Once upon a time doctors practiced medicine with something approaching complete autonomy. They diagnosed a patient’s illness and prescribed what they judged to be the most appropriate treatment, test, medicine or therapy. Insurers or patients picked up the tab. That style of patient care, however, has gone the way of Marcus Welby, MD, the old-fashioned family doctor in the television show. Today, the health care industry is changing as rapidly as any other business, with important implications for physicians.

Peter J. Dean, senior fellow at Wharton and co-editor (with Michael J. Stahl) of the book, The Physician’s Essential MBA: What Every Physician Leader Needs to Know, says doctors have no option but to temporarily trade in their medical bags for briefcases and learn the kinds of business skills they were never taught in med school. Dean, who also serves as associate professor in the Physician Executive MBA Program at the University of Tennessee at Knoxville, has had extensive experience in educating doctors. Knowledge at Wharton talked with Dean to find out his prescription for physicians who, in today’s health care market, are suffering from what might be described as acute business knowledge deficit disorder.


Knowledge at Wharton: Why do physicians need to learn about business?

Dean: Primarily because of the emergence of HMOs (health maintenance organizations). Physicians feel that insurance companies are making medical decisions through HMO practices. And doctors themselves feel they are working more hours while their salaries decline. They feel disadvantaged at the negotiating table [with HMOs] and realize they need to learn about business.

Knowledge at Wharton: What kind of impact have HMOs had on doctors?

Dean: Remember that HMOs control health care expenses in a couple of ways. First, they designate who’s going to provide health care to patients in the HMO and they supply a list of drugs that doctors can prescribe. Second, HMOs negotiate discounted fees for the services they buy from doctors, or they set limits on the payments they make to physicians. These are called capitated payments. Office visits are restricted as are the types of tests doctors can order. For these reasons, physicians, in their own perception, are limited in the quality of patient care they can offer.

One doctor gave me an example of this. In his office was a woman waiting to see him for the fourth time over a specified period. Because he was not required to see her again under the HMO regulations, he was actually thinking of not seeing her. But he caught himself and let her in to find out what she wanted. This is one way the health care system is putting physicians under pressure.

Knowledge at Wharton: What other pressures do doctors face?

Dean: Doctors who have been established in practices for many years and who are still paying educational debts are finding that they are in jeopardy of not being able to financially meet the risks they face. Some younger doctors have almost completely accepted HMOs. It’s mostly the older, middle-aged physicians who remember what it was like before HMOs who are having the most difficult time accepting changes in the field.

Physicians don’t advocate the elimination of HMOs; they’re advocating some common ground. My sense is that they understand why HMOs came into existence, but they want an equal share of the risk in running a practice. They feel they’re taking most of the risk — in terms of financial solvency and malpractice suits, for example — and that HMOs aren’t.

The other thing to consider is that most physicians live in an age of investor capitalism and are investing their own money. That takes skill, too. So, there’s a market there for physicians going back to school to get MBAs. Like it or not, they find themselves in the world of business and they don’t feel they can compete equally with insurance companies, HMOs and hospitals, until they get the business basics.

Knowledge at Wharton: What are those basics?

Dean: How to put together a business plan. Knowing the economics of health care. Knowing how to design the business and market it. They also have to know how to track their success with good financial and accounting skills. They have to know how to use information technology. And they have to know how to adopt good leadership practices to compete more effectively in a time of change.

Knowledge at Wharton: You mention leadership skills, and your book is subtitled, What Every Physician Leader Needs to Know. Why do you emphasize leadership?

Dean: The health care industry needs leaders. Above and beyond dealing with HMO imbalances, many physicians want to be leaders in their industry, as administrators or in other roles. One of the complaints doctors have is that many HMO administrators don’t understand medicine. Doctors, on the other hand, certainly do understand medicine. They’re ambitious and they want to be leaders. They want to get the skills and do it themselves.

One of the big things for physicians is to learn how to work in teams because they’ve been taught in medical school to work as individuals. In our program at the University of Tennessee we stress cohort learning. That means leadership has to float. In general, doctors are very good at taking responsibility, but they’re not used to letting the person with a better idea go ahead. They’re accustomed to being the ones to tell people how things are going to go. Doctors have told me that things in the real world are not like they are on ER [the television show].

Knowledge at Wharton: Do doctors learn about business quickly?

Dean: They can sit for hours, absorb tons of information and wear out teachers. In our program at Tennessee, they sit there 14 hours a day and get professors coming at them all the time, and they’re still learning at the end of the day. They are committed. They recognize that this is an opportunity for them,

Knowledge at Wharton: What’s likely to be the major change in the health care sector in the future?

Dean: HMOs are not going to go away, but they are going to morph into something different from what they are right now. I’m not sure what that will be, but we will see systems in which HMOs share risks with doctors. That will be a good thing for patients.