Organization and Group Practice - Jones & · PDF file30 | Chapter 2:Organization and Operations of Medical Group Practice Taxonomy of Medical Groups By definition, medical groups must

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C H A P T E R

Our Age of Anxiety is, in great part, the result of try-ing to do today’s jobs with yesterday’s tools.

—Marshall McLuhan

This chapter is divided into two parts. Part I covers theorganization of medical group practice and deals with thevarious structures, characteristics, methods of gover-nance, and other important issues related to the manyforms of medical group practice. Part II discusses theoperations of medical group practices and how these op-erations are organized into functional departments, ordivisions in the case of large groups. The issue of qualityand the management implications of quality are alsoaddressed.

When Home State Mining Company opened the first med-ical practice in 1870 to care for their growing workforcein the remote parts of the West, it could not have beenpredicted that medical groups would become such a sig-nificant modality for physician practice in the delivery ofmedical care in the United States. Although over 130 years

Part I: Organization

have passed, consolidation of group practices has beenslow, and group practice size on average has remainedsmall.1

The answer to this, very likely, lies in the nature ofmedical practice itself and the nature of technological un-certainty as described by James Thompson. Thompsonclassified technologies as being either long-linked, me-diated, or intensive. Medical practice is an example of anintensive technology where a “customized response” isnecessary to a given set of circumstances or contingen-cies,2 as shown in Figure 2-1.

In addition, Robbins discusses the concept ofdecision-maker divergence as a significant reason whyorganizations and decision makers’ interests do not co-incide. In this construct, the ability of an organizationto grow and become efficient is directly related to the di-vergence of the interests of the decision makers,3 as shownin Figure 2-2.

Regardless of the organizational challenges facingmedical groups, many variant structures have been de-veloped. In its simplest form, a medical practice can ex-ist as a solo proprietorship with no formal organizationalstructure at all; a simple general partnership is the nextstep in the development of a group practice.

2Organization andOperations of MedicalGroup Practice

By Stephen L. Wagner, PhD, FACMPE

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30 | Chapter 2: Organization and Operations of Medical Group Practice

Taxonomy of Medical GroupsBy definition, medical groups must contain at least threepractitioners working within a common organizationalstructure. Groups share expenses and services and almostalways bill under a single tax identification number. Specialrequirements for designation as a group practice are alsodefined by the Department of Health and Human ServicesOffice of the Inspector General and will be discussed laterin this chapter.4 Furthermore, one can think of groups asbeing either confederate models, in which the practicestend to be loosely affiliated, or centralized models, inwhich the practices tend to be closely affiliated.

Figure 2-3 shows a taxonomy of medical groups andthe relationship of the different forms. There are manyvariations in the structure of a group practice, but all typ-ically fit into one of these categories.

Of course, this taxonomy is incomplete. Groups arealso organized by single- or multispecialty status. Single-specialty groups are common in cardiology, surgical spe-cialty, OB-GYN, pediatrics, orthopedics, behavioralmedicine, rehabilitative specialties, internal medicine,neurology, and many others. The more divergent the spe-cialties in terms of their economics and the nature of prac-tice, the more difficult they can be to bring together underone structure.

The many organizational forms of medical groupshave evolved in response to the needs and interests ofmedical practitioners as they have sought to adapt to achanging environment and to overcome the inherentnature of practices to stay small. In this sense, the med-ical group practice is a pragmatic entity. The definitionsof each form are constantly varying and assuming char-acteristics of several forms.

One question needing to be answered when consid-ering which group practice structure to use is, “How willthe structure influence the culture of the group and thegovernance system that the group envisions?” As illus-trated in Figure 2-4, the governance structure of a groupaffects the culture, which ultimately influences the op-erational nature of the group. For example, if there is nota centralized governance system and the culture of thegroup is biased toward significant physician autonomy,then operations will likely be variable with standardiza-tion lacking.

The degree of integration varies widely according todesign and group type. Solo practices obviously have nointegration with other practices, while in confederatemodels such as independent practice associations (IPAs)and management service organizations (MSOs), someservices, identified in Figure 2-5 as “soft resources,” areshared and integrated by the organization. In the fullyintegrated centralized group, all resources are shared.

Consideration for Structuring PracticesThe choice of practice form has a number of points toconsider. In general, organizational forms offer differentadvantages and disadvantages to the physician and pa-tients. They are generally related to:

■ Liability of owners■ Control■ Continuity of the business entity■ Transferability of assets and ownership■ Capital formation■ Taxation■ Benefit plans

Virtually every state has adopted statutes that governthe formation and operation of corporations, partner-ships, and other forms of commercial ventures. Since1961, most states have special statues specifically relatedto the organization of professional organizations. In somestates, these are referred to as “Service Corporations,” sig-nified by the designation “S.C.” In other states, the des-ignation “P.A.” is used, which stands for “ProfessionalAssociation.” The principal distinguishing feature of theseorganizations from other incorporated entities is that med-

Multiple InputsTransformation

ProcessOutcome

Feedback/Adjustment

Figure 2-1 Aligned Interest Model

DecisionMakers'Interests

Organization'sInterests

The ability to move forward

Figure 2-2 Thompson’s Intensive Technology Model

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Part I: Organization | 31

ical professionals are not protected by malpractice lia-bilities in an incorporated medical practice. A malprac-tice claim can and does pierce the corporate veil, and the physician is held liable individually for any acts ofmalpractice.

The other major difference in the treatment of P.A.sand S.C.s is in the area of taxation. These entities are es-sentially treated as individual taxpayers. They are taxedat the highest individual tax rates and are required to havea calendar year for their fiscal year for tax purposes. Thiswas a response by the IRS to the use of the professionalcorporation by small practices to defer income betweentax years.

In addition, centralized practice structures and con-federate forms have different attributes that determinethe level of satisfaction of the physician with the practiceform. Figure 2-6 shows a list of several attributes thathave been identified by physicians as being important totheir satisfaction with practice. Centralized forms have atendency toward certain attributes and confederate formstend to move in the opposite direction.

PhysicianHospital

Organization(PHO)

ManagementService

Organization(MSO)

IndependentPractice

Association(IPA)

PhysicianManagement

Company(PMC)

FacultyPracticePlans

LimitedLiability

Corporations

ServiceCorporations

SC/PAC-Corps S-Corps

Joint Ventures Proprietership Partnerships

CorporateForms

Practice Forms

SimpleGeneral

Partnerships

LimitedLiability

Partnerships

OrganizationForms

Figure 2-3 Taxonomy of Medical Groups

Governance Culture

Culture

Governance

Culture

Operational Form

and

Organizational Form

with the Reality

Organizational

Form

Figure 2- 4 Governance

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Organizational FormsThere are a large number of practice structures and vari-ations of those structures that are possible for the medicalpractice. Although clear distinctions are sometimes madebetween these forms, they often have much in commonand in some cases, vary more by name than function.

General partnerships (see Figure 2-7) are the simplestform of group-practice organization. Partnerships are cre-ated by a contract commonly referred to as a partnershipagreement, which specifies the terms of the partnership.

These entities are characterized by:

1. An agreement on the nature of the enterprise. Twoor more individuals (remember that a corporationis an artificial person in the eyes of the law; and there-fore, may form partnerships) agree to work togetherby contributing their assets, skills, and efforts inwhole or part in the pursuit of the practice activity.

2. Partnerships are pass-through entities for taxation.Profits or losses are divided in accordance with thepartnership agreement, and the partners then de-clare those profits as income on their personal taxreturns.

3. General partners have unlimited liability for the debts and torts of the partnership and theirpartners.

4. Upon the death of a general partner, the partner-ship ceases to exit.

NoIntegration

SharingDesignated

Function

Sharing"Soft"

Resources* Management

* Marketing

Sharing"Soft"

Resourcesand

DesignatedAssets andFunctions

* Management* Marketing*DiagnosticEquipment

* Contracting

FullyIntegratedOwnershipof Assetsand All

FinancialResources

andResults

0 10

Solo Practice

Confederate Models

Centralized GroupPractice

Figure 2- 5 Integration Spectrum

Personal Physician Autonomy

Personal Flexibility

Services Offered

Capital Formation

Easy Patient Access

Quality

Efficiency/Standardization

Professional Interaction

Stability/Transferability

Shared Call

Operational Reporting

Decision Making Process

Group PracticeCentralized

ConfederationModels

Less Likely (decrease)

More Likely (increase)

No Inherent Tendency

Figure 2-6 Relative Influence of Practice Structure on PracticeAttributes

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Corporations are created by filing articles of incor-poration in accordance with state law. A charter is thengranted for the corporation to operate and engage in thelawful activities it was created to do. It is important tonote that corporations may not practice medicine andmay not be licensed to practice medicine. Furthermore,corporations, being constructs of legislation and havingno free will, are required by law to operate according totheir charter or bylaws. It is, therefore, essential that thegroup practice carefully consider the operating parame-ters established in its organizing documents.

Most large medical groups operate as corporations.Physicians typically join the practice under an employ-ment agreement. Unlike publicly traded companies, be-coming a shareholder in a group practice is usually notautomatic and often requires more than the simple pur-chase of the stock. The incoming shareholder purchasesthe stock in the medical group in accordance with the stockpurchase agreement. These agreements specify the termsfor the purchase and sell of group stock and any restric-tions related to its sale. One common restriction, for ex-ample, is that the stock must be sold back to the corporationupon death or departure from the practice for any reason.The use of a stock restriction agreement is extremely im-portant, because, although states have statutes that require

Management

Committee

Managing

Partner

Partnership

Agreement

Administration

PPhysicians P P P P

or

or

Figure 2-7 Partnership (straight partnership or limited liabilitypartnership, LLPS)

The greatest advantage of the partnership is that it iseasily formed. They are generally controlled by the own-ers, and decision making is usually by consensus.

Unlike the partnership, a corporation (see Figure 2-8) is an “artificial person created by the law.” However,state legislators have placed a number of limits on whata corporation can do and what their legal rights are. First,corporations have a right to buy and own assets, borrowmoney, enter into contracts, sell interests or shares in theownership of the corporation, commit torts, commitcrimes, and make income. They can be taxable or tax ex-empt, but are taxed under the corporate tax provision ofthe Internal Revenue Code. Ownership of the corpora-tion is seen as having some level of independence fromthe corporation. Individuals that have an interest in thecorporation are called shareholders. An important dis-tinction between corporations and partnerships is thatcorporations and their shareholders can easily exchangetheir ownership interests without dissolution of the cor-poration. This allows the medical group practice to addshareholders and remove shareholders as needed whilethe integrity of the organization remains.

Although they are seen as a person under the law, acorporation does not have all the rights of a living per-son. A corporation may not vote and has no FourteenthAmendment rights; so, states may tax and impose fees oncorporations for the privilege of doing business in a par-ticular state.

