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Game theory in the popular press.

IPAs confront market challenges

Physician's News Digest
Emily J. Tipping
October 1998
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Faced with an uncertain financial future, most private practice physicians have succumbed to market pressure and either sold their practices or joined independent physician groups.

In western Pennsylvania and across the country, physician practice acquisition proved to be a costly and painful experiment for hospital networks, insurers and physicians. For that reason alone, most independent physician groups say they have succeeded in their efforts to retain medical authority.

They report varied degrees of progress, or little progress, toward other goals, such as reduced costs and improved data collection. And with the exception of some rural markets, risk contracting has all but been relegated to myth—even if physician groups were ready to handle risk, they say they are at the mercy of Highmark Blue Cross Blue Shield, a dominant insurer which hasn't decided on a payment strategy.

To retain autonomy by providing inexpensive, quality care, physician organizations say they will need more capital, more useful data—not the short-term, claims-based information kept by insurers—and incentives for both physicians and payers.

"You have to get a visionary culture embedded in the organization in a real and meaningful way," said Nicholas DeGregorio, M.D., president of Preferred Primary Care Physicians, Inc., a group of 24 primary care physicians that formed in 1995. "Without the right incentives, it's not going to work."

Preferred Primary Care counts education and feedback among its physician incentives. DeGregorio said doctors respond favorably to one-on-one reviews where they can compare their data to that of their peers. The group also creates in-house financial incentives with its own risk pool. Everyone contributes money, a compensation committee establishes target goals, such as increased ophthalmology and foot exams for diabetic patients, and money comes out based on achievement of those goals.

DeGregorio called risk contracting a potential goal of the group, which wanted to be capable of handling whatever payment options came to pass.

One of the biggest obstacles to risk contracting, he said, is lack of data. Preferred Primary Care has concentrated on building its own data bank, creating clinical guidelines, measuring outcomes, and feeding data back to member physicians. The group receives some financial and informational support from Highmark through a five-year affiliation agreement that DeGregorio said "wasn't a make or break thing."

As part of an in-house quality improvement effort, physicians in Preferred increased their use of ACE Inhibitors for congestive heart failure and found that they reduced or eliminated hospital stays for those patients, a benefit to patients and, in the long run, insurers. Preferred Primary Care has conducted similar studies—with chart audits and measured outcomes—in treatment of acute myocardial infarction and diabetes.

"You can only manage what you measure," said DeGregorio.

He and others hope insurers one day will recognize these kinds of efforts and reward them with higher capitation rates.

That's not likely, said Peter Lund, M.D. and chairman of the contracts committee of the Phoenix Medical Network, an amalgamation of three independent physician groups in the Erie area. Even though hospitals and payers are saying they want to see more development of treatment guidelines to provide consistent quality care at a cheaper cost, Lund said dominant insurers have no incentive or reason to work with physician groups and will "savor the gravy" of any savings.

That creates a quandary for physician groups whose members pay out of pocket to buy information systems and set up quality improvement programs. "Why build the mountain if no one's going to climb it?" asked Lund.

A physician group's big challenge is getting the attention of insurers, said Diane Lares, a consulting manager with PMSCO, a health care management and consulting subsidiary of the Pennsylvania Medical Society.

Lares is working with Phoenix and another Independent Practice Association (IPA) model group, Kinzua Medical Associates in Warren, to get risk contracts. Kinzua, a group of about 70 physicians in a market with a very short history of managed care, has made remarkable progress, Lares said, landing four risk contracts with insurers. Phoenix continues to talk with hospitals and insurers, but has not yet reached any agreements.

Lares has had success approaching hospitals and insurers with a "ramp to risk" model.

"We're saying we want a risk contract, but we're fragile, we're learning," she said. "And it's not a good thing for physician groups to go under."

To take baby steps into risk contracting, Lares said groups define a time limit for the contract, limit the number of covered lives and then track everything as they go so they can determine how well they would be doing if they were at full risk.

Despite the progress Phoenix and Kinzua have made, Lares said it's not been at the speed they'd like and not with as much receptiveness from insurers, who want to control as much of the market as possible. She pointed to Highmark's Quality Incentive Payment System—which sets financial targets and rewards groups if they save money—as an example of how the insurer "wants to keep things on their terms."

"The reality," Lares said, "is insurers are not likely to delegate that kind of authority."

