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					                                                          Physician Executive   1


                       The Important Role of Physician Executive

                                  Jonathan D. Richey

                   A.T. Still University School of Health Management

                      Kirksville College of Osteopathic Medicine
                                                                      Physician Executive           2


Medicine has been more buffeted by recent trends and events in the healthcare delivery and

financing system in the United States than any profession. Once the decision maker, both

clinically and administratively, physicians have seen their authority and influence slip over the

past decades. It should be no surprise physicians are taking an active interest in regaining some

of their lost control, especially to non-physicians. Physicians are entering the management ranks

both in increasing numbers and in advanced levels of responsibility and authority. This trend is a

positive turn for both the medical profession and for the healthcare system it serves. The

physician executive is a role in health care delivery, which I am interested, and believe the

knowledge received in Health Services in the U.S. will help me achieve this goal.
                                                                       Physician Executive          3

The Important Role of Physician Executive

       No profession has been more buffeted by recent trends and events in the healthcare

delivery and financing system in the United States than medicine. Once the decision maker, both

clinically and administratively, physicians have seen their authority and influence slip over the

past decades. It should be no surprise, then, that physicians are taking an active interest in

regaining some of the control they have lost, especially to non-physicians. Physicians are

entering the management ranks in increasing numbers and in increasingly advanced levels of

responsibility and authority. This trend is a positive turn for the better for both the medical

profession and for the healthcare system that it serves.

History of the Physician

       The current practice of medicine is vastly different than the one physicians dominated in

the early 19th century. The major product of medicine, as defined by physicians, has been the

patient-physician relationship; prior to 1970, this relationship was very personal and specific

with one physician for each patient. Physicians were like artisans – they were experts on

medicine and what treatments would work for individual patients. Prior to this century, the early

practice of medicine could be regarded more as a trade than a profession. It did not require the

rigorous course of study, clinical practice, residency training, board exams, and licensing. At the

close of the Civil War (1861-1865), “anyone who had the inclination to set himself up as a

physician could do so, the exigencies of the market alone determining who would prove

successful in the field and who would not” (Hamowy 1979 as cited in Shi & Singh, 2001).

       At the turn of the nineteenth century, becoming a physician was relatively simple: either

you came from a wealthy family or you encountered a doctor who was impressed by you. No

undergraduate degree was necessary! Medical education involved a few years as an apprentice
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with an established medical practitioner. After which, the graduate may decide to pursue further

studies abroad or simply begin a medical practice. A significant number of „doctors‟ at the time

were charlatans with no training whatsoever.

       Abraham Flexner was a professional educator who was hired by the Carnegie Foundation

for the Advancement of Education to evaluate the condition of medical education in America and

to make suggestions for the future. His report was published in 1910 and would stand as the

gold standard on medical education for decades. For his evaluation Flexner visited the medical

schools in both the U.S. and Canada. He was not known for mincing his words. Regarding a

few medical schools, he wrote:

       Entrance requirement: Less than a high school education. The school occupies a few

       neglected rooms on the second floor of a fifty-foot frame building. Its so-called

       equipment is dirty and disorderly beyond description. Its outfit in anatomy consists of a

       small box of bones and the dried-up fragments of a single cadaver. A few bottles of

       reagents constitute the chemical laboratory. A cold and rusty incubator, a single

       microscope, and a few unlabelled wet specimens, etc., form the so-called „equipment‟ for

       pathology and bacteriology (

In his report, Flexner concluded that there were too many medical schools, many were

substandard, and prerequisites for the study of medicine and the content of medical education

had to be defined. He suggested the minimum requirement for admissions to medical school

include a high school diploma and two years of a college or university level science curriculum.

He recommended medical school be four years long and include training in the basic sciences as

well as clinical experience. After more than fifty years of following Flexner‟s recommendations
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remarkably close, only recently have medical schools turned away from the Flexner Report,

probing, exploring, and creating new paths towards medical education.

