Specialists, long trained to be self-reliant and individualistic, are seeking strength in numbers.
From 1980 to 1991, the number of physicians in single-specialty group practices more than doubled to 76,143, or 45% of all physicians in group practices, according to the American Medical Association (See chart, p. 76). The number of single-specialty practices rose at nearly the same rate. Some 11,504 such practices exist, making up 71% of group practices (See chart, p. 78).
In many markets, activity has accelerated in the past two years, with more physicians cooperating in loose-knit networks or independent physician associations. Some are merging their practices.
It's a paradigm shift, said Elizabeth Fischer, managing director of BBC Research & Consulting in Denver.
"What we're seeing is physicians trying to look hard at how they're practicing medicine and being cognizant of whether they're effective providers," she said. "They want to make sure their stats look good. They want to make sure they're the preferred group."
The main impetus is managed care. Big groups are attractive because they reduce administrative costs for health plans and offer broad geographical and subspecialty coverage. Large practices also are better positioned to shield themselves from abrupt shifts in managed-care provider lists and resist being corralled into exclusive deals with hospitals.
But despite these benefits, the future is uncertain for single-specialty medical groups. At issue is whether they will coalesce into multispecialty groups with primary-care components, which are widely considered the model of the future.
Market influence. The answer is likely to vary by market. Critical for hospitals is whether their specialists join the type of network that will attract managed-care contracts.
Within the past year or so, Tom Andrews, director of managed care at St. Joseph's Hospital in Atlanta, has seen physicians form at least 11 single-specialty networks ranging from 10 to 70 physicians. The networks are taking on risk and coordinating the delivery process, including referrals, administrative services, utilization review and pre-certification procedures.
Hospitals should support their physicians by helping them document practice patterns for health plans, Mr. Andrews said. "It is in your best interest to make sure your physicians are being proactive in marketing their practices."
A danger with single-specialty groups is that they could collapse under their own weight. Specialists tend to have an all-for-one-and-
one-for-all mentality that might not hold amid shrinking demand for their services.
"It's a natural thing when you're under attack. You look for allies and circle the wagons," said Bill Stiles, president of Integem Healthcare Development in Chattanooga, Tenn., which performs strategic planning for hospitals and physician-hospital organizations. "But most systems and most managed-care organizations don't need all of those specialists.
It only takes a couple of specialists willing to enter into contracts on another basis for the whole thing to fall apart."
One managed-care company that takes a stand against single-specialty practices is FHP International, based in Fountain Valley, Calif. It doesn't contract with them, said Paul Knopick, FHP's director of public relations. Instead, the company prefers to contract with individual specialists.
"Our concern in contracting with a group is that one of the physicians wouldn't meet our standards, and we wouldn't want to use that physician, and it becomes cumbersome if that physician is on call," Mr. Knopick said.
In mature managed-care markets, there is evidence that single-specialty practices are becoming too big. In Minneapolis, Sacramento, Calif., and Portland, Ore., partners have left practices rather than be subjected to perpetual salary cuts as managed-care gatekeepers stem patient flow, said George Conomikes, president of a Los Angeles-based consulting firm. Some specialists moved to markets with lower managed-care penetration, such as smaller cities and rural areas.
Another strategy specialists are adopting is joining multispecialty groups, where compensation tends to be lower but there is the security of being tethered to primary-care physicians (See chart, p. 74).
Denver's Beacon Medical Services, which manages emergency physicians, is linking with three primary-care practices that include pediatricians and obstetricians/gynecologists, to create a 100-physician "primary contract group." The group will include 20 emergency physicians and six pediatric emergency physicians. Beacon's goal is to cut costs as large HMOs move into the market seeking large primary-care groups to contract at full financial risk. Those groups subcapitate to specialists.
"We don't think we'll be able to stand alone as a single-specialty group in managed care, at least without being pushed around," said Frank Dingler, executive vice president at Beacon. "Unless you are part of a group that actually controls access to the specialists, I don't see any security in being part of a large group."
He said his physicians' compensation will remain about the same in the new group, but only because they already were paid less than other emergency physicians in town. He expects compensation for other emergency physicians to decrease.
Strong ties.In many markets, specialists banding together remainsan attractive strategy. Typical is Austin Heart Associates, the product of a Jan. 1 merger of two cardiology groups in Austin, Texas. Before the merger, the groups gained or lost huge blocks of patients overnight as PPOs switched among four hospitals. The groups, with four and five physicians each, couldn't cover every hospital on their own.
