Successful Turnaround of a University-Owned, Community-Based, Multidisciplinary Practice Network

Setting

In 1998, the University of Utah purchased a 100-clinician multispecialty and primary care system with 9 outpatient practices remote from the university in the Salt Lake City metropolitan area, now known as the University of Utah Community Clinics. The university purchased the network with savings (“development accounts”) generated by faculty members in the school of medicine that, although university property, were generally perceived as faculty resources to use for research, sabbaticals, and other purposes. The purchase price of $37.4 million represented approximately 50% of the development account balances. Projected profit from the network in the first year of university ownership was expected to provide a return on investment to the development accounts. At the time of purchase, 34% of the Salt Lake County population were aged 19 years or younger, and 8% were aged 65 years or older. Seventy-five percent of the revenue of the purchased practices was derived from capitated health insurance payments. Profitability was projected based on expected growth in capitated payments.

Initial Management

The practice network was organized in the university as a business unit separate from the school of medicine and the University Hospital and Clinics, but was not incorporated separately from the university. It was governed by a board of directors, composed primarily of school of medicine department chairs and led by a central executive group. Central medical practice administration included 8 executive full-time equivalents (FTEs), and the medical practice network (not counting health plans or imaging) included about 87 FTE clinicians and 629 FTE staff. The network operated 3 major subunits: the medical practices themselves, a health plan, and a separate radiology practice. The practices were physician based for Medicare billing purposes. This report describes the medical practices and related ancillary services only.

Initial Results

The practice network generated immediate losses, peaking at more than $21 million on approximately $80 million in revenue in fiscal year 2000. Capitation decreased throughout the market. Lacking operating capital, the system drew on university reserves.

Organization of the network as a separate university business unit hindered effective collaboration with other university medical administrators and physicians to recognize and correct problems. Because the purchased group had provided largely capitated care, its billing, collection, and financial reporting capabilities were inadequate for fee-for-service practice. Physicians were paid salary without productivity incentives. Most inpatient and specialty referrals were sent to nonuniversity physicians and hospitals.

In 1999, a new university president and a new Vice President for Health Sciences/Dean of the School of Medicine, along with the board of regents and university trustees, faced a critical decision: whether to sell the network at a loss, writing off debt to the university and to faculty development accounts, or to restructure the network for profitability and to support the larger system by generating high-margin referrals. The former risked serious, lasting damage to the health system’s market position. The latter posed a high risk of failure.

Data Sources

Information reported here about financial performance of the system came from internal management reports. Information about interventions to improve performance was derived from management records and participants’ recollections.

Authors’ Perspective

We authors helped lead the changes described herein. Dr Magill has been chairman of the Department of Family and Preventive Medicine at the University of Utah School of Medicine since before purchase of the network. Because of the relative size of reserves, his department was the second largest contributor of funds for the purchase. He served on the network’s initial board of directors, before being appointed chairman of the reorganized board and then chief executive officer (CEO). Mr Lloyd joined the University of Utah in 2002. He had previously managed hospital-affiliated primary care practices and had spent 6 years consulting with hospitals to turn around failing primary care networks. Mr Palmer and Dr Terry implemented changes in the clinic operations and physician group, respectively.

Changes

Changes in the community clinics have occurred in 3 overlapping phases, outlined in Table 1⇓ and described below.

Lessons Learned

Lessons learned from this experience include the following:

1. “Yagottawanna.” Motivation to fix the problem was present at all levels: the university had to either accept a substantial reduction in its reserves or correct the system to generate margin in a fee-for-service market. Senior university leaders needed to be patient with the process of improvement and stand firm in their decisions despite substantial anger from faculty and criticism in the press. A primary care physician faculty member and a dedicated practice management executive believed in the potential for the system and its vital importance to the university, and were committed to succeeding. Senior leadership with expertise specific to the management of outpatient practices, as well as committed to and accountable for the success of the project is essential.

2. “You must reward productivity, but it’s not all about productivity.” A physician incentive system, set to reward physicians’ productivity at sustainable levels, is important. Equally important in the longer term is a commitment to redesigning the clinical practice operation to support physician success by providing robust clinical and financial information systems, adequate staff support, and efficient, patient-centered care. Examples of key elements of practice redesign include robust electronic medical records and financial information systems developed specifically for outpatient practices. In addition, the organization should provide adequate staff support and engineer practices for efficient, patient-centered care with features such as advanced access¹⁰ and lean design.¹¹

3. “This ain’t your grandfather’s hospital clinic.” Community-based practice requires internal operations and information different from those required by a hospital or its specialty clinics. A network is unlikely to succeed with separate functional departments typical in hospitals or with administrative divisions between staff clinicians. Interdisciplinary teamwork and integrated leadership and management are essential.

4. “You can’t cost cut your way to profitability. The game is won on the revenue side.” Hospitals typically impose overhead expenses higher than those carried by independent physician practices. Primary care requires adequate volume to generate profit above the large component of fixed costs.

5. “Don’t take away the profitable services and then blame the system for its losses.” Primary care practice generates more profit from procedural and ancillary services than from evaluation and management services. University-owned systems should allow primary care systems to retain revenues from procedural and ancillary services as part of an integrated system. While this approach may reduce the apparent “multiplier effect” of downstream revenue, it does so by retaining within the practice network services and accompanying revenues that are often located elsewhere.¹²

6. “Plan from the beginning for the practice network to become a ‘laboratory and classroom.’” As part of academic institutions, these practices are excellent resources for research and teaching, particularly when the practices incorporate full-featured electronic medical records. Universities have as part of their missions the development of new approaches to patient care. These practices can be useful sites for innovation in practice design and operation,¹³ for quality improvement, and for research to characterize illness in primary care, as well as for more traditional clinical trials. Also, with translational research increasingly recognized as essential,¹⁴ practice-based research networks such as this one are critical to the 2-way exchange of learning along the continuum between the laboratory bench and improved quality of patient care.¹⁵

As medical practice becomes increasingly based in ambulatory settings, these practice networks give universities teaching sites away from the increasingly rarified atmosphere of the academic health center. Also, university ownership may provide more reliable access to such sites as private practices under increasing financial pressures become less available.

Leadership by medical school faculty committed to excellence in primary care, such as faculty in a department of family medicine, can help make the business, clinical, and academic agendas of the practice network mutually reinforcing.

Limitations

This report describes only 1 health care system. Circumstances specific to its purchase, its mix of services, its operating strengths and weaknesses, and the market may make the described events less applicable to other settings. This report was written by individuals accountable for results and directly involved in developing and implementing the turnaround plans. Other observers might have identified different issues and described the changes differently. Because this intervention was complex and multidimensional and had no control group, it is not possible to determine the relative impact of individual changes on the outcome.

Future Directions

We continue to improve volume, revenue, quality, access, and patient satisfaction. This system improvement is tied to a rapid increase in research and teaching in the network and its full integration into all missions of the academic health center.