The term “strategy” derives from the Greek “strategia,” a military term that loosely translates to the art of the general, or leader of the troops. Organizational strategy involves the planning, organization, and application of resources and potential to active goals that advance the mission and position of a business operating under conditions of uncertainty.
Executing a healthcare strategy involves integrated, multispecialty teams working collaboratively in high-tech environments that require significant capital investments to implement the strategies. Designated physician leaders lead team performance, so having these leaders “at the table” during all phases of the strategic planning process, including the financial planning, is a requirement, especially if physician leaders are handed the final plan for execution.
HEALTHCARE STRATEGY IN TODAY’S MARKETPLACE
Demand for healthcare services increases in the face of countervailing, downward pressures on unit price, utilization, and total costs of care. In most markets, fewer than five to seven payers, including the government, control the majority of financial flows to providers.
A growing proportion of care delivery is provided in ambulatory care environments, necessitating increased capital investments in specialized facilities, technologies, and people. In most markets, the human capital cost inflation rate is outstripping per-unit reimbursement inflation rates paid by commercial and governmental payers. An increasing proportion of total costs of care are being shifted to the end-user (the patient), and many employers are plagued by annually compounding double-digit healthcare cost increases.
So, what are the effects of these “environmental conditions” that need to be addressed in new healthcare strategies and why should physician leaders be involved? Depending on the trade periodicals referenced, there are several emerging environmental conditions that demand novel strategies. These conditions include destruction of health system bottom lines, employee layoffs, threatened closures of healthcare provider organizations (especially rural hospitals), closure of specific clinical programs by providers, and organizations re-thinking their missions.
These conditions exist in parallel with accelerations of demands for specialized ambulatory diagnostics, complex medical treatments, and surgical care delivery innovations, along with other care delivery innovations and novel facility designs required.(1) These dynamics call for intensive involvement of physician leadership in the finances and financial planning of emerging healthcare strategy.
THE ROLE OF THE PHYSICIAN LEADERS IN ORGANIZATIONAL STRATEGY
Given the terms, conditions, and likely trajectories of healthcare policy, economics, and market dynamics, physician leaders ought to be “leaning into” the finances and financial planning for healthcare strategy and not leaving it up to the “finance department” of their organizations. This is true for at least four important reasons:
The finances of strategic plans are multiples of assumptions, with each depending on expert input from those who actually “manufacture the product.” Physicians are uniquely positioned to play a key role in the upfront thinking and assumptions formation that underpin the provider productivity required to drive the plan.
Physicians and other licensed and billable professionals serve as the “economic flywheels” for healthcare strategy execution.(2) Their productivity patterns can speed up or slow down strategic initiatives and their financial performance. Here, the definition and operational construct of “provider productivity” goes beyond the conventional mental model of “doctors working harder” to opportunities for reconfigured teams of providers working smarter together.
Unmanaged variation, especially at the provider level, can be the death knell for even the most well-conceived strategic plans. Non-physician leaders are not usually positioned to understand or manage provider practice style effectively, and related variations in revenue and operating expense management.
The right culture is critical to the success of the strategy. Providers and staff will look to physician leaders for the signals and cues that will affect culture, especially where culture affects quality of care and site and team productivity.(3)
The financial performance of strategy is always a study in multifactorial analytics. In the absence of qualified and engaged physician leaders with position status at the table, identifying the assumptions that will most affect the economic productivity and financial performance of strategy is often a guessing game. Guessing wrong can be expensive. Having physician leaders at the table improves the odds of guessing right.
PHYSICIAN LEADERS’ CONTRIBUTION TO THE FINANCES OF STRATEGIC PLANNING AND EXECUTION
Before diving into the details of the physician leaders’ contributions to organizational strategic planning and plan execution, let’s revisit a few supporting assumptions discussed above.
Ambulatory care services will receive a disproportionately higher level of future financial investments. The more profitable growth opportunities will derive from these investments.
The work effort of physicians and other credentialed and skilled professionals serves as the productivity and economic flywheel that directly drives financial results.
The hard asset platforms required of these new strategies — facilities interacting with people and technologies, for example — will need to operate at high levels of productivity, yielding higher-than-typical fixed asset turnover rate performance measured as net revenue productivity per net dollar invested in hard assets.
The larger proportion of the operating cost structure of these ambulatory strategies is people working in teams. Physician leaders are best positioned to bring understandings regarding clinical team performance models and productivity improvement opportunities and challenges.
Converting the points to the practical plan brings the role of the physician leader in the finance of strategy into focus. So, in that vein, where and how are the experience and knowledge base best applied to the financial aspects of healthcare strategy, if not in actual strategy execution and management?
CASE VIGNETTES: PHYSICIAN LEADERS AT THE TABLE
Presuming the theoretical argument for physician leaders’ involvement in the economics and finance of health strategy holds water, how is it applied? Four practical applications are offered as real-world case vignettes.
Case Vignette No. 1: Productivity of clinical teams operating in strategic clinical service lines. Integrated health systems often develop clinical service lines (CSLs) as strategy, including cardiovascular, orthopedic and sports medicine, comprehensive eye care, and women’s services.(4) Clinical service line strategies are complex integrations of multiple clinical subspecialties working collaboratively to address a constellation of related clinical conditions acutely and chronically across multiple care modalities and sites of care over time.
Financial success with CSLs requires the effective balancing of financial investments during the development and growth phase of CSLs and, when fully developed, effective management of the operational productivity of each. Physician leadership is required along the continuum of CSL planning, development, growth, and steady-state management, as each operating service line subcomponent produces differing economic and financial productively results based on the configurations and management of services provided.
