New Model Holds Promise for Independent Medical Practices

January 9, 2014
Carol Stryker

Every medical practice could benefit from a formal relationship with a group of professionals with high level business skills.

A physician's office is a business, and a complicated one.  It has all of the regulatory complexity of other types of businesses, plus the burdens that are specific to a healthcare entity. And just to make it more interesting, the people in charge (physicians) are highly educated and trained to provide medical services, but lack education and experience in the business disciplines of management, finance, accounting, and marketing. 

Is it any wonder that physician satisfaction seems to be on a steady downward path? 

Take heart.  Be assured that there are always people who can develop and provide workable solutions.  The trick is to look at the issues in a new way, be willing to adapt to the environment, and, occasionally, accept that compromises may be necessary
In my opinion, the biggest challenge facing physicians' practices is the lack of professional expertise in managing the non-medical operations of the practice. Office managers typically emerge from a subordinate medical role.  They are hard working, loyal, and trustworthy, but they are ill-equipped to manage the affairs of a medium size business. 

Office administrators tend to have a background in billing or accounting.  Their skills are essential, but seldom include expertise in the other business disciplines.

What every physician's office needs is a full complement of professionals who can bring high-level skills to bear in optimizing the productivity, reliability, and profitability of the practice.  The dilemma is that only very large practices can afford to have that skill set in-house, and few of them can keep these professionals busy on a full-time basis. 
A new model for physicians' offices that holds promise is what is sometimes called a Professional Service Organization (PSO).  For the purposes of this blog, a PSO is at least the set of individuals who would occupy a practice's C-suite, if it had one.  Their job titles would all start with "chief" and end with "officer."  The words in between would be "operating," "financial," "information," "compliance," "marketing," "strategy," "legal," etc., and the various C-level officers would be responsible for the non-medical performance of the practice. 

An ideal PSO would include an architect, accountant, and attorney, as well as specialists in both vendor and payer contracting, billing, collections, human resources, HIPAA privacy and security, training, information technology, banking, finance, accounting, project management, and general management. 

The PSO would alert the practice of changes in regulation, and supply updated policies, procedures, and disclosures as needed, as well as any regularly required training.  It would manage employee hiring and termination, as well as facilitating discussions between and among physicians and staff. The PSO would represent the interests of the practice in negotiations and disputes with payers and vendors, plan and manage special projects, and provide the necessary training.

The fees would probably be a combination of fixed rate and ad hoc.  That is, the practice would pay a monthly or quarterly fee for recurring and standard services, and pay an hourly or fixed price for special events and projects.

The management of the PSO and the physicians would need to engage in regular, formal communications to assure that expectations are made and promises are kept.  Part of this communication would include monthly performance reports - both financial and operational.

A likely objection to this arrangement is that these fees would increase costs, because the PSO would still need to actively liaison with the practice through a designated staff person.  The value in both increased productivity and reliability would more than offset the additional cost, and the risk mitigation would be a bonus.  To be sure of that, the expected results would need to be clearly defined and the actual results monitored.  The PSO would need to have skin in the game and rebate fees if the targets are not met, provided the practice has met its obligations.

At this point in time, I believe that an effective PSO relationship is the most promising alternative available to physicians and clinics that want to remain independent and financially viable.

Has anyone had direct experience with a PSO?  I would be very interested to hear how the reality compares with the ideal. Does anyone see any particular pitfalls to be guarded against?