Developing Centers of Excellence - Key Concepts, Strategies and Tactics

The importance of developing outstanding programs, often referred to as “Centers of Excellence,” in specific specialties has taken on new importance in critical specialties such as orthopedics, neurosurgery and spine, cardiology and oncology. This article discusses how developing a grand vision or plan comprised of clear goals can guide the development of a Center of Excellence. This article then examines specific strategies and tactics that can be used to implement such a plan.

Systems that develop dominant service lines can attract more patients, higher margins and more physicians. An outstanding or dominant service line can make a hospital a destination in an area of care and serve as a magnet for a range of opportunities. Thus, many hospitals and systems are constantly considering plans to develop a specialty Center of Excellence in conjunction with a group of physicians within that practice area. Such efforts, if developed well, can also provide physicians who are involved in the effort a competitive advantage in recruiting additional physicians and attracting patients.

Physician-hospital relationships
There are currently a great number of changes evolving in physician-hospital relationships. These include substantial changes in the way in which hospital and physicians interact with each other. The overall landscape as to what types of relationships are being undertaken is moving very fast. These relationships again, in return to a 1990’s strategy, include employment of physicians and acquisitions of practices as well as many variations in relationships. The employment efforts may prove to be beneficial or may again lead to serious financial problems for systems.

There are more legal concerns with regard to physician-hospital relationships than ever before. This is likely to complicate the development of Center of Excellence concepts. These concerns arise, for example, under the Stark Act, the Federal Anti-Kickback Statute, the Tax Exempt Rules and Regulations applicable to exempt hospitals, the False Claims Act and state laws. Every week there appears to be a report of a new case or settlement related to hospital-physician relationships or other payment relationships involving providers. These types of settlements relate not only to bigticket, substantial investigations and behaviors but also to small seemingly inadvertent errors and mistakes under the acts.

A leader of a hospital or health system driving the development of a specialty- driven program must be able to defend his or her tactics both from a legal and business perspective. To a great degree, the question will ultimately come down to, “Is the system developing and engaging in a grand plan for a specific area of care?” or “is it simply utilizing tactics to capture referrals?”

Develop an overall vision
A grand, overall vision or plan is critical for a facility or program to become dominant in a specialty area. Specific strategies are then developed in light of this plan. If strategies are not utilized in connection with a grand plan, it is much more likely that the efforts will fall short, from a business perspective. It also increases the chances that the implementation will simply look like payments for referrals as opposed to tactics aligned an overall plan.

Clear and big goals
There are a few critical efforts that need to be made early on at the inception of a plan. First, the hospital or system and its physician leadership must define its overall goal — i.e., what is it trying to accomplish? For example, is the program trying to be the best orthopedic program in the state? Is it trying to be a program that does more procedures of a certain type than any other system? Or, in contrast, is it trying to be a global leader in orthopedics and to develop an international brand in orthopedics or spine? Will the grand plan include a research or teaching function

The system, in addition to this grand vision, may have other specific goals such as cost savings, improving trauma care, reducing wait times, providing all services or offering pediatric orthopedics. A grand vision with a clear goal is a prerequisite for determining the tactics that will be implemented by the parties to help the specialty program meet that goal. At the end of the day, the more that a system builds a grand vision and a clear plan as to what it wants to be known for, the easier it is to build tactics and strategies around those plans.

Senior leadership must drive the plan
Hospital and physician leadership must not delegate the plan. Rather, the highest level of leadership should be involved in the plan from the very beginning and all the way through implementation and operation. The more that the system sees leadership such as the CEO and top physicians in the specialty involved in every meeting related to the plan, the easier it will be for the hospital and physicians to take action and gain buy-in throughout both systems. Delegating a critical plan and not involving key leadership throughout almost always leads to the ultimate failure of the plan.

Role model hospital or program
As a system begins to form a concept or idea for its grand plan, it is very helpful to seek a role model hospital or center to use as a guide in developing its own plan. For example, can you find two or three hospitals or systems that have the attributes that your system or plan desires? Is there a great example that you could model your plan after? After determining a role model hospital or program and finalizing your own grand plan, one starts to determine tactics and strategies that will support and comprise the plan. Many of these will be similar to those used by the model system.

Tactics and strategies
There are several tactics and alignment options that can be used to implement a plan. The tactics utilized range from full integration tactics to minimal integration efforts to a number of hybrid efforts. All tactics used should be targeted to meeting the big goals.