       A major reason for establishing a medical school in the first place, according to Shi &

Singh, was to “enhance one‟s professional status and prestige, and partly to enhance one‟s

income. Medical schools were inexpensive endeavors and often profitable. Operation fees

where small and covered by student tuition. A main reason higher standards were not in place

before the Flexner report was the fear that such expectations would drive enrollment down and

lead to the bankruptcy of the school and hospital (2001, p.84). History has demonstrated that

doctors have reached a status of professionalism unequaled by any other field due in part to the

changes which occurred after the Flexner report. And as many would complain, the income of

physicians is often triple that of the middle class.

Health Care Management

       The present state of affairs is difficult to understand for many physicians and patients

who view the last 50 years as a golden era in health care, and who view the rise of HMOs as an

abomination. But when viewed from the systems level, it becomes apparent that for much of the

20th century, our health care system actually has functioned in a completely unnatural and

unsustainable way. HMOs turn out not to be an abomination to the natural laws governing the

sacred practice of medicine, but a predictable correction to a way of doing business that was

ultimately doomed from the beginning. To see why this is so, we need to briefly consider how

the “traditional” American health care management system came to be as it is.

       It is interesting to note that such “modern” ideas as capitation (the providing of medical

care for a fixed annual fee) and the corporate practice of medicine (medical practices controlled

by companies, not by doctors), are actually much older than we might think. American
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companies pioneered the contracting of medical services even before the beginning of the 20th

century. This innovation came from industries such as railroad and lumber, whose operations

often took place in isolated areas, and for whose employees medical care would otherwise be

unavailable. Some companies went so far as to build and operate their own hospitals, and staffed

those hospitals with physicians who were paid out of the company payroll. By the early 1900s,

contract medicine was commonplace in the United States, and was conducted by many kinds of

organizations – not only by companies (both large and small), but also by multitudes of fraternal

orders and lodges, which began offering subscription medical services to their members. Soon

the federal and local governments were also contracting for physician services on behalf of their

employees, prisoners, and wards of the state.

       It should not be surprising to learn that organized medicine (physician advocates) looked

upon these developments with alarm. The mission of organized medicine was to foster an

environment under which their physician members could practice scientifically and ethically,

while maintaining favorable fees. Contract health care placed too much control in the hands of

third party payers, thus threatening all three goals of profit, quality, and ethical standards.

       In response, in the early 1900s organized medicine went on the offensive, claiming both

the scientific and the moral high ground. The practice of medicine, it was asserted, was based in

the sciences. Therefore, the allegedly poor working conditions suffered by contract practitioners

precluded their upholding the high scientific standards to which physicians aspired. And thus,

contract medicine was bad medicine.

       It was also affirmed that contract medicine violated the sacred trust relationship between

physicians and their patients. Such a relationship required patients and physicians to “contract”

directly with one another, without intermediaries. Any other party (such as a contractor or the
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state) inserting itself into this relationship would end up dividing the loyalties of the physician,

and thus violating the nature of this sacred trust. Contract medicine (and state-controlled

medicine) was therefore unethical.

       Medical organizations strongly lobbied both the general public and state legislators with

the notion that it was in society‟s best interest to prevent middlemen from inserting themselves

between physicians and their patients. Physicians who practiced contract medicine were held out

as being something less than true physicians. Such unfortunates began to find it difficult to join

their local medical societies, which at the time made it difficult for them to purchase malpractice

insurance and to gain hospital privileges. In addition, many state legislatures were persuaded to

pass laws actually making most contract medicine illegal.

       By the 1920s the medical establishment had largely vanquished contract medicine. In

essence, the medical profession had successfully created a classic “guild” – physicians had

established a monopoly over an economic realm, allowing competition to occur only within that

protected sphere. Outsiders had little or nothing to say about how the practice of medicine was


Financing Health Care

       An ideal health care system, based on a free market, is one in which patients pay directly

for their medical care (Shi & Singh, p.15). In such a system, patients freely choose their own

physicians, and together with their physicians make all medical decisions, mindful that any costs

incurred thereby are theirs to pay. Cost controls are therefore automatic. During the 1920s and

for the next few decades, this ideal system existed in the United States. Inasmuch as doctors at

the time had very little to offer in terms of expensive (or effective) therapies, and since patients‟
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expectations were (appropriately) low, this system worked extremely well from an economic

point of view.

