The unusual demise of 69-year-old Burns Clinic in northern Michigan demonstrates the vulnerability of multispecialty groups, even established ones.
The clinic, which once boasted 125 physicians at eight sites, will cease operations April 1. Its assets will transfer to Healthshare Group, parent of 202-bed Northern Michigan Hospital in Petoskey.
Freestanding multispecialty clinics rarely go out of business. Don Fisher, chief executive officer of the Alexandria, Va.-based American Medical Group Association, says he can think of only one other example: Thomas-Davis Medical Centers in Arizona, which evaporated last year amid a dispute between physicians and the clinic's management company, FPA Medical Management.
Diversification protects multispecialty groups from reimbursement swings, but higher overhead and lower productivity are liabilities. To survive adversity, multispecialty groups must be cemented by a strong group culture.
"The providers need to be willing to do what is necessary for the good of the organization," Fisher says.
Burns fell short in physician leadership, according to some observers. Stewart Sandstrom, executive director of the Petoskey Regional Chamber of Commerce, says the clinic's recent torchbearers failed to live up to the ideals of its founder, Dean Burns, M.D., who "had a philosophy of how a multispecialty clinic could survive in rural Michigan and why it should."
Michael Bacon, D.O., founder of Little Traverse Primary Care, a seven-physician group in Petoskey, says the clinic failed to take tough steps, such as reducing the number of physicians and increasing productivity.
The clinic's compensation structure failed to reward high producers, Healthshare President and CEO Jeffrey Wendling said. Working harder to sustain their incomes, some doctors decided to leave the group rather than support it, acknowledges John Hall, M.D., the clinic's chief executive and medical director.
Exacerbating the situation was the local insurance market, which included only one commercial insurer, Blue Cross and Blue Shield of Michigan. Hall said staff salaries increased at an annual rate of up to 8%, far outpacing reimbursements. The Blues says it pays the same rates to physicians statewide.
There was no way to increase revenues "other than working faster and seeing more patients," Hall says. But even that was tough, given that the summer vacation haven attracted many new physicians who were recruited by the clinic or local hospitals.
Burns affiliated with PhyCor in 1994, expecting the Nashville-based management company would help it capture an anticipated wave of managed-care business, Hall says. But managed care has yet to reach northern Michigan.
In a last-ditch effort to boost revenues last fall, Burns threatened not to participate in the Blues. But employers protested. "For them, (the Blues) was a good deal," Hall says. "We had to back away."
The clinic's failed attempt to stare down the state's largest insurer contrasts with the case of Marshfield (Wis.) Clinic, another rural provider. More than four times the size of Burns in physicians and revenues, Marshfield was sued in 1994 by Blue Cross and Blue Shield United of Wisconsin, which accused it of monopolizing physician services. A jury found Marshfield guilty and awarded the Blues $14.5 million, but the verdict and the entire damage award were tossed out on appeal.
The closure of Burns Clinic is sad, but many think it was inevitable in Petoskey, where the clinic is the second-largest employer. Many of the clinic's 633 employees are expected to be hired by a management services organization being established by Healthshare Group. Burns has hired a consultant to help the 80 or so remaining clinic physicians make the transition to private practice within two years (March 1, p. 17).
But eight clinic physicians have already left the area, says Hall, adding that up to 20 more could flee the market.
Many say the clinic's breakup is for the best. Bacon, for one, says the community will be better served by small specialty groups. "The Burns clinic, in its largeness, wasn't sensitive to patient needs," he says.