Unit 1: What Is Practice Management?

Practice management is the optimization of an efficiently run physician practice. At a minimum, it involves effective oversight of the business operations and administration. For office practices, this can include patient scheduling; clinic flow; chart organization; the management of office staff, operating costs, patient billing, and revenue flow; as well as advertising and public communication. Other types of practice settings, such as working as a hospitalist or as locum tenens, may require different and/or additional knowledge and skills to optimize the practice. Furthermore, in order to have successful practices, we physicians also need satisfaction in both our personal and professional lives. This extends practice management into personal financial management and wellness, as well as advocacy for ourselves, our practices and our communities.

Unfortunately, the phrase “Practice Management” strikes dread in the hearts of most residents and practicing physicians. Healthcare in America is COMPLEX to say the least; both patients and physicians find it mysterious and frustrating! And we all went into medicine to practice medicine and help patients, not to learn the ins-and-outs of billing and coding, the finer details of compliance with state regulations, nor the various types of healthcare insurance policies.

While it would be wonderful if everything magically became easy and straightforward, that is unlikely to happen anytime soon. Therefore, this Handbook is intended to give you knowledge, empowering you to achieve a sustainable and fulfilling practice

History of Practice Management

Centuries ago, physicians were itinerant, going from home to home, village to village, to treat ill patients. Their students would also travel along with them, learning the trade first-hand. Patients, themselves, remained at home with their families to care for them. Physicians were paid directly for their services, sometimes with food or other goods—and other times not at all—but the reputation of the physician was crucial to a sustainable practice. The Hippocratic Oath, and other ancient physician codes from other cultures, emphasized the importance of caring for all patients with dignity, respect, and integrity, regardless of whether patients were male or female, free or enslaved, and of not plaguing the poor with overly burdensome payments.

Many of the first hospitals were started by religious orders or churches, primarily for the poor. Others were public hospitals for the destitute or mentally ill, with reduced costs or “charity care.” Physicians would care for patients in hospitals, but primarily maintained their own private practices for financial sustainability, and continued to do house-calls. Their “practice manager,” if there was one, was often the physician’s spouse, who would help manage the patient schedule, equipment, bookkeeping, billing and collections, and ordering supplies or medications. Otherwise, the physician or an apprentice would take care of any business details, just like any other small-business owner.

Over time, many physicians remained fully independent, while others joined together into small group practices. They would jointly hire and fire staff and collectively manage the financial side of running a business. Obviously these duties demanded time and energy, but many physicians appreciated the independence of managing their own practices with a few physician colleagues. Physicians continued to see patients in hospitals, but were generally not employed by them; their primary income continued to be from outpatient practices. Only a few hospitals were physician owned and operated.

The trend began to shift toward physician employment rather than independent business ownership. Beginning in the 1930s, some physicians were hired directly by industrial companies to care for their employees, to keep their workforce healthy. “Company physicians” were sometimes accused of conflicts-of-interest by being employed by a company, rather than maintaining an independent fiduciary responsibility to patients. Private physicians occasionally resented these physicians for the competition leading to professional conflict. In any case, this marked the beginning of employer-sponsored healthcare, which became more prevalent in the 1940s. Over time, most companies chose to provide health insurance to employees rather than to directly employ physicians. This has contributed to the development of hundreds of private health insurance companies in the US. Medicare and Medicaid were also established in 1965 as government-funded healthcare payers. While this has likely contributed to the stability of physician income by third-party payers, it has certainly added to the complexity of practice management.

Health Systems Science

As alluded to above, practice management goes beyond optimizing a physician’s individual practice and now exists within a complex interconnected web of historical, social, cultural, legal, and economic factors. Your medical education likely relied upon two pillars: basic science and clinical science. This ignored many of the elements needed for successful practice management, healthcare delivery, and advocacy. Recently, these other critical elements have been reorganized within a new framework called Health Systems Science (HSS)—the understanding of how physicians deliver care to patients, how patients receive care and how health systems function1.

This “third science of medicine” is inherently intertwined with the basic and clinical sciences, albeit often “hidden” within the formal curriculum. Numerous factors and concepts are often underappreciated in the provider-patient interaction within a clinic room. Traditionally, these concepts have not been included in the scope of medical education. Nonetheless, understanding of these HSS issues is critical to successful practice (see figure 1) such that “Practice Management” has now been officially redefined in medical education curriculum as “Health Systems Management.” Throughout the book, we will use both terms.

Figure 1. The “Iceberg” of Healthcare Concepts Impacting Health
1 Skochelak SE, Hammoud MM, Lomis KD, Borkan JB, Gonzalo JD, Lawson LE, Starr SR.
Health Systems Science, 2nd Ed. Elsevier, 2020.

Current Trends

Today, more than half of primary care physicians in the US are employed in healthcare systems of various scope and scale. Some employed physicians enjoy not being burdened with the complexity of managing their practice, especially given the increasing regulation and administrative burdens, as well as the dizzying array of healthcare payers. Many physicians appreciate the steady income, paid time off (PTO), loan repayment options, and other contractual benefits. Others, however, lament the lack of autonomy and express frustration by decisions made by non-physician administrators and third-party payers, which are not always thought to be in the best interest of their patients.

 More than half of primary care physicians in
the United States are employed! 

These negative aspects have resulted in some physicians returning to independent practices to increase autonomy and patient-centeredness, including in novel ways like Direct Primary Care. Others forms of independent contracting include shift-work, such as with locum tenens, hospitalist or emergency medicine, or urgent care. These allow physicians to retain control over their schedule and expectations of practice. Rural healthcare is also popular, as it can allow for more autonomy than urban or suburban practices. Finally, some physicians pursue academic medicine for the ability to conduct research and education of learners, which often comes with more control over scheduling and expectations.

This Handbook is designed to be an inclusive resource as you discern and prepare for your future practice. It includes the exploration of a range of practice models and necessary skills applicable to each. While not every section will be pertinent to you, it intentionally focuses on you as a new physician and ripples out concentrically to cover ever-wider areas of scope. Throughout, we hope to empower you with vital knowledge, skills, and attitudes for your practice so you can become a practice management pro!