       This economic equilibrium began to falter in the 1930s, and the disequilibrium rapidly

accelerated in the years following World War II. The first kink in the armor of direct contracting

between physicians and their patients occurred during the Great Depression, when hospitals

began to suffer from patients‟ inability to pay their bills. Over the initial objections of

physicians, financially stressed hospitals prevailed on state legislatures to legalize the insurance

schemes that became known Blue Cross. In order to improve the moral indignation of

physicians, however, Blue Shield and Blue Cross were created as non-profit, provider-oriented

insurance organizations.

       “Provider-oriented” meant two things. First, Blue Cross (and later, Blue Shield) did not

try to tell physicians how to practice medicine. Physicians were free to practice as they saw fit,

and Blue Cross and Blue Shield would simply pay the bills on a fee-for-service basis. Second,

the boards of trustees of local Blue Cross and Blue Shield organizations were loaded with

prominent local physicians and hospital administrators. Not only did such a system preserve the

direct physician-patient relationship, it also paid the bills more reliably than did patients

themselves. The system worked so well that soon physicians became willing to accept the

formation of private health insurance companies, as long as those companies followed the same

general guidelines set by Blue Cross and Blue Shield.

       Health insurance proved to be so popular during the wage and price controls of World

War II, that companies began offering it to their employees in lieu of higher wages. After the

war, American labor unions began to demand that employers provide health insurance as a

benefit of employment. The government liked this idea, too, and in order to encourage it, tax
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laws were changed to make the provision of this benefit extremely attractive to employers


       It is important to note this new tax policy created a fundamental change in how health

care was paid for. In effect, it shifted a huge chunk of the fiscal burden for health insurance from

consumers and employers to the government, where it remains to this day. Within a few years,

the majority of American workers had employer-provided health care insurance, heavily

subsidized by the federal government.

       In 1965, the federal government became directly involved in paying for American health

care on a large scale with the institution of Medicare, and later Medicaid. Since that moment, the

proportion of health care spending directly attributable to the government has steadily grown –

from 24% of all dollars spent on health care in the 1960s, to 40% by 1995. Today, when you

include tax subsidies for health insurance, a large portion of America‟s health care spending is

accounted for by the government, and paid for by taxpayers (Shi & Singh, 2001, Table 6-5).

Since politicians can tax the people only so much, a lot of this spending has been piling up in the

form of the national debt, awaiting our children and grandchildren.

       But for physicians and their patients in the second half of the 20th century, the resultant

system seemed nearly perfect. While patients retained complete freedom of choice regarding

which doctors and hospitals they used, and while the physician-patient relationship remained

largely free of outside influence, somebody else was paying the bills. There arose an almost

complete dissociation between providing (and consuming) health care, and paying for it.

       This economic arrangement did at least two things that would ultimately spell its doom:
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   (1) First, it allowed the American health care myth to flourish – the notion that the best

       possible care should be provided to everybody, and that where health care is concerned,

       there are no limits. It created expectations that ultimately could not be met.

   (2) Second, this system fostered the development of the medical-industrial complex. Since

       any medical advance that seemed useful would be paid for, powerful corporations arose

       dedicated to meeting the bottomless demand for medical advances. The pharmaceutical

       companies, hospital suppliers, and medical device companies began turning out a steady

       stream of improved and expensive technology.

Ironically (given that this whole system had evolved largely due to physicians‟ attempts to shield

themselves from corporate influence), these corporations used their considerable marketing clout

to influence the decisions, the practice patterns, and even the demographic distribution (such as

patterns of specialization) of the medical profession.

       The bottomless expectations and moral hazard of patients and physicians, coupled with

the never-ending meeting (and flaming) of those expectations by industry, created a rapidly

spinning positive feedback loop. The more healthcare patients got, the more they wanted. The

more they wanted, the more the medical-industrial complex was happy to provide. And the less

direct the payment method, the greater overuse of the system. It was inevitable that those paying

the ever-mounting health care costs (i.e., employers and the government) would eventually reach

the breaking point. The system that prevailed during this time came to be regarded as the norm

by (if not the birthright of) American physicians and their patients. From a broader perspective,

that system is clearly unsustainable. At some point the mounting costs of “no limit” health care

had to generate its own backlash. The system had to implode.

