Marc D. Halley

At a Glance

Healthcare providers need to adapt to the changing business culture by becoming market managers and sustaining their hospitals' performance in four key areas:

  • Capturing market share  
  • Demonstrating quality  
  • Accessing capital  
  • Improving productivity  

Regardless of the happenings on Capitol Hill, underlying motives and trends are permanently changing the structure of the healthcare industry. Healthcare providers face lower payments, higher regulatory and other costs, and unprecedented demand from millions of aging "baby boomers." Healthcare leaders increasingly acknowledge the following business imperatives in managing change.

Capturing market share. Unlike primary care physicians, hospitals and specialty physicians depend on referrals. As healthcare providers consolidate to survive, referral paths have become vulnerable-particularly as physicians become employed by hospitals or otherwise "choose up sides."

Demonstrating quality. No longer is it enough to deliver high-quality clinical care. Payment is increasingly dependent on a provider's ability to document that quality. An electronic health record is a very expensive, but essential, tool in this endeavor.

Accessing capital. Health systems require capital to cover the costs of physician integration, competitive strategies, essential technology, caring for the underserved, and other strategic concerns, and the capital-generating engine for the system is the hospital.

Improving productivity. Reduced payment, increased costs, and unprecedented demand will make efficiency a top priority for those who intend on staying ahead of the changes occurring in health care. Low productivity among physicians and support staff and within hospital departments, inefficient processes, and more will become increasingly evident as organizations fail.

Addressing these business imperatives will require attention to the economics of physician integration.a The exhibit below identifies the referral path from primary care physicians to specialists and hospitals and back to the primary care physicians. Operating capital formation follows a similar path, where the hospital serves as the capital-generating engine with the essential help of specialty physicians. In the past, many healthcare providers have left to chance the development and maintenance of relationships along the referral path, assuming that if they built facilities or "hung out a shingle," the referrals would come.



The increasing structural integration among healthcare providers-and the resulting competitive intensity-now require active maintenance of referral relationships and active management of the operating capital formation process. As a consequence, the traditional roles of the hospital CEO and CFO are changing.

The Market Manager

Rather than focus on management of just the facility or campus, the hospital CEO should act as a "market manager" to ensure the health system employs or is affiliated with an adequate number of primary care physicians to capture the market share to support the hospital and its affiliated specialists.b Because patient referrals tend to follow trusted relationships, building and maintaining those relationships among primary care physicians, specialists, and the hospital is critical. This challenge is increasingly difficult because many primary care physicians no longer practice in hospitals due to the implementation of successful hospitalist programs.

Another critical component of the CEO/market manager's efforts to manage referral paths is employing or affiliating with "specialists of choice" who are able to attract referrals based on access, communication, service quality, and of course, clinical competence. Last, and very important, the CEO/market manager should ensure that the hospital's service lines, ancillary and other departments, and inpatient and outpatient services position the hospital as the "hospital of choice" for referring primary care physicians and specialists.

The Performance Officer

Although financial reporting, dashboards, budgeting, and capital formation will remain key components of the CFO role, successful CFOs will increasingly see themselves as "chief performance officers." CFO/performance officers should proactively provide timely and accurate performance management information to increasingly diverse business units, tailored to each business unit, to promote useful action that can be tracked weekly to promote accountability. Such information is critical to support the referral path (e.g., referral tracking, clinical quality measures, and service quality measures). It also supports increased efficiency along the referral path, particularly in the capital-generating hospital where revenues and expenses must be more closely managed to yield capital for reinvestment by the CEO/market manager.

A critical role includes understanding the rules for success in each of the diverse business units and facilitating performance improvement through the use of relevant performance management information and accountability models. For example, by understanding the rules for success in the medical practice business, a CFO/performance officer can foster the performance improvement necessary to ensure that established practices do not consume precious capital to cover operating losses. Instead, those hospital-owned practices operate as well as private practices.

Managing Markets

Maintaining linkages along the referral path requires managing relationships among physicians and between physicians and the hospital. The glue that sustains those relationships is performance that consistently meets the needs, wants, and priorities of referring physicians and their patients. Rigorous performance measurement and performance improvement within and across business units is increasingly essential to sustain that performance-particularly in competitive settings.