Management

Board

Shareholders

Dept. Dept. Dept. Dept.

Professional Associations (P.A.s)Service Corporations (S.C.s) C-Corp Section of LawsS-Corp Section of LawsLimited Liability Corporation

Figure 2-8 Corporate Forms

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all members of a professional corporation to be licensedprofessionals, the state does not require that stock be soldto members of the existing corporation or to the corpora-tion in the absence of a stock restriction agreement.4

Figure 2-9 shows the organization of a typical grouppractice.

Hybrid Corporate and Partnership FormsAlthough the corporate form is the dominant practice or-ganizational form for medical groups today, they can takesome variation in form.

The limited liability partnership, or LLP, is a variationin the partnership form that has some characteristics of acorporation in the area of taxation and extends liability pro-tection to its partners. Similarly, limited liability corpora-tions, LLC, and the S-Corp, are variations of the corporate

form and have some characteristics of the partnership. S-Corps, for example, are pass-through entities for taxationmuch like a partnership, but still have the corporate veil forprotection from nonprofessional liability. A more detaileddiscussion of this can be found in J. Stuart Showalter’s book,Southwick’s The Law of Health Care Administration.5

Physician Hospital Organization (PHO)One form of group practice that combines the hospitaland the physician group or groups into a single organi-zational structure is the PHO (see Figure 2-10). This formusually occurs when a hospital or its parent company ac-quires the medical group through the purchase of thegroup practice’s assets and the employment of the physi-cians directly by the hospital corporation or through amedical services agreement executed by the corporation.

SurgeryMgr.

PediatricsMgr.

HumanResources

Mgr.

FacilitiesManagement

Mgr.

BusinessOffice

MISDepartment

Mgr.

MedicalRecords

Mgr.

VascularDiagnostics

Mgr.Comptroller

AdultCardiology

Mgr.

X-RayMgr.

PediatricEchoMgr.

PacemakerMgr.

NuclearDepartment

Mgr.

EchoDepartment

Mgr.

Mailroom/Communications

Mgr.

PhysicianAssistants

Mgr.

President

SurgeryDepartment

Chief

ExecutiveBoard

PediatricsDepartment

ChiefCEO

AdultCardiologyDepartment

ChiefAssistant

Administrator

AssistantAdministrator

VascularServices

RegionalOffices

Nursing

Figure 2-9 Group-Practice Organizational Chart

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This form offers some clear potential advantages. Manyarrangements, which would be prohibited or very difficultand complex, can be accomplished in the routine course ofbusiness for the PHO. This includes such things as jointmarketing, contract negotiation for professional servicescontracts, managed-care contracts, purchasing, and the shar-ing of such assets as information technology. Another ad-vantage is the access to capital for the purchase of increasinglyexpensive new technologies and practice development.

The major potential disadvantage is the loss of con-trol over decision making and potential inflexibility of alarger organization.

Management Service Organization (MSO)Management service organizations are not actually medicalgroups at all in the sense that the MSO and the medical prac-tice are usually two distinct organizations (see Figure 2-11).MSOs are entities that provide management service sup-port to practices through a contract relationship. The MSOgenerally contracts with several practices to provide simi-lar services. These contracts specify the nature of this rela-tionship, which generally involve billing and collection ofpractice accounts receivable, personnel management con-tract administration, and most of the administrative func-tions of any medical practice. The advantage of thisarrangement is the potential for having higher-quality man-agement and administrative service at a lower cost.

A large MSO has the ability to employ more highlyskilled and, consequently, more expensive people in the

organization and leverage more expensive technologiesfor more efficient operations because these costs can bespread over a larger number of physicians. In most cases,MSOs often are capitalized by outside investors and aremanaged independently of the medical group.

The disadvantages are largely related to the difficultyof separating out these essential functions from the prac-tice should the relationship with the MSO prove to be un-satisfactory. Once the arrangement is in place, it isextremely difficult to undo, rehire staff, and rebuild thenecessary aspects of the practice operation. It is essentialthat practices contemplating such an arrangement do sowith great care and due diligence. Performance bench-marks in the contract with procedures for resolving prob-lems and potential compensation for fee relief for poorperformance is advisable.

Parent Health CareOrganizations

HospitalDivision

For ProfitDivision

Physician OrganizationFor Profit

Physician Organization501(3)c

Foundation 501(c)3

or

Can be 501(c) 3 Corporation or aC-Corp, Individual Hospital, IDSor Multihospital System

Figure 2-10 Physician Hospital Organization (PHO)

ManagementCompany

Practice A Practice B Practice D Practice EPractice C

Contract

Figure 2-11 Management Service Organization (MSO)

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Practice Management Company (PMC) Practice management companies (see Figure 2-12) havefallen largely out of favor with some notable exceptions.These entities essentially took the MSO concept a stepfurther by serving as a vehicle to amalgamate practicesunder one corporation. Many of these organizations wereable to tap large amounts of capital for acquisitions bybecoming publicly traded companies. The advantage ofthis practice form is its ability to raise capital in the fi-nancial markets, but that has turned out to be as much aproblem as an advantage.

The need to generate profits from aggregated busi-nesses accustomed to distributing 100% of the income tothe physicians as income, seemed to be a clear problemwith the model. PMCs simply could not live up to theirpromise of increasing income to physicians, improvinggroup performance, and providing an acceptable returnto public shareholders. PhyCor, one of the largest andoldest of the PMCs, was delisted by the NASD in Novemberof 2000 after posting over a $400 million loss.6

Pediatrix is a publicly traded medical group that hasmet with great success, even though its business modelis similar to the PMC. The PMC is not a complete relic ofthe past, and as with many medical business models, itrequires a careful examination of asset acquisition costand operations to produce an optimum outcome.

Independent Practice Association (IPA)These are loosely affiliated entities and are not as widely employed today as in the recent past. Many IPAsformed when managed-care plans were seeking to con-

tract with a smaller number of providers at discountedfees with the promise to direct larger numbers of patientsto those providers. The IPAs often share risks with themanaged-care plans and accept a defined number of pa-tients while agreeing to provide care at a fixed price orcapitated fee (see figure 2-13).

IPAs are usually operated by a board or managementcommittee derived from the practice participants and aprofessional staff.

The popularity of IPAs has demised as capitation andrisk-sharing arrangements with physicians has declined.IPAs that experienced difficulties did so because it was of-ten difficult to properly evaluate risk for the patient pop-ulation being serviced. Managed-care organizations alsohad difficulty in providing enough patients to an IPA sothat the risk associated with the contract was predictablein actuarial terms.

IPAs may also function similarly to MSOs by provid-ing management services and a way for many practicesto share resources. In the case of the IPA, however, suchrelationships tend to be partnerships between the prac-tices, and the IPA agreement is actually a partnershipagreement.

Typical Activities of Service Organizations (MSOs and IPAs)MSOs and IPAs serve a variety of different functions forthe practices they support and in many respects, can re-place some or all of the administrative functions that aretraditionally contained within the medical group. Theseservices typically include:

PurchaseAgreement

Public or PrivateCorporation

IndividualPractices

AncillaryServices

A

Corporation (PMC)

C

OtherServices

Lab

B

Operates as adivision of thePMC

Figure 2-12 Practice Management Company (PMC)

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■ Assessing and developing local market plans■ Providing practice management support through

the employment of professional managers■ Increasing coding expertise■ Developing a compliance plan■ Developing and complying an OSHA plan

MSOs and IPAs also offer:

■ Practice assessment■ Billing assistance or provide the billing function■ Wage and hour administration■ Practice positioning, by serving as a clearing house

for managed-care contracts■ Telemedicine■ Promotion and other marketing activities■ Continuing medical education■ Quality initiatives■ Vendor leverage and other economies of scale■ Access to capital■ Data collection and management■ Contract administration

Faculty Practice Plans—Medical Foundation Model Faculty practice plans are group practices within a uni-versity setting or integrated delivery system (IDS). Theyhave sometimes been referred to as “clinics without walls.”These organizations are mechanisms by which the med-ical school faculty or physicians servicing the IDS canoperate as a single large group practice (see Figure 2-14).These structures may be tax exempt under 501(c)3 of theInternal Revenue Code.

Faculty practice plans and medical foundation mod-els offer several advantages to the physician practice.

1. They allow several independent practices to cometogether and contract as a single entity, which mayoffer strength in numbers to the managed-carecompany.

2. Because the organization is tax exempt in mostcases, more flexibility is available to the physiciansfor certain employee benefits such as nonqualifieddeferred compensation plans.

3. The legal barrier to joint activities with the parentorganizations is greatly reduced because they area single organization.

4. In the case of a physician with a faculty appointmentat a medical school, it simplifies the ability of thepractice to provide teaching services and maintain aprivate practice at the same time, with less legal con-cerns and barriers as these activities are coordinatedby one administrative organization.

The greatest potential disadvantage concerns thecomplexity of the organization and some of the uniqueregulatory challenges of working within a tax-exemptenvironment. Many medical groups distribute all or mostof the organization’s income to the physician owners. IRSregulations have standards on reasonable compensationfor employees of tax-exempt organizations, so care mustbe taken to properly implement compensation plans toavoid private inurnment.

Board

ManagementCompany

Contract

or ManagementCommittee

Practice orPhysician

B CA

Contract

Figure 2-13 Independent Practice Association (IPA)

University/IDS

Medical Schoolor Hospital

Deanor Administration

or

Practice Plan

Physician Practice

Figure 2-14 Faculty Practice Plan—Foundation Models

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Joint Venture (JV) RelationshipThese are special partnerships. They are usually enteredinto for a specific project or service. They can be betweenthe medical groups, between hospitals and a medicalgroup, or other entities (see Figure 2-15). These entitiesare highly regulated by the Office of the Inspector General(OIG) of both the federal and state governments becauseof the potential for fraud and abuse. JVs are often per-missible when there is a low potential for abuse or thepotential for community good exceeds the potential forharm to the Medicare or Medicaid program.

Most JVs attempt to comply with the various regula-tory requirements by fitting into one of a number of safeharbors:

■ Investments in Group PracticesPhysicians are protected when they invest in theirown practice if the practice meets the physicianself-referral (Stark) law definition of group prac-tice. This does not apply to physician or group-practice investments in ancillary services jointventures, but those ventures may qualify underother safe harbors.

■ Investments in Ambulatory Surgical Centers(ASCs)Certain investment interests in four categories offreestanding, Medicare-certified ASCs are pro-tected: surgeon-owned, single-specialty, multispe-cialty, and hospital–physician owned. The ASCmust be an extension of a physician’s office practicefor the physician to be protected as an investor.

■ Specialty Referral ArrangementsA physician or entity is protected when referring apatient to another provider with the understandingthat the patient will be referred back to that physi-cian or entity at a certain time or under certain cir-cumstances. Referrals must be clinically appropriate.

