). We also received use of the hospital's billing and collection system for the next year. The hospital's initial cooperation angered some area physicians who weren't part of our group, and the hospital subsequently adopted a position of neutrality. This was unfortunate because Cornerstone was, and continues to be, a willing and able partner for our hospital.
With area third-party payers, Cornerstone generally didn't wield the substantial influence we thought we would, except to encourage uniform contracts, which we deemed necessary to facilitate referrals within the group. However, when we found certain plans' fees unreasonably low and their paperwork unreasonably burdensome, our size did carry some clout, even with some of the larger payers.
Cornerstone's relationship with subspecialists outside the group was quite rocky at first. We approached several groups representing specialties we needed to form a complete network (they all happened to be monopolies), but all of them rejected us. So we decided that we would grow our primary care base first and that we would seek to bring in only members of subspecialties not currently represented in the community (in order to maintain our relationships with area subspecialists). We also promised the hospital that we would work with it to create an inclusive IPA that non-Cornerstone subspecialists could use when contracting for professional services.
Eventually, we brought into the group 10 new primary care physicians, a rheumatologist and an endocrinologist (subspecialties previously not represented in the High Point area), and we successfully formed an IPA that included 120 physicians. However, we still encountered suspicion from some subspecialists outside the group who assumed that we would usurp their autonomy. Ultimately, we decided that we cared more about Cornerstone's vision of an integrated delivery system built around a core of primary care physicians than we cared about our relationships with those who didn't share that vision. We therefore made our first “adversarial” decision: to recruit a physician whose subspecialty, cardiology, was already represented in the community. We experienced considerable friction during recruitment and even sabotage of our efforts from local cardiologists. Despite these difficulties, we realized two very positive outcomes — a successful cardiology section and a willingness among other subspecialists to approach us about mergers before we could recruit physicians to compete against them.
As we staked out our place in the community, we also went about strengthening our group internally. We brought our billing in-house. We developed financial, clinical and clerical policies and procedures, as well as a budgeting process. To involve the maximum number of physicians in the group's governance and to cultivate leaders for the future, we created committees on marketing, recruitment, contracting issues, quality assurance, finance and operations. We created a successful income distribution formula. And we began to build our own ancillary services, including a major laboratory, an imaging center and a research division — a move that individual practices couldn't have accomplished without a capital partner. We financed the ancillaries simply through a combination of our cash flow and our line of credit.
Income distribution at Cornerstone
Here are the fundamentals of how costs and income are distributed among the physicians of the author's group, Cornerstone Healthcare:
Each shareholder is assessed a share of corporate overhead, amounting to approximately 12 percent to 15 percent of production, to cover the costs of physician and administrative leadership as well as shared services, such as billing, collections and physician recruitment.
Each practice site is responsible for meeting production goals and covering its overhead costs, which gives each site considerable autonomy in its functioning.
A portion of location profits are pooled and shared equally among primary care physicians and subspecialists, therefore increasing (or subsidizing) primary care compensation. We've found that with the increased referrals to the group's subspecialists, their income has not been adversely affected by this formula.
Revenue from ancillary services is shared equally among shareholders.
A corporate reserve for capital projects is funded through a “1 percent of group collections” assessment of each shareholder. This has reduced our need to borrow to fund big-ticket items.
In the three years since we formed Cornerstone, we have achieved almost every internal and external goal we established. We increased our ranks from 54 to 75 providers, including 85 percent of High Point's primary care physicians. We have improved communication between our employees, doctors and board members by developing employee, physician and patient newsletters, and by inviting section liaisons and other physicians who aren't on the board to attend board meetings. We've continued to expand our ancillary services. We developed the first hospitalist program in the area. We have taken on risk from third-party payers for global cost savings on FFS contracts, with bonuses for reaching targets from the Health Plan Employer Data and Information Set. And although we have allowed the composition of the board to change somewhat (it has grown and now includes more subspecialists), Cornerstone has maintained its focus on primary care and has kept primary care physicians in control of the group.
A strong future
I think the secret of Cornerstone's success is the combination of four characteristics of our group, characteristics that other groups certainly can emulate. From the outset, doctors have been in control of our group rather than being brought together to further someone else's economic interest. We have remained true to our primary-care-first philosophy. We began with a strong capital base and have maintained it. And we have stayed ahead of the managed care curve in our area. Like all groups, we still face considerable challenges — such as continuing to provide satisfactory income distribution, maintaining our primary care orientation as the group expands and cultivating relationships within the community (such as exploring opportunities for direct contracting through which a benefits package would result from consultation between physicians and employers). But if we stay true to our roots and true to ourselves, we'll be well-positioned for whatever the future might bring.
Dr. Hawks is a family physician and chairman of the board of Cornerstone Health-care PA, a multispecialty group in High Point, N.C.
Copyright © 1999 by the American Academy of Family Physicians.
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