How to successfully dissolve a hospital-owned practice

Physician Executive, May-June, 2005 by Randy J. Gershwin

As the medical director of a 25-physician multi-specialty group belonging to a profitable Midwestern health system, my job is, of course, to lower the bottom line.

While most of our sites are located in southwestern Indiana, we also have clinics in rural Kentucky and Illinois. All of these sites are within a 100-mile radius.

The practice administrator and I were called in to a meeting in November 2002, by the hospital's president, vice president of finance, and vice president of operations and charged with the responsibility of reducing physician support to the group by the health system.

Prior to this meeting, the practice administrator and I had already considered closing one of our rural sites. Although our individual sites do not make money, the contribution to the hospital owned by the health system far outweighs the loss, with the exception of our more remote sites.

In those areas there is generally a small community hospital that gets the primary admissions. The system's main hospital, located more than 50 miles away, might or might not get the tertiary admissions, including open heart surgeries, angioplasties and stents. In light of this it seemed like we could easily reduce our practice support to the health system by eliminating at least one of these rural sites.

There were four sites from which to choose:

* Morganfield, Kent., which has an internist and family practioner

* Eldorado, Ill., with a family practitioner and a nurse practitioner (It is also the most distant site)

* Petersburg, Ind., which has two family practitioners and a nurse practitioner

* Princeton, Ind., with three internists and one family practitioner

It was obvious to us that we needed to start with the Eldorado site. This location was in a very small, rural town with little opportunity for growth. All of its primary admissions went to a local hospital. Only some of the tertiary admissions came to our facility, the others going to a competitor in Illinois.

By our calculations, we would have a net savings of $87,000 (certainly a substantial amount) by closing this site. The practice administrator and I subsequently formulated a plan for closing this facility. Insofar as the subject of closing rural sites had come up in previous meetings, we thought there would be little or no resistance offered by administration.

In setting up our proposal, it was imperative for us to maintain good relations with the local medical community in Eldorado in order to still get the much-needed referrals. We also realized that our competitor system in the region would try to use this closing to its political advantage. We grouped this in the area of external political considerations.

Next, we examined internal political considerations including "stakeholders" and their positions. On the expense reduction side we had support from the vice president of finance. We needed to reduce expenses as quickly as possible to lessen the impact of an unproductive practice on our medical group and to the system as a whole.

To make matters more interesting we had to contend with those who wanted to maintain the status quo, including the regional network services manager whose job it is to maintain good relationships with the outlying communities in order to get referrals to the main hospital and its specialists.

[ILLUSTRATION OMITTED]

Finally, there was also an uncommitted faction whose members were the president of the hospital and the vice president of operations. It was our job to try to convince the uncommitted group to accept our plan. In preparing for our negotiations, the practice administrator and I prepared a presentation incorporating the following elements:

* Location selection criteria

* Impact on the medical group's financial condition

* Impact on referral admissions from the area of the practice selected

* Strength of relationships in the area of the practice selected

* Actual financial data to justify our premise

Surprising twists

At the negotiation meeting the proposal was put on the table and discussed. It was at this point that we realized that we did not take into consideration the feelings that would be generated by the president, vice president of operations, and regional network services manager.

We were unaware that there was a changing political climate facing our competitor system. The competitor had a major disagreement with the local hospital in Eldorado, a situation that had the potential of generating more secondary admissions and referrals to us.

Although the vice president of finance was only interested in the bottom line, the president, and vice president of operations were more interested in maintaining good relations with the medical community, as well as the doctor at that site and the rest of the medical group who they feared would see the termination as an indication of weakness, or even worse, as a plan to dissolve the group.

We were not really as prepared as we thought and the meeting ended with us going back to retool the original plan.

In preparation for our next meeting some weeks later, we met with the regional network services manger and the director of human resources--the latter being consulted since the physician and staff that would be terminated were all employees.