Effective CEO/market managers understand that their current and potential market share is held in primary care practices. They also understand that primary care physicians tend to attract patients from surrounding neighborhoods, making it relatively easy to target populations for competitive, payer mix, and mission purposes. The CEO/market managers develop and maintain relationships with individual physicians in targeted practices. Because primary care physicians rarely show up in the medical staff lounge any longer, wise CEO/market managers connect with those physicians (employed or independent) on the practice turf before or after office hours.

Functional integration requires that relationships be developed and maintained with individuals, not practices or departments. Effective CEO/market managers know which primary care physicians are holding the hospital's current market share and which ones are sending patients elsewhere. They understand why those referral patterns exist and look for ways to attract that business from employed as well as independent physicians through improved performance of specialists, service lines, and hospital departments. They do so by engaging in problem solving and making service commitments.

The best CEO/market managers understand the rules of the medical practice game well enough to engage in conversation with physicians in the context of the medical practice. They know the factors affecting primary care and specialty practices in their communities. Scripted, or with the help of practice liaisons, they can talk intelligently about ambulatory practice and make inquiries into the challenges faced by their affiliated physicians. They know which practices are vulnerable to acquisition and have built trusting relationships with those physicians who will consider the hospital as a potential partner if and when they decide to sell the practice.

CEO/market managers understand the strengths and weaknesses of their hospitals and affiliated specialists because they solicit the referring physicians' perspectives regarding the integrated system's performance. Through open-ended questions, they request feedback on hospital departments and hospital-based physicians. They encourage feedback on hospital-affiliated specialists with respect to access, communication, the patient experience, and clinical quality. They understand that a referring primary care physician's perceptions of the hospital and specialists are essential drivers of current and future referrals.

Managing Performance

The best CFO/performance officers understand that setting one's own house in order is essential to managing the market. Transparency of relevant information is a key to achieving functional integration and performance improvement within practices, across service lines, and among business units. Performance management information should include traditional financial reporting and key ratios, statistics, and other measures that are relevant to the business unit, as well as measures that monitor performance across the integrated model. An emphasis on "system" performance, rather than operating unit performance, can quickly become an excuse for poor business unit outcomes. Insisting on individual performance and business unit performance rolling up to the system level yields improved performance measurement, greater accountability, and better outcomes.

Because CEO/market managers build relationships with specialists, they can openly discuss performance issues with individual specialists and specialty groups with an eye toward creating "specialists of choice." They engage specialists associated with specific hospital service lines to improve performance in clinical quality and service quality. The CEO/market manager also ensures that specialists who show no interest in understanding and meeting the needs, wants, and priorities of primary care physicians and their patients are removed from health systems' specialist network and treated as competitors.

CEOs and CFOs aggressively identify performance issues with hospital departments and ensure that performance measurement and improvement occurs. They ensure that referring physicians are kept informed as to how problems have been resolved and how new initiatives will be implemented. The performance improvement action plan sits on the corner of the CEO's desk, receiving weekly attention.

Again, managing performance requires the right information at the right time targeted to the needs of the business unit. It requires a CFO/performance officer who understands varied business units and helps unit leaders rigorously measure and improve performance.

In response to local and national trends, physician-hospital integration is, again, in full swing-at least structural integration. CEO/market managers who consistently develop and manage the referral path by maintaining relationships among physicians and between physicians and the hospital will position their integrated organizations to achieve the required results at both strategic and tactical levels. They will achieve and maintain functional integration by effectively managing the referral and capital generation path. Such functional integration can be achieved only with the support of CFO/performance officers who ensure that accurate, timely, and relevant performance management information is available to promote useful action and accountability within individual business units and the integrated system as a whole.

Marc D. Halley is president, CEO, The Halley Consulting Group LLC, Westerville, Ohio, and a member of HFMA's Northwest Ohio Chapter (


a. For additional discussion, see Halley, M.D., Owning Medical Practices: Best Practices for Sustainable Results, Chicago: AHA Press, 2011.

b. For additional discussion, see Halley, M.D., The Primary Care-Market Share Connection: How Hospitals Achieve Competitive Advantage, Chicago: Health Administration Press, 2007.


Publication Date: Monday, January 02, 2012

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