Absent the involvement of experienced physician leaders, CSL financial performance quickly can swing to the negative and, once there, righting the ship becomes challenging and costly.
Case Vignette No. 2: The financial viability of integrated, multispecialty medical group practice models. An increasing number of physicians are opting to join community health systems as employees. Consequently, these community health systems find themselves in the business of owning and operating a growing, integrated medical group.
The growth and development of integrated medical groups leads many community health systems into uncharted waters, operationally and financially. This journey is capital intensive, whether built by practice acquisition or by organic growth. Ongoing performance requires an experienced physician’s hand to balance provider productivity against the financial, strategic, and cultural demands of an integrated medical group.
Case Vignette No. 3: The development and management of large, specialized ambulatory care centers. Community health systems and medical groups will invest substantial capital in retooling ambulatory medical and surgical care. Specialized ambulatory centers sized between 20,000 and 200,000 square feet are built daily. Some are well-designed for the healthcare conditions ahead, others are not. Depending on the configuration of medical, surgical, and diagnostic services, the “all-in, go-live” capital investment requirements can easily reach $700 to $800 per square foot, not including the working capital burden required to fund the collective strategy to a cash-flow break-even.
When well-conceived, developed, and operated, these centers can produce high margin per square foot returns. When poorly managed, they are financial disasters. Experienced and engaged physician leaders are required at each step of the planning process and strategic plan execution. Success or failure depends on creating the right sizing, balance, and productivity performance potential in programmatic configuration, which drives facility design and ultimate performance.
The days of the outpatient center configured with individual doctor offices, each designed to the perceived needs of the individual clinical offices, are over. High-performing designs satisfy mission goals, as well as disciplined management of required financial return, returns on facilities, technology assets, and invested capital.
This discipline requires physician leaders working hand-in-glove with medical group or health system finance and operations leadership — especially after operations goes live. Economic and financial performance metrics, analytics, and interpretations require physician leaders at the table.
Case Vignette No. 4: The strategy and financial implications of geographic spread. Geographic outreach strategies are often components of healthcare strategy, most frequently executed in the form of satellite primary care clinics.(5) Satellite clinics can be effective to thwart competitors from market entry, or they at least increase the price of competition. They can also capture market share through improved access to primary care and, by extension, access of the integrated health system to specialty medical and surgical referrals into the health system.
Primary care satellite strategies are not de facto successful. Success depends on numerous related variables that require input of savvy physician leaders, such as expected new patient acquisition and patient encounter ramp-up rates; productivity potential of each primary care provider slated for the sites; specialty medical and surgical specialty demand referral potential, including financial performance on referrals; how the proposed satellite provider compensation plan designs are likely to affect productivity; the need for proposed support staff models (and cost); and how patient demographics are likely to produce total clinical service demand potential.
This physician leaders’ contributions, coupled with the total costs of facility development and outfitting, provides a more complete picture of financial returns’ potential of geographic expansion strategies.
THE PHYSICIAN LEADERS’ PERSPECTIVE
Is an MBA or MHA required for physician leaders to be effective contributors to the strategy and finance conversation? While a graduate degree can be useful, the competencies and skills required to address the needs described here run deeper than the typical healthcare finance and financial management curricula of most business school and healthcare master’s degree programs.
What’s the would-be physician leader to do? Coursework tailored specifically to the physician leaders’ role in the finances and financial management of healthcare strategy is the ideal, but it’s hard to come by through conventional channels. The ideal would be specially designed curricula targeted to cohorts of physician leaders in forums where each “student” could benefit from a combination of the learnings delivered in an environment of peers sharing experiences and case studies, along with the “war stories” that come with experience.
How does the physician leader get to the table where the financial plan recipe is conceived and the cake is baked? It begins with the job description. Physician leaders are often “walled-off” from the financial planning for strategy by their position design and related job description. After all, what business knowledge does a “medical director” have to offer to the finance department?
Position descriptions for physician leaders often purposely leave out any reference to strategy, finance, and business plan experience requirements. Why? Likely for the same reasons that position descriptions for finance staff don’t require experience in direct patient care. Moreover, stated requirements of such experience may cause the would-be physician leader with promising potential to veer from the opportunity, believing they “need not apply.”
Under the best of conditions, non-physician senior leaders in healthcare organizations invite the physician leader “to the table” in the spirit of healthy collaboration, recognizing that while they may not have the requisite training and may not fully understand the language of the setting, they do know how to manufacture the product, and they have the experience and training of the scientific process, including the value of judgment that comes from the practice of their profession. Under such conditions, everyone at the table has something of value to contribute, and each has something to learn from the other.
REFERENCES
Zismer, DK, Schwartz GS, Zismer ED. Ambulatory Specialty Center Construction. Minnesota Physician. 2022:36(3).
Zismer DK, Schwartz GS, Zismer ED. Finding the Financial Margin Expansion Leverage in the Medical Practice. Healthcare Administration Leadership & Management Journal. 2023;1(1)17-21. https://doi.org/10.55834/halmj.6064036896
Zismer DK, Zismer ED, Schwartz GS. The ‘Accountability Factor’ as a Predictor of Medical Group Leadership Culture. Physician Leadership Journal. 2023;10(5)36-39. https://doi.org/10.55834/plj.7391847490
Zismer DK. Clinical Service Line Strategies in Lifestyle Medicine in Creating a Lifestyle Medicine Center from Concept to Clinical Practice. Mechanick JI and Kushner RF, eds. Springer Nature Switzerland, AG; 2020:65–77. https://doi.org/10.1007/978-3-030-48088-2_8
Zismer DK, Schuh D. Clinical Service Line Strategy: Managing the Risks of Geographic Expansion. Healthc Finance Manage. 2016;70(7): 50–56.