■ Cooperative Hospital Services Organizations(CHSOs)CHSOs are relations between two or more tax-exempt hospitals to provide specific services, suchas purchasing, billing, and clinical services, solelyfor the use of the patron hospitals. The CHSO canbe supported through operational costs and pay-ments from a CHSO to a patron hospital.

■ Joint Ventures in Underserved AreasRaises the limit on investments in a venture in anunderserved area by “tainted” investors—thosewho refer to or provide services to the entity—from40–50% and allows unlimited revenues fromreferral source investors.

■ Practitioner Recruitment in Underserved AreasProtects recruitment payments made by entities toattract needed physicians and other health careprofessionals to areas in need of health profession-als. Places certain restrictions on patient percent-ages and payment time limits.

■ Sales of Physician Practices to Hospitals inUnderserved AreasAllows hospitals in underserved areas to buy prac-tices of retiring physicians for the purpose of hold-ing them until the hospital can find a new physicianbuyer. The sale must occur within three years.

■ Subsidies for Obstetrical Malpractice Insurancein Underserved AreasProtects entities that pay malpractice insurancepremiums for practitioners engaging in obstetricalservices in areas in need of health professionals.7

In addition, there are five standards of the group prac-tice safe harbor:

■ Equity interests must be held by licensed profes-sionals who practice in the group or by solo profes-sional corporations owned by individuals whopractice in the group.

■ The equity interest must be in the group itself, nota subdivision of the group.

■ The practice must meet the definition of a “bonafide group practice under the Stark law and imple-menting regulations.”

■ The practice must be a “unified business” with cen-tralized decision making, pooling of expenses andrevenues, and a compensation–profit distributionsystem that is not based on satellite offices operatingas if they were separate enterprises or profit centers.

■ Ancillary revenues must be derived from servicesthat meet the Stark law and implement the regula-tions’ definition of “in-office ancillary services.”8

Parent EntityGroup Practice

Parent EntityHospital

Committee orBoard

Joint Venture Operation

Contract

Figure 2-15 Joint Venture (JV) Relationship

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The complexity and extent of the various legal restric-tions on JVs has made them less attractive as possible busi-ness models for group practice. The penalties can be soonerous that, frequently, JVs will not service patients withMedicare or Medicaid because the JV cannot qualify forharbor status. The most serious economic penalty for themedical group and its physicians is exclusion from theMedicare and Medicaid program.

GovernanceOne of the most significant issues for medical group prac-tice today is the issue of governance. What makes a grouppractice a focused and effective organization has muchmore to do with how the governance structure is organ-ized than the practice’s legal structure. As Figures 2-16and 2-17 illustrate, the effective interaction of governanceand operational activities are essential for the executionof the group’s mission. Such interaction also ensuresthrough monitoring operational and governing activitiesthat the organization’s mission is advanced.

Medical groups are traditionally viewed as profes-sional collegial organizations. They have many uniquefeatures, but some that affect governance: the primaryproducers are all the owners (in many cases); the gov-erned are also the governors (which leads to many pol-icy quandaries); and the notion that “My view should beconsidered above all else.”

This issue becomes more difficult, as well as moreimportant, the larger and more diverse the group gets. Asgroups grow, the need for a more centralized form of gov-ernance becomes important for many reasons:

1. It becomes more difficult for members of the groupto find time and to get adequate numbers of thegroup together to make policies.

2. Information disequilibrium increases. Some peo-ple are aware of and understand the issues, andsome do not. This may be due to poor communi-cation or the lack of time to understand the issueor to be informed.

3. The geographic limitations of attendance at meet-ings, calls, and other necessary absences frommeetings makes it difficult to deal with importantissues.

4. There is a lack of interest in topics for discussion.5. There is a sense that members do not understand

the issues or that their participation is not neededor welcomed.

The Role of the Governing BodyThe governing body of the medical group must deal witha number of stakeholders in its quest to provide effectivegovernance of the group, such as:

■ Physicians in the practice■ Other physicians in the community■ Employees■ Patients and families■ Payers■ Federal, state, and local government■ Communities at large■ Hospitals

There is widespread agreement that the principle roleof the board is to:

1. Develop the organizational mission.2. Provide institutional goals and target (monitor).3. Hire, evaluate, compensate, and interact with sen-

ior management (CEO).4. Be responsible for providing quality of care.5. Deal with external constituents (media, commu-

nity, and government).6. Monitor the organization.7. Develop plans (financial and other).8. Evaluate its own performance as a body.

In medical groups, most members of the board arephysicians; although their duty is to the group as a whole,they may find it hard from time to time letting their owninterests or the interests of their specialty take a back seatfor the good of the whole. Much of this may be a matterof experience on a governing body, adequate structure in

Define Mission

T

Management

Has toStart Here

Governance

Inputs Output

Benchmarks, Statistics,Dashboards

Figure 2-16 Group-Practice Governance

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the group for operational concerns that address individ-ual and specialty needs, and education. Members thatvalue the group tend to have a much easier time servingin a nonparochial manner.

Mission One of the most important but often most neglected as-pects of a group-practice organization is the lack of a clearmission statement that is consistent with the values ofthe organization’s members. Here is an example of a mis-sion statement:

The Good Clinic will provide care of the highestquality to our patients within an environmentthat is compassionate, ethical, and economicallysound. We will accomplish this by:

1. Always putting patients first, maintaining clinicalexcellence, and seeking to improve care throughresearch, system enhancement, innovation, andcontinuing education.

2. Being ethical in all of our dealings with patients,colleagues, employees, our hospitals, third-partypayers, vendors, and our community.

3. Providing value to our patients, insurance carri-ers, and hospitals, and being seen as an asset to ourcommunity.

4. Having an effective organization that provides qual-ity care, efficient service, effective communication,cost-effective treatment, and a competent and pos-itive work force.

5. Recognizing the value of the group—that we aregreater than the sum of our parts.

6. Being focused on the creation of a positive envi-ronment that shows compassion and caring for ourpatients and our staff members.

7. Providing attractive salary and benefit packagesthat are competitive with all national standards al-lowing the Good Clinic to attract and keep themost talented physicians and employees.

A Board Job DescriptionIt is very important that every potential member of theboard understand his or her role and the expectations ofthe job. As an example, the following is what a boardprospect sheet might look like.

Member of the BoardJob Description and Expectations

Purpose: To advise, govern, oversee policy and di-rection, and to assist with the leadershipand general promotion of the clinic so as to

Governance andOrganization

ClinicalOperations

FiscalManagement

HumanResources

Plant andEquipment

Administration

R

A

R

A

R

A

Report

Adapt

Report/Adapt

–Timely–Accurate–Accountable–Compatible–Understandable (adoption)

Mediated by TechnologyPolicy and Procedure

Figure 2-17 Operations of Medical Group Practice

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support the organization’s mission and needsand to work closely with the administra-tion of the clinic in order to achieve its goals.

Number of Members: Specify the number of members. The typ-

ical number is between 5 and 11, depend-ing on the size of the group.

Major Responsibilities:

• Organizational leadership and advisement• Organization of the executive commit-

tee officers and committees• Formulation oversight of policy and

procedures• Financial management (to be defined)• Review and adopt budget for the organ-

ization; to review quarterly financial re-ports, and to assist administration withbudgetary issues as necessary

• Oversight of program planning andevaluation

• Hiring, evaluation, and compensationof senior administrative staff

• Review of organizational and program-matic reports

• Promotion of the organization• Strategic planning and implementation

Length of Term: Specify length of term, which may be

staggered.Meetings and TimeCommitment: Specify the time and location of meetings

such as, “The executive committee willmeet every other Friday commencing at 7:30 a.m. and meetings will typicallylast one (1) hour (this may need to be revised). An alternative is to havemonthly meetings (2–3 hours) in theafternoon or evening (consider paymentto participants).”

Expectation of Board Members:

• Attend and participate in meetings ona regular basis and special events as pos-sible.

• Participate in standing committees ofthe board and serve on ad hoc commit-tees as necessary.

• Help communicate and promote mis-sion and programs of the clinic.

• Become familiar with the finances andresources of the clinic as well as finan-cial and resource needs.

• Understand the policies and proceduresof the clinic.

Board and Committee Structure

EstablishingCommittees: It shall be the responsibility of the execu-

tive committee to establish ad hoc and per-manent standing committees as necessaryto assist in the functioning of the clinic.Whenever possible, these committeesshould contain a representative of the ex-ecutive committee to provide a proper li-aison as well as an administrative staffperson.

Typical Committees: Include finance, personnel, marketing,

quality care, and technology. In an areawhere managed-care risk contracting is a significant part of the business envi-ronment, a utilization management com-mittee is common to oversee the riskmanagement of such contracts.

Board SelectionBoard members are typically selected by election. Electionrules are specified in the bylaws of the organization. It isextremely important that the bylaws be properly adoptedand that the procedures adopted by the bylaws be adheredto carefully. Failure to follow an organizational processcorrectly could result in a challenge to the legitimacy ofthe process and invalidation under state law.

Board RetreatsAn essential element of group planning and strategic ac-tivity is the board retreat. This event combines educa-tional time, by internal and external speakers, with timeto consider issues that are of strategic interest to the group.These issues are often:

1. Related to growth2. Competition3. Change in or development of new services4. Examination of future scenarios and how they will

play out: What their effect will or will not be onthe organization

5. A reexamination or development of a mission state-ment

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Outside Board Members Increasingly groups are beginning to behave more liketraditional business corporations. As part of this change,groups are adding outside persons to the board to im-prove the governance process and to bring new ideas andperspectives to the board. These individuals must be cho-sen carefully with consideration to a number of impor-tant criteria.

An example of these selection criteria for a clinic’soutside board member might be:

1. Has a general understanding of the region, its busi-ness climate, political environment, and some ofthe key community drivers; has some perspectiveon health care and what is happening in the broadview

2. A strategic thinker3. Willing and able to attend meetings4. Able to treat information discreetly5. Some experience as a member of a board6. No conflicts of interest or its appearance (not some-

one looking to do business with the clinic)7. General business acumen8. Someone who can contribute but not dominate the

board9. Someone who has a history of working well in a

group setting—a good fit10. Willing to sign a confidentiality agreement11. Willing to accept fair compensation

The Process of Governance ChangeMany groups have boards that consist of all of the physi-cians or all of the physicians that have reached full share-holder or partnership status. Although this method mayaddress the perennial question of autonomy and control,it does little to improve decision making or the speed atwhich decisions are made. To improve the speed of deci-sion making, many large boards elect an executive com-mittee that has the ability to make certain decisions onbehalf of the organization without the vote of the fullboard. For other decisions, typically those that are sig-nificant in magnitude, the executive committee developspreliminary information about a matter and makes rec-ommendations to the board for voting.

