Governance and Sustaining Independent Physician Practices

by Rick Borschuk and Chris DeMarco

Health reform and the resulting movement to value-based health and accountable care are prompting new payment and care delivery models. These wide-sweeping changes will touch every aspect of the healthcare industry, particularly small and medium sized physician practices. Governance and leadership in these practices will be forced to determine whether they have the financial wherewithal to make the necessary changes to remain independent, or if their best option is to affiliate with another healthcare provider.

Most independent physician groups govern their practices informally. The day-to-day demands of seeing patients and managing the business of healthcare, and the increasing financial pressures on practices, don’t allow most groups to develop sophisticated strategies or long term goals for their businesses. In order to survive and thrive, governance and leadership of groups committed to remaining independent must make the effort to understand how their practices will be affected by the paradigm changes in payment and care delivery models under the Affordable Care Act and the many other realities of health reform.

Participating in health reform implies the capability to assume or share risk with insurers and other providers, document and report numerous data points mandated by Medicare and other insurers to receive maximum payments for services rendered, and sufficient capital to acquire the technology required to participate in these ways.

Accountable Care Models are Driving Change

New payment and delivery models require physician groups to demonstrate their ability to increase access to care for the newly insured, effect and document improved clinical outcomes for their patients, and to do so at less cost for the patient, insurer and employer. This is often referred to as the “triple aim of health reform.” Achieving these results depends increasingly on participating in risk-based agreements with insurers which often involve hospitals and other providers. Marketplace consolidation, driven increasingly by the demands of health reform, will challenge mid-sized and small physician groups to consider joining forces with other groups or becoming employees of hospitals or health systems.

Whether facing a merger or opting for independence under the new system, practice leaders will need to carefully consider the strategies the group should pursue in the new healthcare environment. These strategies will require proactive governance and leadership for groups wishing to remain independent.

Recognizing the Importance of Clinical Outcomes

Accountable care organizations, patient centered medical homes, and other value-based payment programs increasingly reward providers for access, outcomes and cost savings. Providers who continue to focus on the fee for service model will see a shrinking demand for their services and ultimately may be excluded from insurer contracts and provider networks as employer benefit plans respond to insurer incentives and patients’ vote with their pocketbooks. Physician groups must collect data, use-evidence based practices, and be able to demonstrate and document their clinical outcomes and cost savings.

This requires physician leaders to, among other initiatives, develop registries of patients with chronic disease; and to evaluate and implement systems and protocols to manage their care to reduce hospital admissions, ED visits, nursing home admissions, and other high-cost encounters with the healthcare system. At the same time, the group’s data systems must identify the next tier of patients at risk of falling into the high-cost category, while maintaining positive relationships with patients who require the least amount of care.

Fulfilling these needs and complying with insurer reporting programs (e.g., PQRS, Meaningful Use) cannot be done manually with paper charts. For independent physician practices already working on thin margins, the capital is not always available to purchase electronic medical record (“EMR”) and other IT hardware and software systems software to gather, manage, analyze, and report this data. Additionally practices may not have the margins to hire additional staff with the expertise in these areas which could lead to improvements in productivity and efficiency.

Practices may choose not to participate in health reform. These groups that remain “off the grid” should recognize that they will be subject to payment penalties by Medicare, and potentially other insurers, for not reporting clinical data for their patient encounters.

A key decision facing physician governing bodies is determining where to invest their limited capital. Leadership must be able to predict with reasonable accuracy whether their investments of scarce resources will yield the most meaningful return, whether from improved pay for performance contracts, increased panel sizes, shared savings rewards for cost reductions, or increased referrals from their colleagues.

Paying Attention to the Business of Medicine

Traditionally, the emphasis of practice leadership has been to provide high quality clinical care and service to their patients. Until recently, the business dynamics of healthcare practice has taken a back seat to clinical care. The new market financing and care delivery paradigms demand that practice leaders hire or acquire sophisticated business skills to survive.

Primary care organizations will need to focus on increasing panel size and managing insurer payments. By winning contracts with payers, these organizations will increase market share and be able to control more patients and healthcare dollars from new payment mechanisms. This will require leadership to understand which providers in their referral patterns provide the value proposition that drive success in both quality and cost.

