Independent No More:

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.

Independent No More: How Effective Have Physician Organizations Been in Responding to Managed Care?

Conference Transcript | January 27, 1999

This conference examined the variety, structure, and performance of physician organizations across the United States at a time when many such organizations were struggling. The preceding year had brought a wave of well-publicized failures, most notably among physician practice management companies. In HSC's own community site visits, hospitals frequently reported enormous difficulties integrating purchased physician practices into effective care delivery systems.

The Landscape of Physician Organizations

Purchaser pressure to control premiums and the resulting growth of managed care had created a contest for control of the premium dollar among health plans, hospitals, and physicians. Physicians continued to play the pivotal role in directing patient flow through the delivery system, making their behavior central to any entity's cost-control efforts. Yet consumer demand for broad provider networks and specialist access complicated these efforts.

HSC's 1996 physician survey found that 40 percent of doctors were still in solo or two-physician practices. But the landscape had been changing rapidly, with physician organizations becoming larger and more formal. These organizations had expanded their scope well beyond traditional patient care and billing to encompass managed care contracting, medical management, and related functions. Whereas physicians in traditional practices took out all earnings as income, the newer model required financial investment in organizational infrastructure -- data systems, administrative capacity, and more.

Case Studies from HSC Communities

The conference featured three case studies drawn from HSC's study sites. Community Hospitals Indianapolis (CHI) represented a multi-hospital system that had acquired physician practices to build an integrated delivery system and protect its referral base. Harvard Vanguard Medical Associates in Boston was a multi-specialty group of 600 doctors that had spun off from a staff-model HMO. Thomas-Davis Medical Centers in Arizona was an 80-year-old practice that had been acquired twice by for-profit companies before dissolving when its parent PPMC went bankrupt.

Key characteristics distinguishing physician organizations included whether they were physician-only or involved non-physician entities, whether the arrangement was ownership-based or contractual, how capital was raised, who controlled governance, and the degree of exclusivity. The role of physicians within these structures -- as owners versus employees, and their level of involvement in day-to-day management and medical management decisions -- proved critical to organizational success.

Objectives and Challenges

The objectives of physician organizations could be distilled to three goals: leveraging the physician patient base in negotiations for a share of the premium dollar, controlling costs through operational and clinical efficiencies, and gaining access to capital for organizational growth and integration. Achieving these objectives proved far more difficult than articulating them. Operational and clinical efficiencies were hard to realize, the added administrative layer sometimes cost more than the benefits it produced, and pressure for short-term financial results often conflicted with the longer-term investments needed to build effective organizations.

The conference was moderated by HSC President Paul B. Ginsburg, with background remarks from HSC Health Researcher Joy Grossman. Panelists included David Blumenthal, M.D., Director of the Institute for Health Policy at MGH/Partners Health Care System; J.D. Kleinke, Chairman of Health Strategies Network; and Jacob Kuriyan, CEO of Physmark.

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.