Fixing a Broken System
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       The current health care system is broken. 44 million Americans are uninsured, medical

costs escalating by 8-10% each year, and 15% of the Gross Domestic Product is being spent on

Health Care (Collins, Davis, & Lambrew, 2004). Much needs to be done to help the health care

system today. During the past 30 years we have seen medicine change from a cottage industry

to a medical-industrial complex. Physicians were once the sole proprietary craftsman. They

produced healthcare serviced for individuals and managed relatively simple businesses. As

medicine began to resemble big business, the role of the clinician and business manager split.

       At first the manager was a non-clinician because of the lack of business training in

medical school. More recently, physicians began to see the importance of clinical experience in

the decisions being made. Thus, the physician executive came into being. As medical

technology advances and additional health care ideas advance, the complexity of health care

management will increase. The following includes a few of the many issues which physician

executives may be summoned to face:

      The unresolved issue of the ideal physician/population ratio

      Positions cut in the cities, insufficient staff in rural areas

      Fewer applicants and fewer positions in medical schools

      Getting the government and the public interested in preventative medicine

      Hospital closures, HMOs, PPOs and their effects on health and medical education

      Complex ethical issues

      Diffusion, safety evaluation, effectiveness and cost/benefit ratio of Medical Technology

      Maintenance of Medicare, Medicaid

      Doctors‟ salaries

      Alternative medicine: hoax vs. coverage under Health insurance plans/Medicare/etc.
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A majority of these subjects critically need the clinically experienced to play a significant role in

assisting in decision making.

       In addition, the basic set of responsibilities of management has not changed much but the

environment in which the duties are discharged would barely be recognized by a medical director

of the past. Business is no longer conducted at a fairly leisurely pace in a cost-based

reimbursement world in which costs are magically transformed into revenues through third party

payers (Curry & LeTourneau, 1998). Nor is the same level of integrity held in the business

world today. In managed care operations, revenue centers have become cost centers, and

providers and provider organizations have assumed a fuller measure of the business financial

risk. The new breed of physician executive must be able to meld business and medicine into a

seamless package. To do so, they will have to be extraordinary physicians and extraordinary

managers – the former to maintain credibility with an increasingly threatened medical staff, the

latter to represent faithfully the interests of physicians in management circles. While a primary

role of physician executives will continue to keep one foot with the physicians and the other with

the organization, they will always have to maintain an allegiance to medicine that those with

only managerial background can never acquire. This will work to the advantage of the health

care delivery system because the purpose of the system is to continue the delivery of health care

services in an effective, cost-savvy, and “caring” manner. It is the system‟s special purpose that

makes the presence of physicians in management roles a desirable outcome. They need not be in

a dominant role, but they need to be in a significant one.

       The difficulty for physicians interested in management careers has never been associated

with learning new skills and knowledge. They are natural learners and committed students. The

difficulty rather, is that traditional medical training and clinical experience does not include
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management education. To succeed as managers, physicians must rigorously asses their styles

and make deep, difficult changes. They must be prepared to transform themselves from

clinicians to managers by acquiring specific business skills and departing from the attitudes they

brought from their clinical backgrounds. It is not a transformation to be taken lightly.

Management is not a career change intended to salve the frustrated clinician. It is a positive step

that leads a physician to accept more global responsibilities for the direction of healthcare


       It is in this area which I want to be involved and believe that incorporating what I have

learned in Health Services in the U.S. will help me in this endeavor.
                                                                  Physician Executive       14


Collins, S.R., Davis, K., Lambrew, J.M. (2004). Healthcare reform returns to the national

       agenda: The 2004 presidential candidates. The Commonwealth Fund, November 2003.

Curry, W. & LeTourneau, B. (1998). In Search of Physician Leadership. Chicago, IL: Health

       Administration Press., Retrieved October 23 2004. From

Shi, L. & Singh, D. (2004). Delivering Healthcare in America: A Systems Approach. Sudbury,

       MA: Jones and Bartlett Publishers, 2004., Retrieved October 21 2004. From