Changing governance and modifying the manner inwhich the board operates is assessed through observa-tions about the effectiveness of the board. Such assess-ments can be gained by using a survey instrument similarto the following:

Physician SurveyAt the physician retreat, we agreed to examine the issueof group governance for the Good Clinic. This survey isintended to provide input to the committee to help guidethe process.

Please rate the following statements based on howstrongly you agree or disagree with each of these issuesin your association with the Good Clinic.

Strongly StronglyAgree Disagree

I. GOVERNANCE1. The current governance practices 5 4 3 2 1

of the clinic needs to be changed.2. I feel the executive committee 5 4 3 2 1

could handle many issues without full board approval as long as I was kept informed of the process (e.g., last year’s malpractice issue).

3. I feel the full board should meet 5 4 3 2 1less often.

4. I would be willing to allow a 5 4 3 2 1smaller group of physicians to make major clinical decisions so long as they are held account-able for their actions.

5. I would be willing to allow our 5 4 3 2 1clinic management greater autonomy in decision making for the clinic so long as they are held accountable for their actions.

6. We attend too many meetings 5 4 3 2 1on a regular basis.

7. There are too many physicians 5 4 3 2 1involved in the clinic decision-making processes.

8. The three divisions of the Good 5 4 3 2 1Clinic should be more co-ordinated in terms of their decision making, not less.

9. I would be willing to have less 5 4 3 2 1personal autonomy to expedite decision making in the group.

10. I would be willing to devote 5 4 3 2 1significant time to the govern-ance of the clinic.

II. MISSION1. The Good Clinic should offer 5 4 3 2 1

comprehensive care to the region even if that occasionally means

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Part II: Operations | 43

investing in technologies or staff-ing that may not be profitable.

2. I would be willing to make less 5 4 3 2 1money to preserve lifestyle issues such as time off.

3. In a few sentences, please describe your view onthe mission of the Good Clinic.

Monitoring by the BoardIt is important to develop a series of benchmarks that canbe tracked by the board over time to monitor the progressand status of the group’s performance. This includes qual-ity indicators, such as results of quality initiatives, com-parisons with peer databases, and financial indicatorssuch as:

■ Gross revenue/per RVU■ Collections/per RVU■ Profit/net income/per RVU■ RVU per MD■ Operating cost/per RVU■ Employee salary/per RVU

Relative value units (RVUs) make excellent measure-ment tools because they have become a standard part ofgroup-practice management and reimbursement systems.9

Benchmarks need to be understandable and com-municate a clear message as to their meaning, be repro-ducible over time, and be timely (old news is no news,and it is not helpful for quickly reacting to changing sit-uations). Benchmarks also need to measure a key com-petency or key success indicator for the practice. Acomplete discussion of benchmarking will be found inanother section of this text.

Having discussed the structural aspects of group prac-tice, Part II explores the functional and operational com-ponents found in most physician practices.

AdministrationNonphysician leadership and implementation of boardpolicies is the principle role of medical group adminis-tration. This is accomplished by a coordination of thegroup’s departmental functions to produce the desiredoutcome. One of the most critical activities is the trans-lation of policy to procedure (see Figure 2-18).

Policies must be stated in terms of actionable stepsand procedures that can be communicated to employees.

Part II: Operations

Policies should be documented in a way that allows forconsistent application of policy in a reproducible way.

The function of administration varies in groups de-pending on a number of issues:

1. Size matters. Larger groups often have more de-partments headed by professional managers thatrequire less supervision and management by ad-ministration. In small groups, functions such ashuman resources (HR), marketing, and financemay be combined under the title of administra-tion. In the context of this chapter, administrationis synonymous with executive management.

2. How involved are the physicians in the manage-ment structure of the clinic? The physician ad-ministrator team has been recognized as animportant success factor for groups.

3. The skill and education of the administrative group.

Administration generally falls into three board do-mains of group-practice administration:

1. The strategic, which can be either mission orientedor competitive in nature

2. The adaptive, reactive, or proactive3. The operative, maintenance, or implementation

Strategic planning and marketing are major functionsfound in the strategic domain. Michael E. Porter talksabout three general strategic aspects of strategy:

■ Cost leadership■ Differentiation■ Focus10

The medical reimbursement system does not providea mechanism for strategies based on price. In our system,pricing has very little to do with what is actually paid fora service, and price elasticity is not as relevant a con-cept as in most industries. Differentiation and focus havebeen the dominant strategies for medical groups. Groupdifferentiators are becoming an increasingly importantconcern. Chief among these are quality and customer sat-isfaction. Focus is another widely used strategy. The single-specialty group and the specialty hospital are clearexamples of focus strategies.

The American College of Medical Practice Executives(ACMPE) has developed an extensive document, whichseeks to define all of the critical areas of knowledge andskill necessary for an individual to be a successful ad-ministrator of a medical group practice.

The ACMPE Body of Knowledge defines five generalareas of competency for the group-practice administrator.11

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Five General Competencies for Medical Practice Management

1. Professionalism: Achieving and preserving pro-fessional standards

2. Leadership: Supporting the organization’s strate-gic direction

3. Communication skills: Interacting and presentinginformation clearly and concisely

4. Organizational and analytical skills: Solving prob-lems, making decisions, and developing systems

5. Technical and professional knowledge and skills:Developing the knowledge base and skill set nec-essary to perform activities unique to the job, role,or task within the eight performance domains orareas of responsibility:

■ Financial management ■ Human resource management ■ Planning and marketing ■ Information management ■ Risk management ■ Governance and organizational dynamics ■ Business and clinical operations ■ Professional responsibility

Best PracticesA significant body of research exists on medical grouppractices and the traits that distinguish better perform-ing organizations. According to data published by Medical

Group Management Association,12 better performinggroups have the following characteristics:

■ Physician compensation usually rewards produc-tivity.

■ There is excellent communication between physi-cians and administrative staff.

■ There is a productivity-oriented culture in thegroup.

■ An emphasis is placed on quality care, reputation,and patient satisfaction.

■ There is a physician administrative leadership teamin place.

■ A good relationship exists with referral physicians.■ Excellent control systems and budgets are used.■ Cost structures are known and understood.■ Central organization (delegation of decision mak-

ing as opposed to consensus) is key.■ The entire staff focuses on customer service.■ New physicians are recruited to fit with the group

and its culture.■ Management is delegated to administration.■ Administration is seen as professional colleagues

and specialists in business.■ A culture of respect is in place.

The Legal Environment and RiskManagementAnother important function for medical group adminis-tration is in the area of risk management. In very large

Define Mission

T

Management

Has to Start Here

Governance

InputOutput

Benchmarks, Statistics,Dashboards

ClinicOperations

Produce Policies

Produce Procedures

Figure 2-18 Policy and Procedure Development Cycle

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groups, this may be contained in a separate legal depart-ment, but typically this is a function of administration.Groups need an active risk management program.

The mitigation of risk is the purpose of risk man-agement and may be organized as a department withinthe organization, as a part of the legal department, or itmay be part of administration. Risk management activi-ties involve:

1. The purchase of insurance for physical assets andliability (fiduciary liability directors and officers,malpractice, and bonds); however, these activitiesare certainly not limited to those that can be in-sured against

2. Antitrust, fraud and abuse, criminal acts of all kinds,HIPPA violations, unfair trade practices, contractdisputes, private inurnment issues, and Stark I andII, all issues that have the potential to cause con-siderable harm to the practice, even as much asmalpractice suits can

3. The development of an effective quality assuranceprogram as described later in this chapter

4. Contract administration, which includes a num-ber of documents common to all medical groups

Contracts and other legal considerations These are an-other major concern for administration. Health care, in-cluding the medical group practice, is one of the mosthighly regulated industries in the United States. It is es-sential that the well-managed medical group consider thisand be familiar with this enormous body of law and howit applies to the practice. This information is also criticalin the proper development of policies and procedures toensure compliance and legal operation.

Although malpractice is the first subject to come tomind in a discussion of legal matters that affect medicalgroup operations, it is by no means the only issue. Theseissues can be generally divided into:

Patient care issues Standards of care, informed con-sent, medical records, advance directives, malpractice,and reporting requirements

Business issues Reimbursement, Medicare andMedicaid; Stark and anti-kickback rules, credit and col-lection; contracts with payers and vendors

Employment contracts A host of law devoted to hu-man resource issues

Licensure issues Regards physicians, physicians’ as-sistants, nurses, nurse practitioners, clinical laboratory,nuclear medicine, radiology, and cytology technicians area key management concern for the medical group.Corporations and partnerships are also required to main-

tain business licenses, which requires filing with statesin which the organization has been incorporated, and inwhich it operates.

Credentialing Thousands of applications and renewalsmust be handled by this functional unit of the practiceon an annual basis. Managed-care companies, hospitals,insurance companies, state regulators, and federal pro-grams such as Medicare and Medicaid, require an appli-cation for provider status and maintenance of pertinentrecords on a regular basis. Unfortunately, this activityvaries dramatically from state to state and from companyto company. A practice of 50 physicians could easily haveover 2000 pieces of credentialing that must be handledeach year.

A medical license is required for each state in whichthe physician or other licensed professional practices.

■ Medicare provider number■ Medicaid provider number■ Provider number for managed-care organizations

and insurance companies such as Aetna, CIGNA,United, Blue Cross and Blue Shield (several acrossthe country)

Contract negotiations The complexity of contracts andthe significant consequences of signing a “bad” contractmake this a significant duty for administration to eithercarry out this function or manage the process if it is dele-gated to a law firm or in-house counsel.

Patient FlowEffective group-practice operations begin with a well-organized and managed patient flow system.

Front office activities include the scheduling of pa-tients and preparation for their visit to the clinic as shownin Figure 2-19. These systems are usually integrated withthe information technology systems of the organizationand may be divided into smaller department functions,for:

■ Registration■ Appointment scheduling■ Patient arrival and check in■ Patient management during their visit■ Patient exit

The physical layout of the practice is also critical forefficient patient flow. The steps that patients need to fol-low in preparing for and receiving their services shouldbe logical, communicated carefully to the patient (ver-bally and through well-written information), promptedby well-done and informative signage, and by the carefulobservation of a staff that is well trained in customer ser-

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vice and the hospitality arts. Employees for a well-managed medical group should always be selected fortheir ability to interact well with patients and visitors andnot just for technical skill. It is often possible to teachtechnical information, but many times more difficult totrain for customer service attributes.

Because patient waiting is one of the most frequentsources of dissatisfaction, waiting areas should be com-fortable, with plenty of reading material or other activi-ties such as patient education, either in written form oras video material.

