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A Hosp it al-Ph ysici an Ali gn men t Case St ud y fr om B ader & A ssociat es an d th e Gr eat Boa rd s Web sit e


by Donn E. Sorensen, Senior Vice President and Chief Operating Officer,

St. Johns Clinic, Springfield, Missouri

St. Johns Health System (SJHS) is a not-for-profit A FULLY INTEGRATED HOSPITAL SYSTEM
organization that includes a 600-bed tertiary care AND MEDICAL GROUPREBUILT ON TRUST
hospital, five regional hospitals, a medical group
the St. Johns Clinicand a health plan. SJHS is SYSTEM FORMATION AND TRUST: Like many other
sponsored by the Sisters of Mercy Health System, hospitals, St. Johns acquired scores of physician
St. Louis, Mo. practices in the 1990s. It employed physicians directly,
but by 2000 both the system and the physicians were
The clinic makes up approximately 95 percent of the disappointed with financial performance, and working
medical staffs of the SJHS hospitals and includes relationships were strained. As employees, formerly
approximately 470 physicians, fairly evenly divided entrepreneurial physicians were paid a salary with little
in thirds among primary care physicians, medical incentive to maintain productivity or collaborate with the
specialists, and surgeons. The clinic has 70 locations hospital. The compensation model disengaged physicians
in 41 communities and records 1.4 million patient from the business. Distrust, discontent, and misalignment
visits a year. It generates more than $360 million in of financial incentives were rampant, and the integrated
net revenues out of $1 billion for the health system system was in danger of being disassembled.
It was clear we had a trust issue, but rather than spend
time on trust per se, we decided that if we fixed the
Most critical to restoring trust business model, including compensation, then trust would
follow. We believed we had to do the right thing and
execute a good strategy and be transparent about it.
was the engagement of physicians
To restore trust, management and physician leaders
in management and governance agreed on a set of guiding principles to be embodied in a
new model for integration. The guiding principles were
as equal partners. designed to revive physician entrepreneurialism, break
down hospital and clinic silos, and take advantage of
Physician-led, professionally managed potential operational synergies. They included:
Physician authority and accountability for medical
became the phrase that defined Separate sister corporations for the hospital and
clinic rather than physician employment by the system.
the desired new culture. System provides some support services to physicians
to take advantage of economies of scale.

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Joint contracting for health plan contracts to align Most critical to restoring trust was the engagement of
financial incentives. physicians in management and governance as equal
Transitional support for physicians during the change partners. Physician-led, professionally managed became
from a salary to productivity-based compensation. the phrase that defined the desired new culture.
Aligned hospital/physician incentives for meeting
strategic, financial, and quality goals.

FIGURE 1: St. Johns Health System Organizational Chart

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SHARED VISION AND STRATEGIC PLANNING: The St. Johns Clinic is also a not-for-profit organization.
Based on these principles, we developed a shared vision The system board is the corporate member of the clinic
centered on quality and a new approach to physician and retains reserved powers over the clinics budget,
compensation to reward productivity and achievement of strategic plans, compensation plan, and quality goals.
system and clinic goals. Virtually all SJHS practicing physicians are employed
through the St. Johns Clinic, not the hospital.
The shared vision was and is a work in progress. Every
other year, senior leadership brings in a large group of St. Johns Clinic is governed by a 17-member board,
physician leaders to revise the overall plan. Because of with 11 elected physicians and the clinics physician
the speed of changes in the current environment, espe- presidents, clinic executive vice president, the health
cially in the economy, reimbursement, quality require- system CEO, and the executive vice president of St. Johns
ments, competition, and growth, we are finding the need Hospital, ex-officio. The clinic board meets six times a
to revisit and reset some elements of the plan quarterly. year to focus on operational policies, strategy and quality
Consequently, the senior leaders and the Operations matters.
Council (discussed below) review the strategic plan
quarterly. In some cases, theres no reset, sometimes SJHS distinguishes between the system boards gover-
theres a tweak, and occasionally theres a major change nance responsibilities for high-level policy and strategy,
in the strategic plan. and the clinic boards engagement in governance and
management of clinical care and physician practices.
MANAGEMENT: Physician empowerment begins at the Physicians are also engaged in the Physician Leadership
top and extends organization-wide, consistent with the Council, which is a broad-based group that includes the
principle of physician-led, professionally managed. department chairs, section leaders, medical directors,
Clinic physicians recognize that their practices need and senior administrators. It meets monthly to discuss
strong managerial competence, but physicians want operational policy and issues and stay updated on clinic
responsibility for clinical matters and day-to-day practice and system programs. To promote hospital-physician
operations. Therefore, physician-executive pairs exist at alignment, the clinic president appoints chairs for primary
leadership levels throughout the organization, and these care, medicine, and surgery, and they hold the same
leaders are role models for trust and mutual accountability. positions on the hospitals medical staff. These are long-
term management appointments, not elected, rotational
The SJHS organizational structure is shown in Figure 1. positions.
The 14-member health system parent board includes
approximately one third physicians, one third lay A physician sense of ownership and investment in their
community members, and one third religious or sponsor practice sites is important to each sites success. To
members, plus ex-officio executive leaders from the sustain physicians entrepreneurship, decision-making is
system and clinic. The system board approves a decentralized as much as possible, consistent with
system-wide strategic plan, budgets, and measurable system-wide goals and policies. For example, the Clinic
performance goals. The chairman of the health system Executive Committee has established a policy requiring
board must be a physician, typically a clinic physician, sites to provide convenient access for patients. Each site
but may not be a physician member of the senior establishes its own schedule, but one site cant say,
management team. Were closed Friday afternoons, without considering the
impact on other system components and the policy of
meeting patients needs for access.

