Physicians Must Lead Local Organizations if Practices Are to Work, Panel Says

Originally published by the Center for Studying Health System Change (HSC). HSC was a nonpartisan policy research organization funded principally by the Robert Wood Johnson Foundation.

Physicians Must Lead Local Organizations if Practices Are to Work, Panel Says

Conference Executive Summary | February 2, 1999

While no established formula existed for building successful physician organizations, a panel of health care experts convened by HSC agreed that doctor groups were most likely to thrive under managed care if they were modestly sized, locally governed, physician-run, and physician-owned. Panelists David Blumenthal, M.D., J.D. Kleinke, and Jacob Kuriyan reached this conclusion after examining the recent struggles of for-profit physician practice management corporations (PPMCs) and hospital-based integrated delivery systems, both of which suggested that new organizational strategies were needed for the business side of medicine.

The roundtable, titled "Independent No More: How Effective Have Physician Organizations Been in Responding to Managed Care?," used case studies from three HSC study sites to illustrate the variety in structure and outcomes among physician organizations. Community Hospitals Indianapolis represented multi-hospital systems that purchased physician practices as part of a strategy to build an integrated care continuum and secure referral networks. Harvard Vanguard Medical Associates in Boston was a multi-specialty group of about 600 doctors that had recently separated from a staff-model HMO. Thomas-Davis Medical Centers in Arizona was an 80-year-old group practice that had been acquired by two for-profit companies in four years and then dissolved when its parent PPMC went bankrupt.

Key Observations

Dr. Blumenthal argued that physicians' role in successful organizations was still evolving. Doctors had long been accustomed to near-complete clinical independence, which they guarded fiercely because they bore unique accountability for patient outcomes. As organizations grew in response to managed care, the managerial dimension became increasingly important, but to maintain legitimacy in physicians' eyes, governance needed to remain in their hands -- as it was at Harvard Vanguard.

Kleinke contended that hospitals had too often taken a technocratic approach to organizing doctors, relying on compensation systems and productivity incentives rather than acknowledging the importance of physician leadership. A better path was to educate physicians in managed care techniques while moving toward group-based capitation and accountability. Kuriyan challenged the PPMC-era assumption that physician groups needed massive capital infusions to succeed, arguing that the information systems and administrative support for a modestly sized IPA were affordable. Hospitals like Community Hospitals Indianapolis could knit disparate physician groups into a cooperative system through a physician-hospital organization, provided they gave doctors meaningful input into governance.

Additional observations from the panel included: hospitals had overpaid for physician practices in bidding wars driven by competition from other systems and PPMCs; information systems needed to be sophisticated enough to track costs at the individual patient and physician level before groups could accept global capitation; innovations in risk adjustment were essential so that physicians caring for sicker patients would receive appropriate compensation; and PPMCs had held unrealistic expectations about the profitability of medical practice as a business, often generating growth through acquisition rather than added value.

Sources and Further Reading

Kaiser Family Foundation -- Employer Health Benefits Survey -- Annual data on employer-sponsored health insurance.

Health Affairs -- Peer-reviewed health policy research.

Robert Wood Johnson Foundation -- Health policy research and programs.