I realize the productivity standards we’ve set out in the new system are a bit of a stretch, but I didn’t anticipate the amount of physician dissatisfaction. In fact, I’d hoped that the system we developed, while not perfect, would be a good starting point, and would serve as a building block for a more cohesive organization. Now, I’m not so sure.

Brit Nicholson, M.D, Director of Primary Care Development, had just returned from a meeting with several physicians and administrators regarding the new compensation system that the Massachusetts General Physicians Organization (MGPO) had instituted for primary care physicians (PCPs), and was feeling a bit overwhelmed. The system had only been in place for about a year and a number of issues regarding the design and implementation were still being worked out.

More importantly though, the model had been designed for a system that dealt primarily with fee-for-service payment, but this was about to change. HMO Blue (Blue Cross and Blue Shield’s HMO product) was scheduled to switch to a capitated arrangement on the first of the month, increasing the MGPO’s capitated revenue to about 30%. Moreover, Dr. Nicholson anticipated that other managed care products would follow suit, effectively shifting the MGPO from a fee-for-service payment structure to a more capitated one.

BACKGROUND

The MGPO was founded in 1994 and directly owned the practices of approximately 750 physicians, all of whom were its employees. It was a parallel corporation to the General Hospital Corporation (otherwise known as Massachusetts General Hospital or MGH) (see Exhibit 1 for an organizational chart).

In addition, MGH and the MGPO were part of the Partners Community Health Care System, Inc. This system, formed in 1994, was anchored by the MGH and the Brigham and Women’s Hospital—both renowned Harvard University teaching hospitals. The MGPO was dedicated to carrying out the MGH mission “to provide the highest quality care to individuals and to the community, to advance care through excellence in biomedical research, and to educate future academic and practice leaders of the health care professions.” In this regard, it had three overriding goals: (1) quality - measurably superior clinical care and outstanding patient service; (2) access - ability for physicians to refer to MGH and for patients of all means to choose MGH; and (3) value . . .

Assignment

1. Considering the different kinds of responsibility centers that can exist in a management control system, and the criteria for their selection, what kind of a responsibility center is the MGPO? The individual practices? What kind of a responsibility center should an individual physician be within a group practice? Why?
2. Assume that a practice earns $20 per member per month for its capitated patients, that a physician’s panel comprises 1,800 patients, and that a nurse practitioner’s panel comprises 1,200 patients. Under capitation, when a new provider is needed, should a practice hire a physician or a nurse practitioner?
3. Consider the six criteria contained in Exhibit 8. What do you think will be the impact of these criteria on the various stakeholders of the MGPO? How will their impact differ under capitation and fee-for-service payment modes? How, if at all, should these criteria influence an individual physician’s compensation? Should there be additional criteria?
4. How would you align incentives under a mixed model?