Another major obstacle for independent physician organizations is capital. Lund said Phoenix Medical Network has asked its 212 members to pay dues now that its initial funding has run out. If Phoenix succeeds in obtaining insurer contracts, Lund said that would boost their revenue.

Most physician organizations in the Pittsburgh area said they have been able to survive, so far, on internal funding and lines of credit.

"To get outside capital, you have to give something up. We're trying to control our destinies," said Alex Byers, CEO of Prime Medical Group, an organization of 26 specialty and primary care physicians who work south of Pittsburgh. Byers said the organization has brought in additional revenue through a large ancillary division that provides a wide range of medical testing.

Prime Medical also has learned it needs to control its size, Byers explained. Like some other groups, Prime grew very quickly and at one point had 46 members, a size it found to be unwieldy in light of its multi-specialty makeup.

"The larger you get, the more diverse your personalities and needs," said Byers. "Multi-specialty groups are especially tough. PCPs think they are more important and should be reimbursed more, and specialists think they are more important."

Deborah Robinson, a director at Houston Harbaugh and head of the law firm's health care practice, said multi-specialty groups are unique for that reason. Working with third-party payers can be especially difficult for those groups because of their built-in referral systems, something payers aren't equipped to deal with, Robinson said. Byers said he thinks Prime Medical physicians "think they would be interested in risk." Although it's something they've never tried and Byers himself said he's leery of, he conceded that risk contracts eventually could be the only way to stay profitable in light of shrinking reimbursements.

In the interim, Byers said Prime Medical would, like other groups, continue to improve patient care.

"We want people to come to us. Quality is the buzzword that separates you from the next guy in the absence of risk contracting," Byers said.

For the most part, independent groups that set cost-saving goals through economies of scale have not realized them, as least not to the extent they predicted.

Preferred Primary Care might be an exception: DeGregorio said the group averages 45 percent overhead, a full 10 percent below the national average.

"Any time you create a business you add overhead," said Dan McCarthy, executive director of Renaissance Family Practice, a group of 24 family practice physicians based in Harmarville. They have saved some money in volume pricing for vaccines and bulk medical waste removal.

At Genesis Medical Associates in the North Hills, executive director Mark Kissinger said the family practice group continues to have a line of credit and saves "a little bit here and there" through group purchasing.

"That's not the reason you do this, anyway. It's to put systems in place you wouldn't be able to with a two- or three-man operation," Kissinger said. Genesis members share a central lab and radiology facilities, along with a philosophy that Kissinger said reflects the group's success.

"Three years ago, everyone was getting lots of money, selling for eight- to ten-year contracts guaranteed. My group goes home every day after seeing 40 or more patients and feels good about what they do," he said.

To Kissinger, Genesis' biggest obstacles are lack of data and market payers with no discernible strategy. Currently, Kissinger is trying to negotiate out of a contract with Alliance Ventures—Highmark's physician practice management arm—to maintain a practice at the McCandless Primary Care Center. Kissinger said Genesis agreed to locate one of its practices in the center in early 1996, when physicians believed the integrated delivery system model had staying power,

"(Alliance) has shown its inability to manage the practices," said Kissinger, adding that the insurer never followed through on plans to establish a preferred system of providers.

Genesis has implemented an in-house preventative care module and is interested in controlling patient utilization. Kissinger said they'd not only like to see electronic medical records and diagnosis-based data, but also an organization of independent physician groups to work with insurers.

David Zorub, M.D., chairman and past president of the Allegheny County Medical Society, observed that most physicians who joined independent groups have been comfortable with their choice, but added the caution that the economic future for all independent physicians, whether in big or small groups, is tenuous.

"Those who want to stay independent are under increasing pressure to afford malpractice insurance and office rents at a time when reimbursement levels continue to fall," he said.

Deborah Robinson painted a more optimistic picture, saying that independent groups she's worked with are "very viable and just beginning to make progress."

"It takes a couple years of growing pains," she said, pointing out some of the older groups only formed in 1995.

Robinson said she has started to see "a maturity" in some groups, especially those that have hired executive directors with credentials. She predicted that two years from now, independent groups will have made even bigger jumps toward integration and efficiency.

The biggest obstacle, Robinson said, will continue to be third-party payers that continue to ratchet down reimbursements and change their already complex payment rules.

1998, Physician's News Digest, Inc. All rights reserved