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Healthy turnaround Featured

9:57am EDT July 16, 2004
When Anthem decided to sell American Health Network in 1998, it was bleeding cash to the tune of $26 million a year.

Ben Park, the company's current CEO, knew that when he assumed the reins of AHN, a physician-owned and managed network of doctors that provides patient care and other services, there was a short window of opportunity to return the organization to profitability.

"It was a matter of survival when we took over," says Park, adding that AHN faced a grim future if the losses weren't contained.

One of the first things he did was to return operational control to the physicians and local management groups. He also began to put together a strong executive team.

Park says it was fortunate that all but one senior-level executive remained with the company when it transitioned from Anthem ownership.

"They believed what we were trying to build," he says.

What Park was trying to build was an organization that provided better accountability and doctor authority than its previous incarnation did.

With that framework in place, Park renegotiated both AHN's contracts with network physicians and all of its insurance contracts. He subscribed to the philosophy that the physicians were the primary asset of AHN and should be managed as such. The new contracts made the physicians equity holders in the company.

Despite that increased ownership stake and control, not all the physicians remained after AHN broke away from Anthem. But, says Park, the transition was clear-cut, and despite the initial loss of physicians, today the network is in growth mode, adding 25 physicians this year alone.

To stem the flow of red ink, Park reduced the number of jobs in the company's central services department, slashing the number of employees from more than 100 to 30.

"We shifted more responsibility to the doctors' offices," Park says.

AHN took some of the money saved by the cuts and invested it in computer systems, allowing the company to do more with less.

It's not just AHN's business model that has changed. The organization has also changed its approach to patient care, from a traditional delivery model to evidence-based care. Park says the network's physicians have embraced the changed, as have their patients.

Smart Business spoke with Park about the company's transition and its new operational model.

What prompted the separation from Anthem?
It was Anthem's decision to move away from its diversification strategy and divest all ancillary companies. So in 1998, the company sold all of those companies and became purely Blue Cross/Blue Shield. That was their strategy.

What steps did you take to develop an infrastructure for the new organization?
When we took over the company, it was in dire straits; it was experiencing huge losses. Our first order of business was putting a top-notch management team in place.

We were fortunate that the best of the management team from Anthem, all except for one person, stayed with us. We returned operating control to physicians and local management. This better aligned our accountability and authority.

We renegotiated our global risks contracts and the contracts with physicians. The new contracts made the physicians an owner or equity holder in the new network. Many decided they didn't want to remain and left. It was a clear-cut transition.

Anthem had physicians in Evansville and Louisville; we did not want to be there, so we let those contracts run out. We believe the physicians are assets of the company, so we manage differently. That's one of the key things that makes us different -- we look at them as our assets.

What are the greatest challenges AHN faces, and how are they different from when the organization was formed?
We were in survival mode when we left (Anthem). We knew that we would not be in business if we didn't fix the problems. We lost $26 million the last year with Anthem. I knew we couldn't do that anymore.

We made a number of changes. We now have open access scheduling -- patients can make same-day appointments, and we offer one-stop shopping, so to speak. Patients can have X-rays and other tests at a physician's office. We also operate with a focus on high-quality evidence-based medical care, which gets physicians excited.

With evidence-based medicine, the treatment is (prescribed) according to the evidence -- what shows the best outcomes. Many treatments are preventive -- better managing diabetes, cholesterol and blood pressure. There are tremendous good health care consequences to this methodology.

We cut a lot of the central services staff. When we took over, there was a staff of 105 people. We reduced that to just more than 30, with a lot of the responsibilities going more and more to the practices. We invested in computer systems and are doing more with less people.

The doctors are responsible for their income. Many of them took significant reductions in income in the early years, but they have more than made that back now.

Who are your biggest competitors, and what differentiates you from them?
Our competitors are really solo and small group practices. We are the largest network of physicians in the state, and we bring a lot more resources to the table.