Billing, Credit and Collections, Insurance

Managing the revenue cycle is an essential function forthe successful medical group. This is a very dynamicprocess that is constantly changing because of revisionsin billing requirements by payers and as information tech-nology continues to improve. Most medical groups usemedical-practice software packages that contain all of thesubsystems necessary for the effective documentation ofservice, entry of patient information, and service infor-mation. Almost all systems include:

AppointmentScheduling

Registration/Verification

Preauthorization

Documentation tobilling

Follow-up establishedas needed

Patient Arrives ServicesProvided

NetworkInterface

UpdatingDatabase

UpdatingDatabase

Update Material

Record

Documentation of Service

Verification and Internal Audit

Key Documents

Charge Ticket – Routine Ticket

Registration Form

Figure 2-19 Patient Flow

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■ Scheduling and registration of patients and verifi-cation of services and payer information

■ Patient information■ Billing functions, which include multiple-fee

schedules and billing requirements for each payer■ Managed-care requirements and procedures■ Reporting of billing and service information■ Multiple data entry options such as scanning, key

entry, and downloading of wireless devices■ Accounts receivable and collections information

and reporting■ Electronic claims submission and remittance of

payments through electronic data interchanges(EDI)

These systems then provide for the creation of claimsfor reimbursement to Medicare, Medicaid, and all com-mercial insurance payers, as well as the creation of pa-tient bills.

Although attempts have been made to standardizeclaims processing, almost no standardization of billingand payment processes exists among the more than 1000health insurers in the United States.13 Among the areasof variability are:

■ Patient eligibility verification procedures14

■ Payer documentation requirements for certain pro-cedures

■ Bundling policies■ Modifiers and formats for explanations of benefits

(EOBs)

The failure of our health care system to standardizethe billing process has led to high error rates, denial ofpayments, and difficulty for everyone involved—the pa-tient, the practice, and the payers.

The billing and collection process is covered by a sig-nificant number of rules and a large body of law. In ad-dition, the billing process is very complex and variesgreatly among payers. In an article published in the NewEngland Journal of Medicine, authors Steffie Woolhandleret al. found that the cost of administration in the UnitedStates was $1059 per person in 1999, compared to $307in Canada.

Although some are critical of the study and felt it over-estimated the cost of the administrative burden of theAmerican health system (some $300 billion annually),no one doubts that the administration of our health caresystem is fragmented and cumbersome.15

Because these systems vary by their specific func-tionality, each system requires a significant amount oftraining by the medical group for all employees that will

use the system. Many groups maintain training facilitiesfor this purpose because the cost to the practice for hav-ing poorly trained employees can be substantial in termsof revenue loss and potential penalties by payers, not tomention the delay in receiving payment.

Figure 2-20 outlines the revenue cycle for most med-ical groups from the entry of patient service informationuntil the claim is paid and the cycle is completed.

Medical records The maintenance and safekeeping ofa patient’s medical record is the principal function of themedical records unit. These records contain the proof ofwhat was done, who did it, how it was done, why it wasnecessary to be done, where it was done; and in addition,it contains a plan for future care. One could argue withgreat success that this is the most valuable and importantdocument within the medical practice.

Most group-practice records contain:

■ Physician notes including a treatment plan andtreatments provided

■ Operative notes■ Laboratory test results and orders■ X-ray tests results and orders■ All other ancillary services that may be applicable

to the patient■ Communication from other providers in the form

of letters or other forms of communication, such ascopies of records

■ Hospital records, such as discharge summaries, op-erative notes, and copies of test results from thehospital

■ Consultative reports■ Treatment plan■ Demographic information about the patient■ Identification of the patient within the last provider

organization■ Details of the admitting or receiving clerk■ Patient demographics■ Insurance or health plan information■ Relevant appointments■ Diagnoses■ Allergies■ Medication list ■ Physician orders ■ Anticipated goals (care plan), including rehabilita-

tion plans ■ Home health or hospice information ■ Follow-up ■ Nurse detail ■ Self-care status ■ Disabilities and impairments

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■ Equipment requirements ■ Nutrition details ■ Therapist details ■ Social service detail

One of the great challenges of medical records man-agement is one of completeness. Patient records comefrom so many sources, as shown in Figure 2-21.

The new emphasis on patient privacy has also led tonew challenges. The Healthcare Insurance Portability andPrivacy Act of 1996 (HIPPA), is a very pervasive law thataffects many aspects of group practice. The law deals with:

■ Privacy of patient information■ Security of patient information■ Transaction and coding standards■ Patient identifiers16

It is essential that all employees are properly trainedregarding HIPPA, and that all systems within the orga-nization, including physical space, is vetted for HIPPAcompliance.

Electronic medical records (EMRs) One of the most dy-namic areas of the medical group practice has been, andcontinues to be, the electronic patient record. After manyyears of development, however, electronic records are be-ginning to fulfill their promise of creating a reducedamount of paper records in the office. Although therehave been electronic records systems for a number of yearsand many of them have been capable systems, adapta-tions have been very slow, principally because innova-tion can be adopted only so quickly (see Figure 2-22).

This fact can largely be attributed to the inherent dif-ficulty of getting 100% adoption of the innovation, whichis necessary to prevent the need to maintain multiplerecords systems.

Another problem is the multiple systems of medicalrecords material; often there is a plethora of technologi-cal platforms and media formats. It is frequently impos-sible to find compatible ways to integrate the records, andthese different medical records formats produce a re-gression to the lowest technological denominator. In manycases, it is paper. Scanning technology and the develop-

Coding

Receipt Banks

Documentationof Services

TransactionEntered in Billing

System

Insurance or OtherThird-Party Claim

Patient Billing

A/R

FinancialReports

Service Delivery

Claims F

ollow

-up

and

Mar

ketin

g

CollectionSubsystem

Requires careful coordination between front-end

operations, coding, billing, and A/R management.

Figure 2-20 Revenue Cycle

02.29_62 11/19/04 2:54 PM Page 48


ment of e-interfaces with computer systems, making themeasier to use, have overcome these issues. In addition, de-velopers of systems are creating the ability to providemore linkages, either through using common computercode or by using common interface engines. One of thepositive forces in the electronic records area is the pre-cipitous drop in prices of storage media.

In spite of the inherent difficulties in the move to theelectronic medical record, this is a trend that will con-tinue for many reasons. In a survey of providers con-ducted by the Medical Records Institute, the driving forcefor implementation continues to show an upward trend,as shown in Table 2-1.

FinanceThe financial structure of medical groups is not substan-tially different, or at least should not be substantially dif-

ferent, from other organizations. One significant excep-tion to this operation is the fact that most medical groupsstill maintain their financial records on a cash basis ac-counting system as contrasted to an accrual system. Cashbasis systems recognize expenses when they are paid andincome when it is received. Accrual systems recognizeexpenses when incurred and income when it is earned.Cash basis systems are analogous to the way our incometax system works and is undoubtedly a remnant of pro-prietorship, which must operate in this way. Other rea-sons such a system has endured is at least in part thepropriety in nature of medical receivables, which at timescan be difficult to determine. In addition, the reversionto an accrual system once a cash system has been in placerepresents a formidable challenge as it requires the recog-nition of receivables as income. In addition, most med-ical groups are privately held, where a strict adherence togenerally accepted accounting principles (GAAP) is notrequired.

Financial systems typically maintained by a medicalgroup are:

■ Payroll■ Accounts receivable■ Billing systems

• Insurance• Government third party• Self-pay

■ Employee benefits■ Accounts payable■ Financial reporting

• Balance sheet• Profit/loss statements (income statements)• Budgets• Variance analysis• Service and receipt (and its various forms)

■ Financial control and audit functions• Internal• External

■ Compliance■ Maintenance of fee schedules and charge masters■ Chart of accounts

Human Resources The human resources department is responsible for theorderly management of the most important resource inthe medical group practice, its people. As shown in Figure2-23, this involves a large number of functions:

■ Evaluation of positions needed by the organization■ Creation of position-control procedures

OtherRelevantInformation

Hospitals

Other Physicians

NonphysicianProviders

FreestandingFacility(e.g., MRI)

Liability

TranscriptionServices

Health Department

Clinic

Record

Figure 2-21 Sources of Medical Records Information

Adoption Rate

Willingness to adopt innovation

Average Adopters

Slow AdoptersEarly Adopters

Figure 2-22 Adoptors

02.29_62 11/19/04 2:54 PM Page 49


■ Establishing and preparation of job descriptions■ Salary administration, which includes the estab-

lishing of pay ranges■ Recruiting, which includes seeking candidates, in-

terviewing, and testing■ Credential evaluation and verification■ Selection of applicants■ Hiring and the required statutory and organiza-

tional documentation■ Orientation■ Evaluation of performance■ Documentation of work to payroll

In addition, administration of employee benefits is avital function. Some of the benefits plans include:

1. Paid time off or PTO: This is sick leave and vaca-tion or personal time off

2. Statutory benefits: FICA, Medicare, FUTA, andstate unemployment benefits

3. Pensions4. Insurance benefits: Health, dental, life, and

disability5. Section 125 plans: These are special employee

reimbursement plans that allow pre-tax reim-bursement of certain expenses, such as nonin-sured medical expenses, co-pays, deductibles, and child care; they are so named because they

are enabled by Section 125 of the Internal RevenueCode

Another critical function of the human resources de-partment is development and management of personnelpolicies, which cover a vast number and variety of issuesbeyond the scope of this book. However, a typical per-sonnel manual, which contains an extensive list of issuesthat must be addressed by the human resources depart-ment, might look something like this:

IntroductionWelcome . . . . . . . . . . . . . . . . . . . . . . . . . . . .1Introductory Statement . . . . . . . . . . . . . . . . .2History of Clinic . . . . . . . . . . . . . . . . . . . . . .3Mission Statement . . . . . . . . . . . . . . . . . . . . .4Employee Acknowledgment . . . . . . . . . . . .5Customer Relations . . . . . . . . . . . . . . . . . . . .6

EmploymentContributions and Solicitations . . . . . . . . . .9Donations . . . . . . . . . . . . . . . . . . . . . . . . . . .9Equal Employment Opportunity . . . . . . . . .9Business Ethics and Conduct . . . . . . . . . . . .9Gifts/Gratuities . . . . . . . . . . . . . . . . . . . . . .10Conflicts of Interest . . . . . . . . . . . . . . . . . .10Security and Privacy . . . . . . . . . . . . . . . . . .11Hiring Relatives . . . . . . . . . . . . . . . . . . . . . .11Immigration Law Compliance . . . . . . . . . .11