Specialty practices, particularly procedurally oriented physicians who don’t have dedicated patient panels, are at risk of becoming market commodities…competing for business from primary care physicians based on their value proposition of price, access, and quality. These groups must pay particular attention to operational efficiency, access, and productivity. They must be able to satisfy the clinical, financial, and customer service demands of the practices referring to them and the patients those practices refer.

The New Governance: Going Beyond a Practice’s Four Walls

Traditionally, practice leaders have had all of the talent and tools needed to manage their practices inside the walls of their practices….physicians, nurses, practice managers, and in some cases finance and IT professionals. Leaders will increasingly need to look outside of their practices to acquire the new expertise needed to successfully contract, evaluate and implement technology, analyze information and convert it into actionable data, and develop strategies and tactics to allow their businesses to thrive.

The historical focus of practices has been confined to improving and expanding the existing organization. The new governance will require practice leaders to go beyond the four walls of their practices. Most independent practices can’t afford to hire staff or pay consultants with the new skills needed to advise leadership. But there are other ways to access the knowledge required to help evaluate the market and make the decisions needed to successfully direct the group.

Moving Toward (but not Necessarily Adopting) Formalized Governance

Physician leaders have long been used to shouldering a large amount of responsibility and have learned to lead accordingly. The new healthcare environment increasingly requires more participative governance and management and communication with staff. Some practices have adopted Boards of Advisors to advise and contribute talent without incurring the cost of full time employees or high cost consulting firms.

Advisors should be selected for their overall experience in the healthcare industry, knowledge of the local healthcare market, competence in a specific field (e.g., IT, finance, real estate), and their ability to be independent and objective in the advice provided to the practice. Advisors should be selected for their overall experience in the healthcare industry, knowledge of the local healthcare market, competence in a specific field (e.g., IT, finance, real estate), and their ability to be independent and objective in the advice provided to the practice.

Whether leaders govern traditionally, by using a group of objective and talented advisors, or by hiring outside experts, the impact of significant decisions on operations and culture should be recognized. Physician group culture is fragile and often the most important feature of the group.

Communications about any significant changes should start early with the reasons for the changes, should be frequent, and should comprehensively describe how the changes will affect the individuals in the group and the group as a whole, as well as how they are designed to secure the future of the group.


With the above considerations in mind, practice leaders need to evaluate the market and competitors and assess the practice’s financial situation to become more competitive compared to practices of similar or larger size in its local market. Some independent practices are opting to become part of a hospital system or a larger practice to stay in business. When deciding whether to participate in these arrangements, physician practices should analyze the risk arrangements and decide if the financial incentives are enough to offset the effort to engage in the arrangement. Some of the more critical criteria regarding the decision to remain independent include the loss of control over the direction and operation of the practice, the implications of being an employee rather than a business owner, and the ability of leadership and employees to function effectively and thrive professionally in a different culture.

Questions Every Leadership Group Needs to Answer

As practice leaders determine the role of governance under health reform, and discuss the strategic future of their groups, the answers to the questions below may guide them.

  1. Are you confident that you can effectively evaluate and select the EMR and other technology solutions that will contribute to your practice success rather than diminishing your productivity and efficiency?
  2. Do you have the capability to interpret the data to revise workflows and, ultimately, improve outcomes?
  3. Does your group have the capability to assess its position in the market and develop strategies and tactics to thrive under health reform?
  4. Is your team skilled in evaluating insurer contracts and delivery system obligations to assure the financial integrity of your group?
  5. Do you know which providers in your referral base provide the highest value proposition of quality, access and cost for your practice and patients?
  6. Is your staffing, number and complement of clinical/non-clinical employees, appropriately matched to the volume and acuity of your patient panel and working at the top of their capabilities?
  7. If approached by a hospital or other provider group to affiliate, have you identified the criteria on which you would evaluate such proposals?
  8. Cultural readiness—is this an organization that has embraced change in the past and does the organization have the flexibility and will to move into the new healthcare world?
  9. Which governance structure works best for you and can you continue to evolve it?
  10. Skills gap—do you have the necessary skills and do you have a plan to fill the gap? (e.g., data analysis and reporting, strategy, big picture finance)
Originally published in the March/April 2015 issue of the Maryland MGMA MediNews.