Wisconsin's ThedaCare health system is an unusual case. As integrated delivery systems all around the country abandon unprofitable physician groups, two-hospital ThedaCare views its 100-doctor primary-care practice as an essential part of the organization's fabric.
"Even though we do make a profit, the (physicians') goal here is to be a cornerstone of our delivery system," says Kathryn Correia, ThedaCare's senior vice president of physician services.
Integrated delivery systems are rarely effective proprietors of physician practices. Industry analysts say unprofitable physician practices have been a major reason why hospital profit margins have been recovering so slowly.
A recent survey conducted by Arista Associates for Modern Healthcare found that of the systems that divested a business unit last year, 40% shed their physician practices (Aug. 6, p. 34).
One of the culprits, according to ThedaCare officials and industry experts, is that many systems run their physician practices the same way they run their hospitals, when the two are not at all the same.
"Practices have to be managed differently than hospitals," says Mary Witt, a manager of the Camden Group, an El Segundo, Calif.-based healthcare consulting firm. "It's very important that physicians be involved and have a say in what happens in the medical group."
For Appleton, Wis.-based ThedaCare, giving physicians that say is one of the biggest reasons it has been successful in a venture that has imperiled so many other systems. In the seven-year life of ThedaCare's physician practice, annual turnover has been only 1%, and it has turned a profit continuously for the past 21/2 years.
"If you run the practice like a hospital, you won't have much success," says Dean Gruner, M.D., ThedaCare's chief medical officer.
In hospitals, the management model used most often is a hierarchical structure with centralized authority. At ThedaCare, according to Correia and Gruner, decentralized management empowers physicians to make their own business decisions, which they say has resulted in the system's fiscally strong physician practice.
ThedaCare has divided its physician practice into business units, each of which has a physician leader and professional practice coordinator. Physicians in each business unit share responsibility for outcomes and work collectively to care for their patients. The units have anywhere from four physicians to as many as 16.
Armed with their decisionmaking authority, physicians aren't "as bad at running a business" as many healthcare systems assume they are, Correia says.
In fact, they're so good at ThedaCare that profit per physician in fiscal 2000 was $15,731, which compares with an average net loss of $26,576 per physician in hospital-owned systems across the U.S., according to figures provided by the Medical Group Management Association (See chart).
"It's very important that physicians be involved and have a say in what happens in medical group," Witt says. "As you disengage (physicians), they're not vested in what happens on a day-to-day basis, and there's not the same commitment to run the practice in a way that makes sense."
Striking the right balance between physician staffing and patient volume is a critical factor for success, she says. Many systems have staffed a practice with enough physicians to take business from other area providers, and "everyone underestimated how difficult that actually was. You can't recruit someone without having a strategy to drive new business," Witt says.
ThedaCare readily acknowledges that "we're not the only game in town." As a result, Correia says, "the way we add physicians is based upon market information and making sure we will have the volume to support (an additional) physician."
Not including income from its 317,000-member health plan, ThedaCare posted net income of $19 million on revenue of $371.7 million in fiscal 2000.
To succeed in running a physician practice as ThedaCare has, systems must provide physicians with incentives to meet goals for outcomes as well as financial performance, Witt and the ThedaCare executives say.
Compensation should be based on productivity, Witt says, which is not the case in many healthcare systems running a physician practice. "Even if doctors knew a year ago they needed to see 20 patients a day to break even, they forget that sometimes if they're not (given incentives based on productivity)," she says.
Physicians managing each ThedaCare business unit "are responsible for the financial results of their office site, and if they're really terrific they're going to benefit. If they're bad, they have to manage their way out of it," Correia says.