Trends

2002 2001 2000 1999

Table 2-1

Improve the ability to share patient record information among health care

practitioners and professionals within the enterprise 90% 83% 85% 73%

Improve quality of care 85 83 80 72

Improve clinical processes or work flow efficiency 83 83 81 67

Improve clinical data capture 82 78 68 61

Reduce medical errors (improve patient safety) 81 n/a n/a n/a

Provide access to patient records at remote locations 70 73 71 59

Facilitate clinical decision support 70 69 66 58

Improve employee/physician satisfaction 63 n/a n/a n/a

Improve patient satisfaction 60 59 54 40

Improve efficiency via previsit health assessments and postvisit patient education 40 38 36 n/a

Support and integrate patient health care information from Web-based personal

health records 30 28 29 n/a

Retain health plan membership 9 9 7 n/a

Other 0 4 1 3

Responses to these questions 729 293 296 358

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Outside Work . . . . . . . . . . . . . . . . . . . . . . .12Job Posting . . . . . . . . . . . . . . . . . . . . . . . . . .12Identification Badges . . . . . . . . . . . . . . . . .12

Employment Status & RecordsEmployment Categories . . . . . . . . . . . . . . .14Access to Personnel Files . . . . . . . . . . . . . .14Employment Reference Checks . . . . . . . . .14Personnel Data Changes . . . . . . . . . . . . . . .15Introductory Period . . . . . . . . . . . . . . . . . .15Employment Applications . . . . . . . . . . . . .15Performance Evaluations . . . . . . . . . . . . . .15

Employee Benefit ProgramsPaid Time Off (PTO) . . . . . . . . . . . . . . . . . .19Sell Back PTO . . . . . . . . . . . . . . . . . . . . . . .19Service Years . . . . . . . . . . . . . . . . . . . . . . . .19Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . .20Bereavement . . . . . . . . . . . . . . . . . . . . . . . .20Uniform Allowance . . . . . . . . . . . . . . . . . . .20Jury Duty . . . . . . . . . . . . . . . . . . . . . . . . . . .20

Workers‚ Compensation . . . . . . . . . . . . . . .21Health Insurance . . . . . . . . . . . . . . . . . . . . .21Dental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21Change of Status . . . . . . . . . . . . . . . . . . . . .21Short-Term Disability . . . . . . . . . . . . . . . . .22Long-Term Disability . . . . . . . . . . . . . . . . .22Life Insurance . . . . . . . . . . . . . . . . . . . . . . .22Retirement . . . . . . . . . . . . . . . . . . . . . . . . . .22401(k) and Profit Sharing Plans . . . . . . . . .23Continuing Education . . . . . . . . . . . . . . . .23Family Medical Leave Act (FMLA) . . . . . .23Educational or Personal Leave . . . . . . . . . .24Military Leave . . . . . . . . . . . . . . . . . . . . . . .25Parental Involvement Leave . . . . . . . . . . .25

Timekeeping/PayrollTimekeeping . . . . . . . . . . . . . . . . . . . . . . . .27Paydays . . . . . . . . . . . . . . . . . . . . . . . . . . . .27Administrative Pay Corrections . . . . . . . . .27Pay Deductions and Garnishments . . . . . .27Overtime . . . . . . . . . . . . . . . . . . . . . . . . . . .27

Recruiting

PositionEvaluation

Position Control(Authorization for Hire)

Performance ofJob

HireSelected Applicants

PerformanceReview

Orientation

Payroll

Pay Cycle

Interview/Testing

Personal Records

Establish Pay Rangeto P/R

Establish Job Description

CorrectionIf Needed

Figure 2-23 Human Resources

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Work Conditions & HoursSafety/Reporting Injuries . . . . . . . . . . . . . .29Work Schedules . . . . . . . . . . . . . . . . . . . . . .29Use of Phone and Mail Systems . . . . . . . . .29Business Use of Personal Auto . . . . . . . . . .29Parking . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29Media Inquiries . . . . . . . . . . . . . . . . . . . . . .30Smoking . . . . . . . . . . . . . . . . . . . . . . . . . . . .30Rest and Meal Periods . . . . . . . . . . . . . . . . .30Use of Equipment and Vehicles . . . . . . . . .30Employer–Employee Communication . . .30Emergency . . . . . . . . . . . . . . . . . . . . . . . . . .30Business Travel . . . . . . . . . . . . . . . . . . . . . .31Computer and E-mail Usage . . . . . . . . . . .31Workplace Inspection/Monitoring . . . . . .31Workplace Violence . . . . . . . . . . . . . . . . . .32Employee Conduct and Work Rules . . . . .32Drug and Alcohol Use . . . . . . . . . . . . . . . . .33Sexual and Other Unlawful Harassment . .33Attendance and Punctuality . . . . . . . . . . . .34Unexcused Absences . . . . . . . . . . . . . . . . . .34Personal Appearance . . . . . . . . . . . . . . . . . .34Resignation . . . . . . . . . . . . . . . . . . . . . . . . .34Progressive Discipline . . . . . . . . . . . . . . . . .35Problem Resolution . . . . . . . . . . . . . . . . . .35

Corporate Compliance . . . . . . . . . . . .36–41

Patient CareManagement of Prescription Medications 43Inventory of Medications . . . . . . . . . . . . . .44Labeling of Medication . . . . . . . . . . . . . . . .44Administration of Medication and Employee Training . . . . . . . . . . . . . . . . . . .44

Safety and OSHACPR Instruction . . . . . . . . . . . . . . . . . . . . .45Fire Safety . . . . . . . . . . . . . . . . . . . . . . . . . .45Fire Extinguishers . . . . . . . . . . . . . . . . . . . .47Bloodborne Infection Issues . . . . . . . . .48–50Infection Control/Employee Health Test . . . . . . . . . . . . . . . . . . . . . . .52–53

Information TechnologyInformation technology (IT) is widely used for many ofthe functions found in medical group practices. Mostlarger medical group practices have now developed inte-grated networks to provide ready access to informationand the ability to instantly update records and informa-tion related to various activities within the practice.

The IT department touches virtually every depart-ment in the clinic and provides the opportunity to sharedata and information and to easily access information formanagement and clinical use.

Often these networks include many subsystems thatcarry out a specific function. This includes accounting,financial management, personnel and file maintenance,accounts receivable, accounts payable, billing, medicalrecords, clinical reporting, quality assurance, and train-ing. Figure 2-24 shows a simplified schematic of a group-practice information system.

Increasingly, systems between organizations are be-ing linked through network interfaces. In some cases,these networks become quite extensive and encompassmany aspects of the medical community. Such systemsare known as community health information networks(CHINs). A typical system includes:

■ Patient portals■ Web sites■ Clinical portals■ HIPAA compliance■ Easily exchanged information to authorized parties■ Links between different providers to share the pa-

tient’s longitudinal care record

As the Internet has become faster and more available,especially high-speed access, the interaction of the med-ical group practice with all of its stakeholders has becomeincreasingly possible.

The Internet has begun to significantly change howthe group practice operates. Both clinical and businessoperations are involved in this revolution. The WorldWide Web is cost-effective, makes possible ready accessto information for review, and is a vehicle for updatingrecords.

Web portals have become the key to an effectiveInternet strategy. The key element is the practice Website. Frequently, a practice’s Web site becomes the portalof entry to the practice, and serves not only as a vehiclefor the prospective patient to obtain information aboutthe practice, but increasingly it is becoming a method oftwo-way communication.

Web sites should:

■ Be easy to navigate■ Be updated frequently■ Contain accurate and relevant information, in-

cluding such topics as services, directions, physi-cian information, specialized care and services,policies, community activities, and research beingconducted

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In addition to the availability of records, the notionthat organizations can be connected to better service thepatient is a concept that has been developing over theyears. These CHINs will likely gain additional vigor asmore emphasis is placed on patient-centered care.

The specialist referral process can create significantfrustration for both referring physicians and patients. Ininterviews with physicians, here are some of the mostcommon statements and findings:

■ Referral coordinators are often on the phone 20 to30 minutes to get an appointment.

■ Managed-care influences access and administrativeburden.

■ Appointments are difficult to get in timely fashion.■ Despite the proliferation of information technology,

the referral process continues to lack sophistication,clear customer interfaces, and information flow.

■ Specialist feedback, when provided, is written andsent through the mail.

■ Patient records are often misplaced.

Patient Communication and AccessSome 25% of patients use the Internet for health infor-mation.18 The Internet is becoming the great “democra-tizer” of health care information. Patients, however, wantthat information to come from their physicians. In a re-

cent survey of 400 patients with an average age of 59.1years, 44.1% indicated they had access to e-mail, and ofthose, 58.6% said they would like to communicate withtheir physician in this manner. Certainly this data sup-ports the idea that health care is becoming a more col-laborative venture between the physician and the patient.

Facilities ManagementFor smaller practices with a single location, facilitiesmanagement may be a function within administration.The function of facilities management is to acquire andmaintain the physical facilities of the organization. Thisinvolves:

1. Leasing or purchase of the space2. Construction management of building or renova-

tion projects3. Acquisition of fixtures, such as office furniture and

equipment4. Maintaining the property and equipment to ensure

that the clinic is able to function at all times

These activities may also be done through a series ofoutsourcing and maintenance arrangements, such as main-tenance contracts, but the coordination and supervisionof this function cannot be overlooked. Facilities that arein poor condition or not functioning are not only ineffec-tive, but can be a considerable liability to the practice.

IT Network

Clinical InformationSystems (EMR)

PersonalRecords

FinancialSystems

ManagementReporting

External Interface toHospitals, InsuranceCarrier and CommunityHealth InformationNetwork

Figure 2-24 Information Management Systems

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Purchasing and Supply ManagementThe purchase of supplies and other necessary items forthe practice requires special attention to the followingconcerns:

■ Dependability■ Discounts for bulk orders■ Price and quality■ Relationship with current vendors■ Customization■ Market exclusivity■ Value■ Delivery schedules■ Guarantees■ Safety for the purchasing agent

The current state of the art in medical group man-agement uses computerized systems to purchase suppliesand equipment for the organization and to manage thesupply chain for the practice. The characteristics of thesesystems are:

1. A common catalogue (used to control items thatare ordered. Many groups with automated systemshave a difficult time controlling the number ofsources and the scope of the items purchased. Thisis especially true in groups with a number of of-fices in different geographic areas.)

2. A rule-based per established ordering programwhich requires authorization of purchases fromthe approved catalogue

3. A system to control and document receipt of goodsand the accuracy of the ordered items, which pro-vides an effective method to verify delivery of prod-ucts and establish if the order is correct in termsof quantity and price

Important software features included in many of thenewer software products include:

■ Online requisitioning (electronic catalogs incorporated)

■ Transaction based audit trails■ Online approvals and purchasing■ Automated faxing■ Internal messaging■ Request for quotation■ Electronic ordering capabilities■ Standing orders■ Freeform orders■ Rule builder■ Transaction-based reporting■ Predictive reporting

■ Multiuser defined pick lists■ In/out status tracking■ Purchase order attachments■ Real-time status updates■ Purchase order consolidation

In addition to control, automated procurement pro-vides the practice with better opportunities for inventorycontrol and taking advantage of economies of scale whenpurchasing.

