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The Managed Care Insider eNews
Volume Three Number 6
June 2001
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This issue of The Managed Care Insider eNews focuses on the second generation
of provider-owned HMOs and IPAs - valuable lessons learned from first business
failures and strategies to succeed the next time.
As always, we want to hear from you. Email your comments to insider@scheur.com
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The Future of Physician-Driven Organizations
by Mary Ellen Luff
The First Generation
"If not us, who? If not now, when?" was a battle cry I first heard
from a group of physicians who were launching their own HMO in 1994. The feeling
among physicians throughout the country was reminiscent of that famous line in
the movie Network: "I'm mad as hell and I'm not going to take it any more." Physicians
and patients together again, making medical care decisions in a cost effective
way. Who could argue with the logic?
The timing for change was right and public sentiment was on their side. The result
was a plethora of physician organizing and integration activities.
For physicians, the issue was about control and fairness -- regaining control
of medical decisions, gaining control of the medical services budget, and restoring
fairness between HMOs and patients who really needed access to care.
For Wall Street and the business community, the issue was about a $190 billion
budget for physician services alone. Conventional wisdom suggested that significant
cost savings and surpluses would be generated through larger, more organized
groups of physicians. Even a savings of 5% would yield $10 billion.
But, as we know all too well, these first generation attempts at organizing the
physician industry did not deliver on the promises of control, cost savings or
surpluses. Few physician-owned HMOs survived, hundreds of IPAs have folded since
1999 (120 California IPAs alone), and most of the physician practice management
companies have gone by the wayside. Regardless of the model, the expectations
for these physician-driven organizations far exceeded the results, leaving many
of those involved disheartened and wondering how a movement that made so much
sense, delivered so little on what it had promised.
Incremental but Substantive Gains
To classify the physician organization movement as a total failure would be shortsighted
and untrue. The fact of the matter is, on a macro level, these physician organizations
did make some headway, spurring incremental changes in how healthcare services
are delivered. For example, using primarily grass roots marketing strategies,
they were able to rally tens of thousands of physicians toward a common purpose,
create national awareness of patient access problems and influence corporate-minded
HMOs to adopt a kinder and gentler attitude. (Some HMOs say it was an epiphany,
but it truly was the result of physician and public pressure.)
But, after the euphoria of the initial mobilizing and capitalization was over,
not much changed in the day-to-day practices of most physicians. Noticeably absent
are gains from economies of scale, payer contracts and integrated delivery of
care. Chances are, if you polled 100 current and past IPA and provider-owned
HMO members, and asked them what they have gained from their membership, about
80 (of the polite ones) would say, "Nothing. As a matter of fact, I lost
a lot of money." The other 20 would tell an entirely different and passionate
story. They were the leaders of these first generation organizations. It's this
20% who will successfully use the lessons learned as a springboard to re-launch
powerful and efficient physician organizations. And this time, they will get
the job done. Preliminary findings from anecdotal stories are amazingly the same,
regardless of the model. Here's what physician leaders have told us over the
past few years:
The Next Time They Do It, They Will…
1. Corporate structure
· Pick their partners carefully. Select like-minded physician partners who share
their commitment to clinical training and quality, and, most importantly, their
business and personal values.
· Choose nimble governance. Physicians hate committees. Limit the number of decisions
that require super majority votes to those issues that have serious impact: addition/termination
of a partner, debt requiring personal guarantees, and sale or acquisition of
the business.
· Require physician commitment. There will be no allowance for physicians to
opt in and out of decisions, or the business itself.
2. Customer focus and critical mass
· Know their market. Understand the demographics, identify a niche and make sure
everyone knows about it.
· Build on their existing market share and specific talents of their physicians.
· Deliver on what the customers want -- employer groups, payers and patients.
3. Strategic planning
· Physicians prefer brief discussion followed by quick action. But planning is
worth the time and money. The cost of not planning is just too great.
4. Strategic relationships
· Develop a strong working relationship with payers. Understand what they want
and give it to them. In return, expect fair reimbursement and basic administrative
efficiencies, such as: electronic verification of claim status, member eligibility
and referrals, regular and accurate utilization reporting. (They are the only
ones who have systems with all the data for an episode of care, at least as of
today.)
5. Focus on core business while pursuing strategic initiatives
· Run down parallel paths -- internal medical management/operational efficiencies
and strategic initiatives. It's hard to prove to the market you have a great
strategic initiative when your own house isn't in order. It goes back to giving
the customers what they want.
6. Invest in the business
· Invest in information systems, equipment, human resources and outside advice
when needed. This time, they are building a business that all stakeholders want
to be a part of -- staff, patients and physicians.