For patients with asthma, we have a full-time respiratory therapist available. It reduces emergency room and hospital visits for patients. Our patients may visit the pharmacy more, but they don't go to the hospital. So it saves them and the insurance companies about $1,000 per year, per patient. Solo and group practices can't provide those services.

We have four imaging centers with same day turnaround. We are the only primary care group with anything like that, as far as I know.

Are there plans to expand outside of Indiana and Ohio?
We have had discussions with practices outside those states. They need to buy into our vision; if they are interested in joining, we will consider it. The state that looks the most promising for us is Illinois.

How do you plan to grow the organization?
We're adding about 25 new physicians this year to practices in Ohio and Indiana. We grow by incorporating more physician groups into our network.

How do you attract physicians, and what is the financial structure you use to build revenue for AHN and compensate physicians?
First of all, they have to buy into our vision of high-quality, evidence-based care. That is No. 1. Then a physician needs to have an entrepreneurial spirit and want to be part of building something. Our strategy is for providing complete medical care with ancillary services such as nuclear medicine.

Insourcing gives us additional revenue streams that support physician compensation. We are working on standard system changes that will be used in all facets of the company, from clinical work to strategic planning.

The physicians put together a capital plan of what they want to accomplish, and the board allocates (money) according to our strategy. We are like any other large medical group practice; a percentage of the physicians' collections go to fund central services, which is IT, legal services, human resources and contract negotiations. It relieves the physicians from all that and lets them focus on growing their practices.

What are the biggest advantages for physicians who join the network?
Everybody does pretty well in the network, especially since we are physician owned and managed. Our doctors work hard but are compensated fairly. Someone who wants a part-time practice won't make it. Since the transition, the only people that have left the network are those who have retired or moved. We have 175 doctors at this time, and we continue to grow.

How do changes in the insurance industry, as well as government regulations, impact the way you do business?
The health care industry is the most regulated industry in the world. If I piled up the pages of regulations, it would be 10 times higher than tax code regulations.

We spend a fair amount of our resources on compliance programs. We have a legal officer, who is an attorney, that spends a lot of time scrutinizing our records to ensure we are in compliance with all the regulations, from HIPAA to OSHA. We have an auditor who goes through all the coding and billing to make sure that is all correct.

The physicians still have to be educated. We sit down and go over any mistakes. Sometimes, a mistake is not in our favor. Other times, the physician undervalues the services. If it is overvalued, we refund the money.

Physicians walk a fine line between businessman and doctor. How does your business philosophy impact your responsibilities as a doctor, and vice versa?
As long as you know your priorities, that is not a problem. We sacrifice everything to care for patients, which is not always the best business decision.

One example is with equipment. We could've gotten imaging equipment at more than half the cost, but we purchased digital. A regular machine costs $50,000; the digital units cost $500,000. We purchased them because they produce higher quality images. The studies show they detect 28 percent more cancers than the units with film. Film machines are more profitable, but our primary concern is patient care.

We will sacrifice profit for better patient outcomes. When you have long-term relationships with patients, they become your friends, and you don't treat friends any other way.

What is your biggest operational challenge?
Over the past two years, we have replaced our computer systems with Web-based products. Right now, we are replacing all of our electronic systems and will have one database.

We are changing the workflow and improving it. That is our biggest challenge for the next year. We are incorporating these systems practice by practice. One practice is already completely paperless, so we are using them as a template for what we want for the others. They have the lowest operating cost of any practice. We still have a few practices writing on 3" x 5" cards with a pencil.

What are your biggest personal challenges in managing the network?
Doctors are bright and driven by results. My challenge is to provide them excellent service and support. Meeting the doctors' needs and trying to anticipate them and stay ahead is a challenge.

With changing care systems, we have to be very flexible. If a doctor needs a report, we want to provide it in one day. We also analyze the groups to find areas they can improve. It's good to have a baseline. We can show one group, 'Here's what another group is doing that you're not.'

High-quality care costs less. If we focus on quality, we will be a low-cost provider. How to reach: American Health Network, (317) 580-6309 or www.ahni.com