The MD needs an MBA

Doctors become businesspeople

by Christopher Key

There’s little doubt that medicine is big business in the country, but do we really want our doctors to be businesspeople? Given today’s health care situation, they don’t have much choice. Many physicians come out of medical school deeply in debt, then have to set up a practice or buy into a clinic. They’re expected to learn an extraordinary amount of science and technology, but not much business.

Dr. Grant Deger is a semi-retired internal medicine specialist who serves on the Bellingham City Council and treats patients part-time at the county jail.

“They teach absolutely no business in medical school,” he said. “We were expected to be learning the science of medicine. Society wants professionals to benefit from their skills, so you don’t see many physicians on welfare.”

There are a lot of business challenges out there.

“Medicaid doesn’t begin to pay overhead,” Deger said. “Medicare reimbursements tend to be late, short, and way below reasonable medical fees. That means a lot of doctors are working very hard for mediocre pay and it’s the ones on the front lines who are suffering most.”

Deger believes there should be a realistic review of what students should get out of medical school.

“A 22 year old electrician can be making a family wage,” he said. “After medical school, internship and military obligations, I started in business at age 31. I had to work hard and fast. I bought into a small group practice and was immediately paying three associates, office space, overhead, along with the usual family expenses.”

He had to learn about business as he went along.

“I would meet with my partners and discuss whether we wanted to buy a new EKG machine or hire another nurse,” Deger said. “There were all these business expenses: employees, benefits, malpractice insurance, health insurance. You have to pay them first before you get anything.”

Deger and his associates built the Chestnut Building in 1992 and then moved to Cordata where they formed what would become the Madrona Medical Group.

“Suddenly, we went from four to sixty doctors,” he said. “You have to have a vision of where you want to go. Dr. Arnold and I were graduates of the Mayo Clinic and wanted to provide that kind of service. We respected each other, worked for consensus and tried to help new doctors.”

He refers to it as a business sharing approach.

“We had to figure out how to deal with different specialties and work ethics,” Deger said. “There were certain basic costs we shared equally. After that, those who worked harder made more. We had to impose caps and basements. You can’t overuse your resources. On the other hand, no one can just take 90 days off and not pay their fair share.”

They recognized how new technology could offset its costs by providing an income stream. Any extra income was welcome.

“As we got bigger, the advantages of stability were offset by the amount of time we had to spend in committee meetings,” Deger said. “Technology, quality control, medical records committees – we were spending a lot of time on management. It took a month to get an idea through because of bureaucratic inertia. Our incomes were stable, but no better than in smaller practices. Cross consultation was easy.”

Eventually, they had to hire an administrator.

“I think it takes time away from being a doctor,” Deger said. “You have to worry about other things too much. It takes time from both your practice and your family. Modern physicians are much more aware of personal and family time.”

The pressures can be deadly.

“There was lots of divorce and even drug abuse,” Deger said. “It’s good that young physicians are setting limits. It used to be a calling, like the ministry. You had to be a doctor all the time. Now, there is change.”

Deger considered how to keep attracting the best and brightest to the field.

“It’s such a great profession,” he said. “You share such intimate moments like birth and death. But society’s paradigm has shifted. Doctors still make good money, but the loss of professional status may hurt. Now, we can’t make decisions like professionals; we have to ask an insurance actuary. The decisions are in the hands of accountants. This is demoralizing to physicians.”

One indication of this change is that doctors are no longer referred to as physicians, but providers.

“When you want to provide a service, do you make the phone call to the insurance company or do you provide what’s needed and run the risk of having a claim denied?” Deger asked. “Just making those decisions is very tiring.”

It finally got to be too much for Deger.

“I was tired of 70 hour weeks and not getting paid for my services,” he said. “I was expected to do free work, but couldn’t afford to. I gave up a great practice. It’s sad. I miss the patients and they miss me. Now, at least I can eat and shower on a predictable basis.”

In order for the system to work, according to Deger, it has to attract good people and allow them to be professionals.

“We used to make house calls and take time to really listen to patients,” he said. “But if you do that now, you’ll fall way behind. During the 20th century, the average life span went from 54 to nearly 80. It takes more care to get there, more income to survive that long.”

Deger hopes that a system can be developed that preserves the intimate relationship between patient and doctor.

“You, as a patient, should demand that relationship and demand that the system pay for it,” Deger said. “You shouldn’t have to change doctors because you change insurers. A preferred provider doesn’t necessarily mean they’re good, just that they will accept a certain type of insurance.”

John Holroyd is a primary care/internal medicine physician who is also finance chair of the Madrona Medical Group. He and his wife, also a physician, moved here four years ago to get away from the high cost of living in Seattle. At least half the physicians at Madrona have connections to the University of Washington, where Holroyd did his residency. Those connections helped smooth the transition.

“There are still no business courses in medical school,” Holroyd said. “Only some courses on policy and government. There are only so many hours in a day and so many things competing for your attention. Would it be nice to have some business courses? Yes, but at the cost of what other coursework? It’s a tough call.”

He agrees that many physicians graduate with an impressive debt load.

“We’re paid during residency, but not enough to make any headway on the debt,” Holroyd said. “Adding my wife’s debt to mine, the payment comes to more than our mortgage. It’s not necessary to make a huge capital outlay to join a clinic, but when you become a partner, you have to pony up.”