· Start with adequate capital, but there is no reason to build everything before
they open the doors. On the contrary, that's probably the worst thing they can
do.
· Get good financial advice: now they know what to ask for.
The New Physician-Driven Enterprise
The premise upon which physician organizations of the '90s were founded was,
and still is sound: physicians need to control medical decision-making, and there
remain opportunities for inroads to economic gains. After all, since 1994, physician
services expenditures have grown from $190 billion to over $258 billion at the
end of 2000, according to HCFA's National Health Expenditures Projections 1998-2008.
The regulatory environment surrounding IPAs and individual state requirements
for IPA reserves, combined with Stark II legislation, will make it more difficult,
if not impossible, for loose physician coalitions to truly achieve economic gains
or control over-expanded medical services. The numbers speak for themselves.
In addition to the IPA closures in California, trends on the East Coast don't
bode well for the future of IPAs. According to The IPA Association of America
(TIPA), in New York State alone there are over 500 registered IPAs. However,
only about 60 to 70 are actually active and functioning. Some long-established
IPAs will continue to seek enhanced contracts with payers, based on the assumption
that increases in premiums will bump up inadequate capitation rates. And some
large multi-specialty networks will turn their focus to leased arrangements with
self-funded PPOs and TPAs. A few will hope to establish direct contracts with
employer groups, but they will continue to face the challenges so prevalent in
the '90s -- trying to control the cost of medical care while simultaneously preserving
physician autonomy.
Most of the movement in physician organization will center on the development
of true group practices. Although still a small minority, because of the organizing
activities of the '90s, there are more seasoned physician leaders than ever before.
Group practices that capitalize on the leadership skills and experience of those
early leaders will have a strong competitive advantage. The type of groups that
emerge will vary from single-specialty, single-discipline to multi-specialty.
Their size, composition and growth strategy will depend on the business strategy,
market needs and capital requirements of the practice. But the successful groups
will share some of these common characteristics:
· Strong physician leadership
· Superior information systems
· Efficient operational administration
· Physician compensation plans with aligned incentives
· Customer commitment
· Clear sense of business purpose that goes well beyond third-party contracting
· Organizational cultures that will attract the best and the brightest in terms
of physician and management talent
Early physician organizations were not complete failures. They were the first
phase in the evolutionary process of change.
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About the author: Mary Ellen Luff has experienced the healthcare industry from
a unique combination of insider perspectives -- corporate human resources, physician
practice management, integrated health systems, and most recently as the Regional
Executive Director of a provider-owned HMO. Applying her 15 years of industry
insight and broad-based management skills, she has put her expertise to work
for providers who are striving to raise the bar for healthcare delivery.
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Speaking Engagements:
September 9, 2001
NAHQ's 26th Annual Educational Conference
Reno NV
Topic: "Resuscitating Managed Care: Getting Off Life Support and Recovering
Credibility"
Speaker: Barry S. Scheur
October 12, 2001
ViPS interAct 2001 Conference
Monarch Hotel, Washington, D.C.
General Session: "e-Health"
Speaker: Barry S. Scheur
If you are interested in contracting either Barry Scheur or any SMG/VHPG associate
for your organization, please contact Nancy Belle at nbelle@scheur.com
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Sites and Sounds on the 'Net
SMG has no ownership of, nor does it endorse the following sites. This information
is presented as a resource for subscribers. In keeping with this issue's focus
on dealing with physicians and practice management needs, we present the following
sites that cover this area.
The American Academy of Family Physicians has many links, including a self-test,
to offer resources and assessments on practice management at http://www.aafp.org/practice
The American Academy of Medical Management has a site dedicated to practice management
at http://www.epracticemanagement.org
Medscape has a full section devoted to practice management with many resources
at http://medoffice.medscape.com/Home/network/MOM/MOM-welcome.html
Yes, there is information on amazon.com, even books on how to market the physicians'
practice. See http://www.mbookshop.com/m/Medical_Practice_Management/Marketing_the_
Physician_Practice_1579470106.htm
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End of The Managed Care Insider eNews,
Volume Three, Number 6.
Scheur Management Group (SMG) is one of the most experienced specialized healthcare
operations management and business revitalization consulting firms in the country.
Our expertise is in time-sensitive analyses, strategic business and market planning,
operational re-engineering, and communications, as well as implementation of
start-ups, expansions, and new products. The firm's clients cover the spectrum
of insurers, managed care organizations, physician groups, integrated delivery
systems, hospitals, employers, governmental entities, vendors, and other providers.
Contributing to this edition is Mary Ellen Luff. Editing and Research by Judith
Jaffe. Production Coordination by Nancy K. Belle.
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