It became evident in late 1998 that our institution, which had been financially stable for more than 100 years, would experience a financial deficit for the second consecutive year. Our health system, composed of an HMO, a 400-bed hospital and a clinic with 19 regional locations, faced financial difficulties similar to those of other managed care organizations: reduced reimbursement from Medicare, increased reliance on capitated payments that only partially covered costs and the initial financial drain of adding new clinic locations.

The chairman of our Department of Family Medicine, who is a member of the clinic's board, knew of the financial difficulties and was made aware that the board planned to correct the deficit with a 5 percent pay cut for physicians and a 10 percent increase in productivity requirements. Knowing that the board also promised to return the pay cut if the institution's goals were met, our chairman decided not to wait for the board to officially announce its plan. Instead he went to work, enlisting the help of the 95 family physicians and other specialists staffing our institution's main clinic and its regional locations.

Beginning the process

Our chairman explained the financial problems to the clinic directors at their quarterly meeting in November 1998. He spoke in confidence about the impending pay cut and the board's decision to increase productivity requirements to correct the deficit. He also told the directors that the board would return the pay cut if the institution's goals were met. Our chairman then asked each clinic director to work with his or her clinic's administrator to develop an action plan for addressing the deficit and to be ready to present the plan at the next quarterly meeting in January 1999.

The break from the traditional top-down management style created an esprit de corps that motivated and energized the whole group. Rather than relying on the institution for the answers, the clinic directors left the meeting ready to find the answers themselves in the strengths and weaknesses of their individual clinics.

During the next few weeks, the chairman and vice chairman were available to meet with clinic directors who needed clarification of the process or wanted initial feedback about their plans, but otherwise each clinic was on its own. In December, the clinic board officially announced the pay cut.

Unveiling the plans

In January the clinic directors met to present their action plans. Before they began, our chairman reminded them that numbers do not tell the whole story and emphasized that they should be receptive to feedback and not lose sight of the crux of our institution's mission to provide compassionate care to our patients. Each director's report was followed by lively discussion. Then the group members provided written comments and rated each clinic's plan on a seven-point Likert scale.

Our chairman added humor to the process by labeling the points on the scale with funny sayings such as “Close the clinic,” and “[Would it] Cover the free turkeys?” (At our institution each staff person receives a free turkey at Thanksgiving.) This helped keep the atmosphere light — a difficult task given the recent pay cuts.

The comments and ratings were immediately entered into a computer so that by the end of the meeting, each clinic director received a summary evaluation for his or her clinic's action plan. The clinic directors also provided feedback to the chairman, rating the meeting a 6.0 on a seven-point scale (with seven being the highest rating).

Common themes

Although the clinics' action plans varied due to local market conditions, some common themes emerged. The first was to improve patient access. Suggestions included maximizing patient scheduling by double booking some time slots, no longer allowing physicians to black out their schedules during particular time periods, and increasing clinic hours. Another theme was to improve billing and reimbursement procedures. The directors agreed that the best approach to reducing the number of denied claims and delayed payments was to encourage more thorough documentation by physicians. Other themes included minimizing overhead costs by controlling overtime, prescribing less expensive medications when appropriate and decreasing the number of out-of-plan referrals.

The clinic directors left the January meeting ready to implement their plans. Some overhauled their plans first, incorporating the ideas presented at the meeting and the feedback they had received.

The outcome

Each plan's success relied heavily on staff participation. For example, the clinic directors empowered support staff to make changes to the scheduling process so that patients would have more access to clinic physicians. The physicians themselves also encouraged this, knowing that improving productivity could help them “earn” back their 5 percent pay cut. To keep the clinics motivated (and encourage a little friendly competition), our administrative chief periodically circulated a “record-buster” report recognizing the clinics that had achieved new highs in daily, weekly and monthly patient volumes. Physicians and staff also worked to improve their documentation and decrease overhead in ways that didn't jeopardize patient care.

Our short-term financial results have been positive. Our physicians have been able to dramatically increase patient volume at the regional clinics by up to 15 percent. Revenue has also increased. And, four months after cutting salaries, the clinic's board reversed its decision and has subsequently reimbursed the physicians for their efforts. Our clinics have made a small but significant contribution to bettering our institution's financial situation, but we still have work to do. Although we've reached our initial goals, we will continue to work at this stepped-up level for the foreseeable future.

What we learned

A challenging task for any administrator or physician leader has been to motivate salaried physicians to take an active role in resolving financial problems. Until recently, the culture of most group practices has been to let individual physicians practice medicine and let the administrators deal with the financial worries. Our chairman's innovative approach to our institution's financial crisis not only encouraged physicians to participate, it also helped foster positive morale during a period of severe financial stress.

In general, most of the clinic directors felt that the approach was empowering and created a team spirit and a sense of unity among us. Instead of the usual feelings of resentment and frustration that often accompany the top-down decision making process (and a pay cut!), our department emerged from this process with a strong sense of trust and our humor intact.