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Vol. 3. No. 3
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July/August 2001 |
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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 |
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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.
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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