Now, with nine physicians, they accommodate patients at all of the hospitals. Plus, they capture extra revenue by performing nuclear studies and echocardiograms in-house, rather than referring them to hospitals, said Steve Gornik, administrator of the group. Previously, only one of the groups had equipment to do those tests.
Large groups also can resist being corralled by hospitals and healthcare companies. In Minneapolis, Orthopaedic Consultants, with 30 physicians and 20 offices, found it easy to resist when hospitals recently tried to insist that single-specialty practices sign exclusive agreements-although the practice eventually was disallowed under state law. Orthopaedic Consultants views its relationship with hospitals as cooperative, not subordinate.
"I think it would be very difficult for a hospital system that relies on patients brought in by a large group to force their hand, because they may be left without (those patients)," said Chief Executive Officer Robert D. Bergstrom.
Consultant Daniel Schuh, managing partner at Deer Creek Associates in University Park, Ill., which specializes in medical groups, advises clients to look for potential merger partners but avoid hasty decisions.
"I think there are still going to be a multitude of structures around for the next 20 or 25 years, and maybe quite a bit longer," Mr. Schuh said.
Geography also counts. Minnesota has a tradition of multispecialty groups. Denver does not. The South has a tradition of solo practitioners and small groups. And managed care won't dominate every market.
Ultimately, the fate of single-specialty groups will depend on their ability to control costs and outcomes. Large groups have the resources to establish better systems to track utilization and outcomes.
Can be good news.Consolidation of specialists "is not a bad-news story," said Donald W. Fisher, executive vice president and CEO at the American Group Practice Association, which represents physicians in 250 group practices. "It may be frightening for some specialists who find themselves in highly competitive markets where they can't sustain the revenue they've had, but I think for patients overall it's a good trend."
A prime example is Dallas-based Texas Oncology, with 127 physicians and 45 locations statewide, including nine full-service oncology centers that provide diagnostics, chemotherapy and radiation therapy. The group's strategy is to provide seamless care and develop the country's most complete oncology outcomes database.
Texas Oncology wants to duplicate its form in other states and intends to announce expansion into four states around the end of the year, President Merrick Reese, M.D., said. This strategy gained the confidence of investors. Last year the practice created a management company called Physician Reliance Network, which attracted private investors and lines of credit from banks. "We look at a national market for oncology," Dr. Reese said.
Another group that's finding its services in demand is Kay Medical Group for Cardiovascular and Thoracic Surgery in Los Angeles. Two Southern California hospitals plan to use Kay's positive reputation to attract patients to their cardiac programs by establishing Kay satellites.
Creating the satellites is a lot of work, but customers want the service close to home, and hospitals need to improve quality, said Chris Robson, Kay's director of business development. "Everyone knows outcomes reporting is going to become an important part of healthcare, and this kind of data gets printed in the newspaper. They know if they have the small program they're going to get scrutinized," he said.
Single-specialty advocates say multispecialty groups have a harder time optimizing the use of specialists and support staff, and it's risky for them to take on high-cost specialists such as cardiologists. Mr. Conomikes uses the example of a retailer that makes its own house brands, only to find it's spreading itself too thin and delivering inferior products.
Facing changes.One thing tha could stand in the way of large single-specialty medical groups is the law. Last year the Federal Trade Commission announced it wouldn't challenge physician network joint ventures that have less than 20% of the physicians in a specialty in a geographic market and have substantial shared financial risk. However, single-specialty medical groups could easily exceed that ratio.
A solution would be to expand a group into multiple markets. "There have been a few challenges to medical group mergers, but it's a relatively untapped area in terms of government enforcement activity," said Keith Korenchuck, a Charlotte, N.C., attorney.
Mr. Andrews of St. Joseph's Hospital argues that multispecialty groups will dominate because it's the only way to unify incentives among physicians. He concedes, however, that the groups first must learn to run like well-oiled machines. That means cross-training support staff in different specialties and teaching physicians a mind-set of interspecialty cooperation, he said. It will take capitation-or risk-to provide the incentive.
Mr. Andrews predicts specialists will adjust to their new horizontal, or single-specialty, forms, then observe the financial advantages to be gained from cooperating with other types of specialists and primary-care physicians. It will require a major adjustment, from providing episodic care to guarding the overall health of populations.
"Specialists have essentially worked based on their focus of knowledge. They're there to perform a certain service and send the patient back to the person who referred them," Mr. Andrews said. "The concept of working as a team is brand new in their minds in the sense of the way they've been trained and the way they've practiced."