Full integration
There are at least two core types of full integration models. The less common example of a full integration model is a whole hospital joint venture between a hospital and physicians. One example of this type of venture is the Institute for Orthopaedic Surgery in Lima, Ohio, between St. Rita’s Medical Center and physicians. The Institute, a specialty orthopedic hospital, is majority owned by St. Rita’s. However, physicians also have a financial stake in the facility. The Institute was originally developed by physicians.

Another increasingly common type of full integration model involves a situation where the physicians become employees of the hospital or a related subsidiary. For example, the dominant orthopedic group in Greenville, S.C., was acquired by a local hospital system a few years ago. This has become more common again in critical specialties. A few years ago the idea of large orthopedic groups or neurosurgeons being acquired by hospitals would have been immediately disposed of. Now, employment is often a critical part of developing a dominant service line.

Semi-integrated models
Many parties pursue different types of semi-integrated ventures. These can include joint ventures for surgery centers, joint ventures for equipment and real estate, joint ventures which will provide management services and several other types of joint ventures. Here, one big distinction between true provider joint ventures such as those involving ownership of a whole hospital or a surgery center are that physicians can own an interest in the venture, derive the real profit from the venture and take real risk with the venture. In contrast, with equipment or real estate joint ventures, the payment to the lessor entity must be fixed fair market value and cannot vary based on the volume of business performed at the provider that the lessor leases to. In essence, there will not be any revenue or profit and loss congruence between the leasing entity and the provider that leases the equipment or real estate.

These semi-integrated models may be one dimension of an overall plan to develop a dominant service line.

Compensation relationships
A third type of integration effort revolves around compensation relationships. These include many different types of arrangements. These can include call coverage arrangements, trauma arrangements, medical directorships, gain sharing arrangements, teaching relationships, research relationships, administrative/management relationships and several other types of payment relationships. The more that these are developed in light of a core, overall vision and clear plan for what the system desires to accomplish, the easier it is to reasonably justify having several different types of relationships with your physician specialists which the center of excellence is being built around. Almost all of these arrangements must be in writing and almost universally cannot vary or have payments tied to the volume or value of referrals by the physicians. This can be a critical part of developing leadership in an area of care.

Managed care strategies
A last general model of integration revolves around integrating and coordinating managed care functions. These can involve physician-hospital organizations that serve as managed care entity contracting ventures or bundled price initiatives. For example, a party might work on an alternative pricing model whereby the physicians and hospital jointly sell an entire package related to the top 10-20 most important orthopedic procedures or cardiovascular procedures. This has been experimented with in some circles and was experimented with to a greater level 10-12 years ago. However, with increased consolidation of payors, this approach again offers a way for providers to attempt to band together in the marketplace. As such, we are seeing an increase in this activity.

Four more examples
Four other examples of working together with physicians towards development of a dominant position in a service area are as follows:

Co-marketing and branding. Certain systems have evolved outstanding co-marketing efforts with independent group physicians to jointly demonstrate the strength in the services and build a brand around those services. A great example of this involves the Rush University Medical Center and the orthopedic program at Rush. The joint marketing program which highlights and includes the physician leadership is outstanding and its overall focus on the Rush orthopedic program is excellent.

VIDS approach. Another concept that parties use to jointly align services is something that we have seen called a virtually integrated delivery system. Here, independent parties, such as a hospital and lead group of physicians, subject to certain anti trust requirements, work closely together to decide how they can approach the market in as aligned a manner as possible. This may include weekly strategic meetings on how they approach the market and several different implementation alternatives. This may or may not include various different financial relationships.

Acquisition of practice. We are again seeing many systems examine acquiring practices (and then employment of the physicians) to provide a beachhead in certain service lines. This again is an example of a full integration model. This may be aimed at having more critical mass in an area than any other competitor or to acquire specific expertise.

Professional services agreement. We see some situations where a hospital will buy a certain amount of professional services to provide them some contingent in a specialty where they are otherwise completely reliant on independent contractors or staff physicians. This may include a professional services agreement whereby a system buys the services of three full-time orthopedic physicians from a group. The group and the individual physicians are generally required to be on the contract pursuant to Stark Act and billing requirements.

Choosing a few key strategies
Given that there are several different, major categories of ways to work with physicians to develop a dominant program and then numerous different tactics within those, we often recommend that a party choose no more than two or three key strategies to really pursue as part of establishing and implementing a plan. This might be the mix of a joint venture strategy together with employment models or a mix of employing some physicians but much more heavily relying on other types of compensation agreements with others to align efforts with the core goals.

This is intended as a summary of some of the planning and strategies involved in developing a specialty-driven area of dominance or a Center of Excellence. Should you have further questions as to these issues, please contact Scott Becker at (312) 750-6016 or at

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