Blog Post

How the medical group of the 1800s should inform your 2018 strategy

December 11, 2017

    Ron Charpentier

    As a health system or physician enterprise leader, you're always working to align employed physicians and other medical group stakeholders to a cohesive system perspective. At its core, alignment is about transforming the physician enterprise into a unified medical group in line with the system's vision and positioning it to become a performance engine. But many of the health care leaders I speak with struggle to achieve this accord, and consequently do not see the value they expected from their employed physician practices.

    Too often, this is because system leadership is focused on other priorities, at the exclusion of the needs and priorities of their physician enterprise. Having said that, progressive health systems increasingly understand the value of building a unified, physician-led medical group lies not only in improved performance, but in attracting and retaining the best talent to achieve and maintain differentiating outcomes.

    Are there proven motivations that facilitate physician alignment and unification—and if so, why have they proven so elusive? To answer those questions, there are key lessons to learn from the history of medical group practice that inform the right path forward for the employed physician enterprise.

    To leverage these lessons from the past, we need to understand where the concept of medical group practice began, why it's thrived for over a century, and how the underlying precepts that resulted in stability have devolved under system employment. Most importantly, we need to understand the core tenets of successful medical groups.

    The beginning: Mayo Clinic and the core tenets of the medical group

    The idea of a medical group began when the Mayo Clinic pioneered the concept in the late 1800s. By the 1970s, it had rapidly expanded to over 6,000 groups across the country. A core set of common tenets underpinned the formation of the Mayo Clinic, and those same doctrines were employed as medical groups expanded throughout the Midwest and eventually to both coasts.

    In examining the proliferation of group practice over the last century, there is ample evidence of a common set of principles that continue to attract physicians to medical group practice:

    • An environment for professional interaction and collegiality;
    • An opportunity for physicians to advance patient care through clinical collaboration, expanded outpatient services, advanced technology, improved patient access and patient convenience;
    • Protection of the patient/physician relationship;
    • An identity and recognition for clinical excellence that goes beyond individual achievement;
    • Greater leverage in determining the delivery and financing of care;
    • The physician's ability to practice medicine independent of administrative governance; and
    • The essential appeal of ownership in a physician-led entity.

    The 90s: Two new—but opposing—trends dominating physician consolidation

    Fueled by "managed competition" in the 1990s, two new—but opposing trends—dominated physician consolidation: Hospital employment and physician practice management acquisition.

    The hospital-centric strategy centered on the ideal that hospitals needed to reach a critical mass of physicians to protect and grow their market share and ensure downstream revenue. For physicians who became employed by hospitals, managed competition represented uncertainty, as well as practice and income vulnerability, while hospital employment represented security and often a guaranteed salary. However, the hospital-centric employment model did not enfranchise physicians to the system. Rather, it relegated physicians to employment status.

    In contrast, physician practice management companies proffered a physician-centric strategy of preserved independence and empowerment through access to capital and broader management expertise. This access to greater resources would fuel growth to reach a critical mass that positioned physician practices to leverage size in order to improve reimbursement, expand services, and level the playing field with hospitals.

    These strategies were largely unprofitable for hospitals and practice management companies. By the year 2000, managed competition had failed to become law; hospitals, losing substantially on their employed physicians, began to divest practices; and lack of corporate profits meant physician practice management companies were shuttering. Meanwhile, independent medical group practice continued to grow, reaching approximately 20,000 physician groups today.

    2010: The Affordable Care Act becomes law of the land

    In response to the passage of the Affordable Care Act, hospitals once again began employing physicians to protect and grow their market share. Independent physicians, and even large, well-established medical groups sought security through hospital employment. Hospitals re-engaged this strategy to improve negotiating clout, defend themselves from losing key physicians to competitors, better compete under both fee-for-service and value-based reimbursement models, and once again secure downstream acute care economics. The percentage of hospital-employed physicians grew from 20% in 2012 to 26% in 2013 and 38% by 2015—and it continues to grow today.

    But similar to the mid-1990s, hospital losses per physician have been rising. The median loss per employed physician more than tripled from $58,000 in 2004 to $176,000 in 2013, according to the Medical Group Management Association (MGMA). In our data from FY 2016, member medical groups reported the average loss per employed physician had reached $207,000.


    Today's health systems continue to struggle with their physician enterprises. Losses remain substantial, physician productivity is below income levels, and clinical and operating practices remain highly variable. Systems are neither prospering in fee-for-service nor prepared for value-based care. But this shouldn't surprise any system executive. The tenets that have a proven track record of motivating and aligning physicians have been largely ignored in favor of a system vision that is heavily influenced by a hospital-centric perspective.

    There is a clearly articulated strategy in the Affordable Care Act to move providers to value-based reimbursement that places health systems at risk for the health of a defined population. Increasingly, system executives view physicians as the path to prosperity under value-based care delivery models. However, the consolidation of physicians remains an individual employment and hospital-centric model, rather than a physician-led, group practice model. Physician engagement and performance remain elusive, and physician burnout and disenfranchisement are all too common.

    Systems should rewrite the health system playbook for the employed physician enterprise model, and build in the foundational core tenets of alignment, collegiality, empowerment, and performance so that the system reaps the benefits of a stable, engaged medical group that is driving system performance and building market share through differentiated outcomes. Early adopters of this point-of-view could well find themselves ahead of the performance curve and competing systems.


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