Clinical Activities and DepartmentsMedical group practice provides a large variety of patientservices in addition to the physician visit. Physician ser-vices are often loosely divided into office-based servicesand hospital-based services, but the line is rapidly be-ginning to blur. Group clinic operations often include:

■ Clinical laboratory services■ Radiology services■ Ultrasound■ Nuclear medicine■ Computerized axial tomography■ Nuclear magnetic resonance imaging■ Outpatient surgery, sometimes within the context

of the ambulatory surgery center■ Dietary counseling services

Other clinical services such as preventive care is often organized into a unique department of the grouppractice.

The organization of each medical service departmentrequires careful attention to a host of legal, licensing, andregulatory requirements. It also may be necessary in manystates to obtain a Certificate of Need (CON) or other reg-ulatory approval for certain services depending on costof the service and the compliance of the service with com-munity standards of care and state health plans.

Clinical service must be organized and managed byproperly licensed and knowledgeable professionals. Suchservices also require adherence to standards that are es-tablished by various professional society and credential-ing bodies. Often approval and certification of operationsare required by state departments of health and by majorpayers before payments are be made on behalf of coveredindividuals.

Quality Assessment an Important Focus A major barrier to change and improvement activities inmedical groups is the problem of variation. Variationequals cost. This variation, as noted earlier, is one inher-ent reason for the slow growth of group medical practice.

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In addition, the variability in the delivery of care has beenassociated with the fragmentation of quality and the in-ability to leverage economies of scale to any great degreein physician practice.

This has become one of the most important areas ofconcern for the medical group. The Institute of Medicine(IOM) released a report “To Err is Human,”19 which hasbeen a hotly debated topic, but nonetheless has strongsupport from the social science and economics disciplines.These are issues that everyone in group managementneeds to understand, and these issues should be the ba-sis for quality assurance and risk management activities.

Regardless of our feelings on the matter, there aremany critics of the health care system and all of its com-ponents. These voices are increasingly being heard andsimply cannot and should not be ignored. The medicalgroup is a quasi-public organization, although most groupsare privately owned. To illustrate this point, consider that:

1. Sixty percent of all health care in the United Statesis paid for by government entities.

2. Public scrutiny of health care and its regulationsis increasing.

Medical groups will continue to be a source of public in-terest and debate.

It is important to have some background on the na-ture of quality improvement and its critical need in themedical group. Unlike most other industries, quality isdifficult to define and measure for the typical con-sumer/patient. First, consider the great asymmetric na-ture of health care, which is characterized by situationsin which the parties on the opposite side of a transactionhave differing amounts of relevant information. Examplesof asymmetric knowledge are:

■ Vendors typically know more about the strengthsand weaknesses of their products than do pur-chasers.

■ Employees typically know more about their healthproblems than do human resource or health planmanagers.

■ Subordinates typically know more about the effortthat they have put into assignments than do theirsuperiors.

■ Providers typically know more about the treatmentoptions than do their patients.

Another widely discussed concern by critics of themedical industry is that physicians and other health careproviders have the unique ability to create supplier-induced demand (SID). SID is characterized by a changein demand for medical care services associated with the

discretionary influence of providers, especially physi-cians, over their patients. This is demand that providesfor the self-interests of providers rather than solely forthe patients’ interests.

In addition, critics of the health care system and physi-cians in general have often pointed to small area varia-tions (SAV) as evidence of a physician’s ability to increasethe use of services. SAV was documented by John Wenn-berg20, 21 and defined as large variations in the per capitarates of utilization across small, homogenous areas formany medical and surgical procedures.

The Social Concerns for Health Care DeliveryThe detractors of our health care system do not stop withWennberg and, in fact, go much further.

Ivan Illich in his book, Medical Nemesis, delivers astinging indictment of the health care system. He says,

The major threat to health in the world is mod-ern medicine. The medical community has actu-ally become a great threat to people. Doctors andothers (pharmaceutical industry) serve their owninterests first. People become consumers andobjects.22

He identifies three levels of damage:

1. Clinical treatment actually often harms people.Patient safety has not been a high priority.

2. More and more problems are seen as amenable tomedical intervention. Pharmaceutical companiesdevelop expensive treatments for nondiseases.

3. Over 100,000 people a year die from adverse drugeffects.

People Are Consumers and ObjectsIt is a new idea that everything, including labor and cul-ture, can be assigned a market value. Such a practice de-stroys traditional ways of dealing with death, pain, andsickness.

Thomas McKeown, a leading expert on social medi-cine and another prominent critic of our health care sys-tem, in his book, The Role of Medicine, asserts the role ofmedicine and doctors in improving human health has beengreatly overstated. Disease is basically addressed throughprevention and only secondarily through treatment.

Longevity of life has increased through factors such as:

■ Reduction in infectious diseases because of geneticreactions

■ Better nutrition■ Elimination of infanticide

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McKeown goes on to say medical research is of lim-ited value and researchers too often focus on “basic re-search” at the expense of socially useful research.23

It is essential that we have programs to demonstratequality care that is appropriate, cost-effective, and in thebest interest of patients. We need to understand our out-comes and our process so we can better explain away the“blackbox” nature of the profession to our detractors.

Quality Improvement and the Effective Medical GroupThe issue of quality in the service provided by grouppractices is paramount to group-practice operations andthe future of health care. In addition to the critics of ourservices, paying for performance is becoming a reality. Itstarts with understanding what the medical group is re-ally about. The first section of this chapter discusses themany structures and lists attributes of group practice.Organizing for delivery of quality has not been a centraltheme in group practices because many structural andoperational considerations have been focused on issuesother than the quality of care. The lack of standardiza-tion, the absence of any formal adherence to best prac-tices, and lack of formalized quality improvement forprograms all contribute to a lack of progress in deliv-erying quality service.

This is not to say that financial issues are not impor-tant. Medical group structures are not designed, or insome cases are antithetically designed, to invest in qual-ity initiatives. The extreme short-term focus of financialperformance is a chief culprit. Groups do not invest ei-ther financially or in the training needed to carry outlarge-scale improvement initiatives. Investment dollarscan only come from the shareholders’ pockets, a prospectthat has long curtailed the development of modern med-ical groups.

In Dr. Deming’s book, Out of the Crisis, he asks a ques-tion that should serve as the cornerstone of any group’squality initiative:

What are you doing about the quality that youhope to provide to your customers four years fromnow?24

The issue of quality in the American health care sys-tem is an increasingly important one as we begin to bet-ter understand the issue of quality. For most of history,quality has been virtually undefined. As Voltaire wouldhave said, it is indeed “in the eye of the beholder.” However,that is changing dramatically as the ability to measurequality evolves and expectations of the quality of healthservices become higher.

Variation, or put another way, lack of standardiza-tion, is a central theme throughout group practices. Weknow our health care system produces superior outcomesusually, so why the variation? There are many potentialcauses of variation.

So what do we do about it? Quality must be a corevalue of medical group practice and that value must beexpressed by having a systematic way of monitoring andimproving quality in the medical group practice.

Identifying Issues That Require Examinationand CorrectionThere are many opportunities to evaluate the practice.Some of the most fruitful areas to find projects for qual-ity improvement activities are:

1. Patient satisfaction surveys2. Malpractice claims review3. Benchmarking clinical and nonclinical data4. Standards established by specialty societies5. Review and understanding of national data such

as all of the departments of the National Institutesof Health (see http://www.nih.gov/icd) and theAgency for Health Research and Quality (seehttp://www.ahcpr.gov).

Initiatives on quality require a systematic approachto reduce the influence of bias and emotions on the process.Many techniques have been used, including:

■ Total Quality Management or TQM25

■ Continuous Quality Improvement or CQI26

■ Six Sigma27,28,29

All of these processes use statistical measure to eval-uate an identified process to determine the source of er-ror and variation in outcome. There are many resourceson the actual technique, and the reader is referred to thesesources for more complete information.

However, all of these techniques have the same fun-damental premise. They all involve the following steps:

1. Plan and determine the process to be examinedand a clear delineation of the process.

2. Measure the process activities.3. Analyze using various statistical techniques. This

can involve one or more of the tools shown in Table2-2.

All of these techniques seek to identify the variationin outcomes and then assign the nature of the cause ofvariation or error. These are often referred to as special

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causes, such as human error, or common cause, whichare the results of the process itself. An example of thismight be billing error due to improper coding. Run chartsare very commonly used to evaluate data for common andspecial causes, as shown in Figure 2-25.

Variation is depicted as upper- and lower-control lim-its once the data is plotted. The run chart then shows thenatural variation in the system, or the areas between theupper- and lower-control limit. Special causes can thenbe said to be those that fall outside these limits.

These quality assurance (QA) processes depend heav-ily on virtually everyone involved in the activity beingtrained to use the measurement tools needed to evaluatethe process. The time and expense involved in doing thisis one of the major difficulties in having an effectiveprocess-improvement program.

One of the more popular systems being used in processimprovement today is Six Sigma. It is interesting consid-ering the level of performance that Six Sigma implies andwhat users of the system are able to achieve.30 Six Sigmatakes the absolute number of unacceptable outcomes asa percentage of all outcomes to determine the sigma levelas shown in Table 2-3.

American industry is seeking the Six Sigma level ofperformance as a quality standard. It is realistic to achievethis in group-practice activities. Can many medical groupsproduce an error rate less than 3.4 per million appoint-ments, transaction postings, or filed claims? How aboutdiagnostic or treatment errors? The usefulness of SixSigma in the medical group practice remains to be seen;even if sigma level six is not achievable, improvement iscertainly possible.

Another important issue is the concept of the Type Iand Type II error. Type I errors in process improvementoccur when the evaluator concludes incorrectly that theobserved outcome is caused by the data point being con-sidered. Figures 2-26, 2-27, and 2-28 show examples ofa potential Type I error.31

It might be logical to conclude that group size wouldinfluence total medical revenue per FTE physician; butwhen regression analysis is carried out, R-squared is only.0001, meaning that this has almost no effect on the out-come. Recall that R-squared is a measure of the percent-age of cause that can be accounted for by the variableunder analysis while holding all other variables consis-tent. Figure 2-27 shows a similar analysis for cardiologygroups who accept Medicare. Logic might say that groupswith high percentages also have lower total incomes; butthis is not true according to these data.

And a final example of Type I errors, as seen in Figure2-28, shows the effect of commercial insurance on totalincome. The conclusion must mean that other factors aremore responsible for effects on total income than thoseexamined.

When action is taken to correct an erroneous causeof an effect, tampering occurs and then systems may ac-tually become more variable.

