by Perry R. Hanson, MHA

In recent years, it has become evident that a team consisting of a lead physician and an administrator (such as a CEO) is the most effective leadership model for ambulatory health care delivery organizations.

This article will examine why the lead physician/administrator team model is so successful. It will also propose that since a hospital’s board of trustees, in its role of organizational governance, has responsibilities that are similar to a lead physician’s, the lead physician role can be useful as a model for the board’s role and responsibilities.

Five characteristics of an effective leader

A review of literature suggests that leadership is one of the critical components of organizational sustainability within the medical practice setting. Two primary components are effective bylaw structure and skills (job descriptions and training). These are tied together by five key characteristics required for organizational leadership, which include

1. Competency. An effective leader is someone who has demonstrated clinical and management skills and success; is able to serve as a mentor to colleagues; and is knowledgeable about the business and management of health care.
2. Trustworthiness. An effective leader is someone who has earned the trust of his or her colleagues, and has a history of consistently treating colleagues and staff fairly and equitably.
3. Courageousness. Effective leaders can make tough decisions and confront and discipline colleagues on behalf of the organization.
4. Imagination. Effective leaders are willing and able to look outside the box. They are entrepreneurial in spirit and innovative in their approach to strategic opportunities and threats.
5. Commitment. When entrusted to act on the group’s behalf, the effective leader is willing and able to consistently deliver the expected outcome.

Governance is Important

In “Welcome to the Board: A Primer for New Hospital Trustees” (Health Care Advisor, November 2005), Wipfli’s David Hoffman, Ph.D., explains why good organizational governance is valuable to a hospital – namely, because (1) your hospital is a community asset that needs to be protected, (2) your hospital is an essential cog in the local economy, (3) your hospital must be able to meet local demand, and (4) your hospital operates in a regulatory and legal arena.

The article continued to outline 10 key governance responsibilities:

• Define and enforce the organization’s mission, vision, and values;
• Choose, hire, and evaluate the CEO;
• Create and implement high-level policies;
• Provide financial insight;
• Ensure the quality of care;
• Develop and oversee the strategic planning process;
• Understand and ensure compliance with applicable laws;
• Serve as a public liaison;
• Evaluate the board’s performance, as well as your own; and
• Establish and support a program of active philanthropy.

Hoffman concluded the article by outlining the most beneficial roles for trustees: 

• Be aware of the physician business climate (because it affects the overseen institution) and the risks of ignoring that climate by requesting in-depth analyses from management;
• Understand the potential for new partnerships with physicians;
• Require management to provide a profile of what new physician partnerships must do for the organization – for example, improve quality, customer service, market share, operating performance, balance sheet performance, credit rating, and mission;
• Expect clear and definitive objectives of any partnership plan, such as what can and should be expected of resource investment in a new partnership model; and
• Accept the responsibility of doing nothing—i.e., understand that if responsibilities are ignored, leadership, including trustees, are responsible.

The Challenge

Those with experience as administrators of medical groups may have observed varying degrees of sustainable leadership design and performance. Performance is typically based on two factors: (1) the group’s culture (how things are done), and (2) the formal and informal decision-making process (who’s opinion must be heard before a group decision can be made). Lasting policy and process decisions are largely the product of these two factors.

The path of getting the final authorization for implementation, and the extent to which all physicians comply with those decisions, must also be understood. Poor performance in regard to policy/process development or implementation requires an analysis of design (outcome/result) versus process (tactics/pathways).

In almost every case, failed performance expectations result from the poor design of, or the breakdown of, the governance of the group, as well as the confusion that results (regarding who management is and what it should be accomplishing). At the heart of this confusion is usually a poor distinction of governance versus management and a definition of who will provide which function. Like most cases of failing human relationships, roughly 80 percent of the problem is poor design, not bad people. We believe a successfully functioning lead physician/administrator team is the most optimal and sustainable design for the organizational effectiveness of medical groups.

Analyzing the Problem

Physicians and administrators live in different worlds, but they are required to collaborate and coordinate discrete efforts to manage the clinical business together. Typical assigned roles are outlined in the table below.

Motivational Goals for Hospitals and Physicians

On the surface, these roles do not appear incongruent or in conflict. However, problems can arise when one does not understand the different approaches of physicians and administrators. The table below describes these different approaches.

Differences Between Physicians and Administrators

When one contrasts the different approaches of physicians and administrators, it becomes easier to understand the role each must play in governance and management, respectively. However, in a smaller group (one of 10 or less physicians), how is governance operationally different from management? Simply stated, governance consists of policy and market positioning, while management consists of operational practices and profitability. The distinguishing characteristics of each are outlined in the table below.

The Distinguishing Characteristics of Governance vs. Management

Although closely intertwined in practice, confusion regarding the distinction between governance and management is usually the root cause of less-than-optimal management performance. Why? Group practices are unique in that the primary revenue producers are also typically the owners. Thus, when a decision of practice (process) vs. policy (outcome) is necessary, confusion often occurs regarding who makes which decision.

The essential problem is that when an opinion is stated without clarification of whether it comes from the physician as shareholder or the physician as practitioner, the listener becomes confused about 1) which role (governance or management) the physician has assumed, and 2) and whether to solve the problem or just do as instructed.