The medical school debt, according to Holroyd, doesn’t affect his performance as a physician. It does, however, affect life outside work.

“This kind of debt is drawing physicians away from general practice and into high paying specialties,” he said. “Paperwork burdens are also contributing to that drain.”

There are 60 physicians at Madrona, eight of whom run the business.

“We answer to the shareholders, who are the physicians,” Holroyd said. “I’m slowly learning the business by interacting with the board and by doing. I’m learning cash flow and balance sheets. Our business model is a bit different. Associates in Family Medicine is probably more typical. They don’t have this huge administrative infrastructure. Still, most general practitioners in smaller clinics have to be business people.”

When Holroyd was appointed finance chair, he had to cut back on his clinical practice.

“No doubt, it impacts clinical time,” he said. “I made the decision to do that for the good of the organization. Only a few of us are involved in administration. Most are free from those responsibilities. There are days when I feel like those responsibilities pull me away from clinical work, but physicians need to be involved with the business or it won’t reflect our values. There needs to be that tension and I accept that.”

Changing mandates from Medicaid and Medicare are the biggest business challenges.

“The government is paying for other health care benefits at the expense of physician payments,” Holroyd said. “It’s very frustrating having someone other than physicians making health care decisions, but there is no doubt that costs have to be controlled. Insurance companies are just trying to do that and some do it better than others.”

He believes that most people are too shrouded from the expense of health care.

“People want it all,” Holroyd said. “Employers are responding by shifting more of the burden onto employees.”

Erick Laine gave up his clinical practice entirely to become the full time administrator at Madrona.

“I never imagined not being in clinical practice,” he said. “I sort of backed into this, drawn into the vacuum when the former CEO left. At that point, I had to make a career decision and I’ve never regretted it. Now I just have one patient: Madrona Medical Group. It’s a living, breathing entity and it deserves the best diagnosis and care.”

Like Deger and Holroyd, he brought no business training to the table.

“Medical training is as much as anyone can handle,” Laine said. “Physicians interested in applying their skills, however, must be attuned to modern health care and the business aspects thereof. You have to figure out the interface and understand business principles. It challenges you to do it right or fail. It’s a steep learning curve.”

Laine believes that good business principles never conflict with good medicine.

“Both demand excellence,” he said. “I miss clinical practice sometimes, but that’s one of the hard decisions you have to make in business. It’s our love of medicine that makes us good business people.”

He’s learned some valuable lessons in the process.

“I’m resigned to the fact that success is a series of false summits,” Laine said. “The ongoing pressures aren’t going away. Change is essential. My notion of what it is to be a physician is constantly challenged.”

One of the things physicians look for is a safe harbor wherein they can practice medicine.

“Paradoxically, in order to enjoy safe harbor, we can’t grant ourselves safe harbor,” Laine said. “During the last four decades, physicians have only needed to advocate for patients. Now, we’re being asked to advocate for a system that is finite. That challenges the idealism of medicine, but doesn’t threaten it.”

Quality of care, Laine believes, cannot be defined exclusively by physicians.

“It’s the classic business model,” he said. “In order to be successful, physicians must produce value as perceived by the patients, our colleagues and the community. Having produced that value, we must capture it. Good physicians can be doing all the right things, but if they don’t capture value, they will fail.”

A certain amount of tension between physician and business person seems necessary.

“The physician as administrator is part of the future,” Laine said. “The attributes for leadership are the same as for any profession. Can you rise to the challenge and prove your competence? You have to earn that by performing well.”

The overriding lesson is the sheer complexity of the health care system.

“Nobody has their fingers on all the pieces,” Laine said. “I have to bridge the gap between clinical and administrative practice. Solutions will require lots of people having the caliber of conversations that haven’t happened yet.”

Since the inception of Medicare and Medicaid, there has been a sort of safety net. The available funding, according to Laine, has never been sufficient to pay for the promised service.

“Medicare and Medicaid patients get the same quality of care, but the funding isn’t even close,” he said. “What makes it possible is a subsidy on the part of the private sector to the public. We can’t negotiate with Medicare/Medicaid, but we don’t have any resources left. That leaves us with two unpalatable choices: cut back on Medicare/Medicaid exposure or go out of business. Either way, we lose.”

Because Madrona is out in front of the health care system, they’re perceived as the bad guys.

“We all need a more substantial understanding of the health care system,” Laine said. “We’ve been providing services in good faith, trusting in the system. If that doesn’t really exist, then we have to get operationally efficient. We can no longer wait for Godot. We have to take it on ourselves to produce the necessary margins that make care possible.”

Madrona’s resources aren’t sufficient to solve the underlying sociological problems.

“We’re trying desperately to stay in the game,” Laine said. “The ultimate solutions still have to come at the grassroots level. It requires commitment and resolve on the part of the community.”

Laine is cautious about free market solutions.

“The free market is amazingly efficient at deriving value from competing elements,” he said. “Health care, however, is one complex system in which free market principles don’t always apply. The regulatory approach also fails to derive value from the complex system. We need an Adam Smith style revolution in paradigmatic thinking. Will it come before the whole thing collapses?”

Concerns like that are why doctors increasingly have to understand the business of health care. It’s not entirely comfortable for most patients to accept that their physician may have a profit and loss statement to worry about along with their health. Unless, as Laine said, there is the proverbial paradigm shift, we’d better learn to live with it.