Type II errors result from situations where the causeis not recognized as being produced by the variable be-ing analyzed. This is most likely caused by a failure in theprocess, improper data collection, or improper analysis.In some cases the system may be so complex that it de-fies the use of these techniques. The results would be af-fected by the tendency to undercontrol the process. Thisis the inherent nature of health care, and Type II errorsare probable.

It is impossible to monitor all activities of the prac-tice continuously in real time. Consider, for example, thatin a large practice with 100 physicians, depending on thespecialty, there can be as many a 1000 visits a day, withother services adding thousands of additional transac-tions to the system, all of which have a “customized” fea-ture. Control charts, the patient satisfaction survey, andthe other techniques available to the practice are essen-tial to help identify areas of the clinic that need to be ex-amined in a systematic way.

Methods for measuring/monitoring quality

Technique Description

Histogram Shows the range and depth of variation in a group of continuous data

Frequency plot Displays discrete “count”data (number of defects)

Process maps Charts a series of tasks (rectangles) and decisions/reviews (diamonds), connected by arrows to show

the flow of work

Pareto chart Stratifies data into groups from largest to smallest

Time series plot or run chart Chart show how things change from moment to moment, day to day, etc. (see Figure 2-25 as an example)

Scatter plot Shows the correlation between two factors that vary by count or on a continuum

Table 2-2

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ResearchMany medical groups are engaged in significant researchas part of the clinical activity of the group. This is almostalways clinical research as opposed to basic research,which is usually divided into two general categories:

1. Premarket research 2. Postmarket research

This research is regulated by the FDA. As the nameimplies, premarket research is conducted prior to the ap-proval by the FDA to market the device or medication,and postmarket research is conducted to “monitor the on-going safety of marketed products.” This is accomplishedby reassessing drug and device risks based on new datalearned after the product is marketed, and recommend-

ing ways of trying to most appropriately manage that risk.32

The key players in the research department are:

1. The Principle Investigator (PI): Usually this is aphysician, and the PI is responsible for conduct-ing the clinical research

2. The Director: Responsible for the administrationof the project and often involved in the acquisitionof projects

3. Research Nurses: Conduct research, collect data,and manage the research information as well as re-porting

4. Support Staff: Assists the nurses and direct in theirduties

5. The Institutional Review Board (IRB): An inde-pendent body responsible for reviewing and ap-proving proposed research involving humansubjects; the role of the IRB is principally to helpensure that research is as safe as possible and thatthe potential benefits of the research outweigh anypossible harm that could be caused to the experi-mental subjects.

6. The Protocol: The written procedures and processesrequired by the project. It indicates which patientsare eligible to participate in the research, what theendpoints of the research are to be, what meas-urements and data are needed, and what must bereported. Follow-up care of the subjects is also typ-ically specified.

Figure 2-29 illustrates the process of medical researchin the practice environment. As more new drugs and de-vices are discovered, research opportunities will continue

Sigma level determination

The absolute number of unacceptable The percentage of unacceptable outcomes per million observations outcomes The Six Sigma level

690,000 69.0000% 1.0

500,000 50.0000% 1.5

308,000 69.2000% 2.0

158,700 84.1300% 2.5

66,800 93.3000% 3.0

22,700 97.7300% 3.5

6,210 99.4000% 4.0

1,300 99.8700% 4.5

320 99.9800% 5.0

30 99.9970% 5.5

3.4 99.9997% 6.0

Table 2-3

Upper-Control Limit (UCL)

Desired Outcome

Lower-Control Limit (LCL)

Time

The greater the distance between UCL and LCL,

the greater the variation due to systemic causes.

Common Cause

Special Cause

Figure 2-25 Chart control

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Single-Specialty Cardiology Groups

$1,200,000

$1,000,000

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$00 10 20 30 40 50

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Figure 2-26 Revenue by Number of FTE Physicians


$1,200,000

$1,000,000

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$00 10% 20% 30% 40% 70%60%50%

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Figure 2-27 Revenue by Percent of Charges from Medicare

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to increase and become an increasingly important part ofthe medical group. Research also offers the advantage ofintellectual challenge, and interest can be a source of greatprofessional satisfaction.

Endnotes1. Havlicek, P.L. 1999. Medical Group Practices in the U.S.—A Survey

of Practice Characteristics. American Medical Association, Chicago.2. Thompson, J.D. 1967. Organizations & Action, New York: McGraw-

Hill.3. Robbins, S.P. 1990. Organizational Theory Structure Design &

Applications, 3rd ed. Upper Saddle River, NJ: Prentice Hall. 191,249.

4. Showalter, J.S. 1999. Southwick’s The Law of Health Care Ad-ministration, 3rd ed. Chicago: The Health Administration Press.81–89, 119, 251.

5. Showalter. 251.6. Nashville Business Journal, http://nashvillebizjurnals.com/

nashville/stories/2000.7. Redling, R. 1 March 2000. New Anti-Kickback Safe Harbor Rules

or Mixed Bag for Medical Practices. MGM Update; 39, 5.8. Federal Registry, Washington, DC.: National Archives and Records

Administration. 1999.9. Glass, K. 2003. RVUs Applications for Medical Practice Success.

Dubuque, IA: MGMA, Kendall/Hunt Publishing Co.10. Porter, M.E. 1980. Competitive Strategy: Techniques for Analyzing

Industries & Competitors. New York: The Free Press.11. Body of Knowledge, 2001. Denver, CO: American College of Medical

Practice Executives.12. Performance and Practices of Successful Medical Groups, 2003. Denver,

CO: MGMA.

13. The Center for Medicare and Medicaid Services (CMS) has createdthe standardized 1500 claim form, and The HealthCare Portabilityand Accountability Act (HIPAA) has mandated some standardiza-tion of coding and submission of claims.

14. http://www.hhs.gov/ocr/hipaa, United States Government Depart-ment of Health and Human Services.

15. Woolhandler, S., Campbell, T., and Himmelstein, D.U. 2003. Costsof Health Care Administration in the United States and Canada.New England Journal of Medicine; 349:768–775.

16. http://www.cms.hhs.gov/hipaa/hipaa2/default.asp, United StatesGovernment Department of Health and Human Services.

17. Waegemann, P. EHR vs CCR: What Is the Difference Between theElectronic Health Record and the Continuity of Care Record? MedicalRecords Institute. http://www.medrecinst.com.

18. Patient Satisfaction Survey of 4000 Patients at The Sanger Clinic,P.A., 2003.

19. Kohn, L.T., J.M. Corrigan, and M.S. Donaldson. 2000. To Err IsHuman: Building a Safer Health System, Washington, DC: NationalAcademies of Science, The Institute of Medicine.

20. Wennberg, J. 1973. Small Area Variations in Health Care Delivery.Science; 182: 1102–1108.

21. Wennberg, J. 1984. Dealing with Medical Practice Variation: AProposal for Action. Health Aff; Summer 1984, 3:6–32.

22. Illich, I. 1976. Medical Nemesis: The Exploration of Health. NewYork: Random House.

23. McKeown, T. 1980. The Role of Medicine: Dream, Mirage or Nemesis.Princeton, NJ: Princeton University Press.

24. Deming, W.E. 1990. Out of the Crisis. Cambridge, MA: MassachusettsInstitute of Technology, Center for Advanced Engineering Studies;166.

25. Turzillo, S. 1992. Total Quality Management in the Medical Practice.The Road Seldom Traveled. Denver: ACMPE.

26. Juran, J.M. June 2001. Innovative Designs for Six Sigma.http://www.juran.com.


$1,200,000

$1,000,000

$800,000

$600,000

$400,000

$200,000

$00 10% 20% 30% 40% 90%80%70%60%50%

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Commercial FFS (all sources)

Figure 2-28 Revenue by Percent of Charges from Commercial Insurance

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27. Pande, P., R. Neuman, and R. Cavanagh. 2000. The Six Sigma Way—How GE, Motorola and Other Top Companies Are Honing TheirPerformance. New York: McGraw-Hill. pp. 23–24.

28. Chowdhury, W. 2000. The Power of Six Sigma. Chicago: DearbornTrade. p. 29.

29. “Six Sigma Systems,” June 2001. http://www.sixsigmasystems.com/what_is_six_sigma.

30. Carey, R.G., and R.C. Lloyd. 1995. Measuring Quality Improvementin Health Care: A Guide to Statistical Process Control Applications.New York: Quality Resources, a Division of the Kraus OrganizationLimited.

31. Acknowledged that charts in Figures 2-27, 2-28, and 2-29 wereprepared with assistance from David N. Gans, MSHA, CMPE,MGMA Practice Management Resources Director, Denver, CO.

32. The Code of Federal Regulations (CFR), Federal Food Drug &Cosmetic Act, Section 21 of CFR Part 314. http://www.fda.gov/cder.

Shewhart, W.A. 1986. Statistical Methods from the Viewpoint of QualityControl. New York: W. Edwards Deming, Dove Publications.

Veney, J.E. 2003. Statistics for Health Policy and Administration UsingMicrosoft Excel. San Francisco, CA:Jossey-Bass.

Wagner, S.F. 1991. Introduction to Statistics. New York: Harper Perennial.

General References

Burney, R. 2001. The JCAHO Approach to Medical Errors. AmericanSociety for Quality’s 55th Annual Quality Conference Proceedings,Milwaukee: ASQ: 743.

Chaplin, E. 2001. Comprehensive Quality Function Deployment: Beyondthe Seven Basic Quality Tools. American Society for Quality HealthCare Division Newsletter: 5.

Berglund, R.G. 2001. The World Is Working to Improve Health Care.Health Care Weekly Review. Special Reprint; 4 April 2001.

Physicians Practice Compliance Report, (MGMA and Opus Publications)2000. 3(1).

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Patient Identified& Enrolled

ProtocolReview

IRB

Device orPharmaceutical

Company

ResearchDepartment

Agreement toParticipate

PatientFollow–Up

ResearchConducted

InformedConsent

ReportsSubmitted

Project Ends

Contract TermsFulfilled

Reporting

DocumentDatabased

Data Gathered

Figure 2-29 Research Project

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“NIH Guide: Transforming Healthcare Quality Through InformationTechnology (THQIT)—Planning Grants Transforming HealthcareQuality Through Information Technology (THQIT)—PlanningGrants,” Department of Health and Human Services (DHHS), ReleaseDate: 20 November 2003, RFA Number: RFA-HS-04-010 (seeNOT-HS-04-001).

Agency for Healthcare Research and Quality (AHRQ). http://www.ahrq.govNational Institutes of Health http://www.nih.gov

Participating Organizations

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21 August 2003.Clark, F. 2003. Creating a Community Health Care Portal. Advances for

Health Information Executives. August 2003: 61–64.Information Networks for Community Health. 1997. Hannah, Kathryn and

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July 2003: 26–27.

Components of ParticipatingOrganizations

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