A classic example is when a physician’s personal nurse defines an office flow problem to the physician. One physician response is “I understand the problem, and X person solves those issues; take it to X.” Another response could be, “I understand the problem, and here is my opinion on how to fix it.”

With the first response, the physician is in the governance role. With the second response, the physician moves out of the governance role and enters the management role – and in doing so, likely compromises the actual manager’s effectiveness, especially if he or she does not agree with the physician’s opinion about how to fix the problem.

In fact, since physicians typically receive the level of management they deserve, the compromised manager will make certain not to be in conflict with that physician/owner at that time and in the future. This frequently delays a decision, or worse, leads to no decision being made at all – but no decision is still a decision (albeit it an undesirable one).

A New Model

As stated earlier, in a private practice, physicians are typically both the producers and the owners/shareholders. But even in a hospital, the most sustainable model approximates the private practice’s accountabilities for quality, revenue, and service.

Whether by design or default, governance is the responsibility of the owners or organizational sponsors through annual strategic and policy planning, as well as periodic (no less than quarterly) tactical and process discussions with colleagues, lay management, and possibly other constituents.

Effective governance requires properly understanding and establishing the group’s mission (who are we?), vision (where are we going or what do we wish to be known for?), and values (how do we treat each other and other constituents on the journey to the vision?)

To further delineate governance versus management activities, it is useful to review the typical management functions to be carried out in a group practice setting:

• Human resources: Hire and fire staff; conduct orientation and training; establish a team; motivate staff; and evaluate performance.
• Finance: Oversee capital and operating budgets; manage balance sheets and profit and loss statements; manage cash flow; and grow and/or manage working capital.
• Operating systems: Acquire and process data; handle back-office functions (such as insurance and collections); maintain medical records; and support staff.
• Time priorities: Conduct negotiations; manage conflict resolution; resolve disputes; and manage crises.
• Communications: Ensure message creation and delivery; liaison with core constituencies; and develop public brand and/or image; and
• Leadership: Develop and articulate the organization’s mission, vision, values, goals, and objectives; obtain stakeholder consensus; and set policies to encourage all employees to succeed; and develop continuous quality improvement efforts.

The last two functions — communications and leadership — are the areas in which confusion and conflict often occur between physicians and administrators. This need not be the case. Deciding in advance who serves the lead versus resource role for the decision-making process is the key. The table below illustrates this concept in its simplest form:

Since either the physician or the administrator can assume the lead for policy development (governance) or problem solving (management), the following process services both functions

• Determine the functional area (finance, personnel, operations, external relations, other);
• Describe the problem;
• Determine the cause of the problem (who has the problem, to what extent, and why);
• Develop a concise statement of the problem (one to two sentences);
• List possible solutions (including doing nothing);
• Determine the best solution;
• Justify the solution chosen;
• State the method of implementation, including the person(s) accountable, the process, the timeline, and the practicing physician’s role;
• State the expected outcome; 
• Identify the monitoring process that will be used to ensure that the original problem was solved and remains solved, including the person(s) accountable, the process, and the practicing physician’s role; and
• If the original problem is not solved, begin the process again, starting with “Describe the problem.”

If the above process does not succeed, in almost every case the reason will be that one or more steps were not completed.

Keep in mind that those issues affecting a practitioner’s preferred practice style or compensation will likely need the lead physician’s active involvement in both the governance and management areas. Issues affecting operational flow (people, patients, and paper) will generally be addressed by the manager. However, since any operational process change could affect a practicing physician’s preferred practice style (and possibly compensation), a clear delineation of authority limits is required. This is best done in a collaborative mode between the lead physician and the administrator.

Additionally, the group practitioners need to determine those areas in which they will allow the lead physician/administrator team to decide policy or operating practices for them. Without this delegation, management will end up with at least as many bosses as there are practitioners. At minimum, the resulting confusion will increase overhead (variation costs more) because more than “one best way” for operational flow will be required. At worst, the dysfunction could result in frustration and ineffective management.

Summary

A hospital’s board of trustees functions similarly to a lead physician in a medical group; that is, it provides organizational governance. The lead physician component of our model, then, can be applied to the board of trustees as well. Then, board-led governance and administrative-led management becomes the most effective leadership team. There are challenges, of course: Because governance is a process, the administrator must as the lead physician or board questions. Moreover, effective implementation is required before results can be realized; as a result, administrators will be seen less than optimal if the governance process is not done well or communicated properly by the lead physician or board. But through a clear governance design, management’s performance be accurately assessed and rewarded or improved. This is essential, because an organization gets the level of management performance it deserves—but does it get the performance that it wants?

Perry Hanson, MHA, is a partner in Wipfli’s health care practice. He is an accomplished educator and trainer specializing in physician and hospital relations, hospital integration, and board and management education. Hanson will present a training session, “What Trustees Need to Know in the Age of Hospital Integration,” at Wipfli’s annual Rural and Community Hospital Management Conference in Las Vegas in July. For more information about this event, please visit Wipfli.com/Wipfli/Industries/Health_Care.



Adapted from Physician Executive, September/October 1987.