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RECENT CHANGES: Over the past year, however, SJHS OPERATIONAL INTEGRATION: Integrating operating
leaders decided that partnerships werent working as well functions is critical to achieving efficiencies. All clinic
as they could at either the leadership or operational levels. locations use the same billing, scheduling, information
We needed deeper integration that would break down technology, human resources, and other services policies
stubborn silos of the hospitals and medical group. There and shared services. The hospitals and clinic have one
is a need to have separate board and management electronic health record system, developed by Epic.
structures, because some things occur in and concern
just the hospitals or the clinic, but we also needed more COMPENSATION: The compensation plan for physicians
integration and coordination. is approved by the clinic board and requires approval by
the health system board. The clinic currently uses a
Consequently, three operations bodies have been modified bottom line, or net revenues, compensation
instituted, each with approximately 50/50 management model. Each physician is compensated based on
physician makeup, to carry integration right to the front collected revenues minus expenses. The clinic rewards
lines (see Figure 1): primary care physician production by providing a value
The Executive Council is the senior decision-making payment incentive in addition to their baseline clinical
body of SJHS. It meets weekly and includes the system compensation, which is distributed through a pool funded
CEO, physician chair of the SJHS board, the executive jointly by the hospital and the specialist physicians.
vice president of the clinic, the physician presidents of the Compensation is also provided for administrative respon-
clinic, the executive vice president of the hospital, the sibilities that take time away from practice. Physicians
physician chief of staff in the hospital, the SVP and CFO also have access to incentive compensation tied to
of the hospital, and the physician chairman of the Health achievement of core measures and other quality, safety,
Plans Board. and financial indicators in the clinic and hospital settings.
An Operations Council includes all members of the The compensation model isnt perfect, probably never will
Executive Council plus all of the hospital and clinic vice be, and is modified regularly.
presidents as well the physician department chairs and
appointed Physician Leadership Council members. It SUCCESS FACTORS: Reflecting on the health systems
meets every other week to coordinate strategic plan evolution, our key success factors have been:
implementation and ongoing operations. A physician-led, professionally-managed structure
Eight Senior Operating Groups meet weekly to and culture.
oversee day-to-day operations for medicine, surgery, Paired physician/administrator leadership at every
cancer, ER/trauma/burn care, cardiac care, womens and level.
childrens services, orthopedics, and regional operations. Shared mission and vision.
They run the place consistent with system-wide direction
Aligned compensation and incentives.
and goals established by the board and Executive
Council. Goals include the areas of physician engage- Development of clinic or group practice culture.
ment, growth, length of stay, clinical quality, patient Shared information system.
satisfaction, and finances.
This model is really taking hold, and for the first time doc- Communication, honesty, and integrity.
tors are truly interested in things such as hospital length of
stay and hospital operating income.

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LOOKING TO THE FUTURE: We believe providers in the wont suffice. We also have to be smarter in taking care of
future have to emphasize innovation around care models. populations, for example, using a team approach such as
The population is growing and aging, but the number of medical homes with a doctor in the lead, to deliver care,
doctors available to practice remains flat in general and and promote wellness in more efficient ways.
declining in certain specialties. In addition, many physi-
cians want a better work-life balance, for example, by We also have to ready for policy changes in healthcare
working part-time or practicing only in the office, not the reform. We have to focus on patient quality and trans-
hospital setting. So, we have to be innovative to recruit parency. First, last, and always, we have to have fiscal
and retain doctors, and to deliver care with fewer physi- responsibility with a net operating income. The best way
cians, especially in primary care and internal medicine. to accomplish these things, we believe, is with a fully
That includes increased use of allied health practitioners, integrated system of aligned hospitals and physicians.
telemedicine, and hospitalists; but these modalities alone

CONTACT INFORMATION: Donn E. Sorensen | 417-820-2849 |

FOR MORE INFORMATION: The Right Ways to Employ Physicians, Great Boards, Spring 2009
Developing a Hospital-Physician Alignment Strategy, Great Boards, Winter 2008
Aligning Hospitals and Physicians: White Paper from The Governance Institute,
Fall 2008

This case study is provided by the Great Boards Web site and Bader & Associates, consultants in governance excellence
and hospital-physician alignment.
For further information on our professional services and publications, go to,
call 301-340-0903 or e-mail Barry Bader at

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