The term "industry" conjures images of large and efficient operators. It hardly seems applicable to U.S. medicine, which has about 600,000 physicians practicing in 400,000 offices.
That's one observation in a December 1994 report by Erik D. Wiberg and Cathy V. Muller of the San Francisco-based investment banking firm of Hambrecht & Quist. It says physician management companies will profit by organizing the estimated two-thirds of doctors who remain in independent practice.
The lasso being used to round up these solo and small-practice doctors is the independent practice association. IPAs are affiliations formed by independent physicians to contract with HMOs. They allow physicians to maintain autonomy while strengthening their bargaining clout.
Traditionally, IPAs have been regional networks, often run by the physicians themselves. Typically, they achieved little efficiency and had no capital for growth. Some physician management companies think they can change that.
"The management of physicians and aligning physicians in the IPA is a huge, nearly untapped market," said Sol Lizerbram, president and chairman of FPA Medical Management, a San Diego-based firm that develops and manages IPAs.
"We go into areas that have a concentration of HMO involvement and look to either contract with an (existing) IPA or assist in the formation of an IPA," Lizerbram said.
Founded in 1986, FPA built a San Diego IPA of 105 primary-care physicians practicing in 47 offices. It has capitated contracts with 12 managed-care companies, and pays specialists on either a capitated or discounted fee-for-service basis.
FPA provides expertise, capital and administrative services doctors need to function under capitation. It offers them the options of keeping their practices, consolidating with other physicians or, if they are in primary care, selling their practices to FPA.
Last year FPA seized opportunities on the East Coast. It developed the 300-physician Greater Delaware Valley IPA in the Philadelphia area. And it bought PrimeCare, an IPA in southern New Jersey, from its shareholder physicians for $2 million. PrimeCare, based in Haddonfield, N.J., has 270 primary-care physicians and 470 specialists. Hambrecht & Quist estimates FPA will capture about 58,000 capitated enrollees in the East by year-end, topping its 30,000 in San Diego.
Physician management companies that buy and retool medical groups, such as PhyCor, Coastal Healthcare Group and Pacific Physician Services, are accelerating IPA development. For them, IPAs are a quick way to expand market presence without much capital.
Phycor a good example.
For example, IPA development permits PhyCor-already the country's largest physician networking company with more than 1,000 doctors in its clinics-to affiliate with a much broader base of physicians.
In January, Nashville, Tenn.-based PhyCor announced its purchase of North American Medical Management, a Houston-based company that operates IPAs with 3,650 physicians in seven states. It is also creating a subsidiary, PhyCor Management Co., to develop IPAs.
PhyCor President and Chief Executive Officer Joseph Hutts said IPAs are helping PhyCor reach the "critical mass" needed to provide complete physician services in a market.
"Our basic thrust is to acquire a multispecialty clinic-or a primary-care clinic and merge multispecialty into that-and around that clinic build an IPA," Hutts said.
In San Antonio, PhyCor's 50-physician clinic is shored up by a 150-physician IPA. In Charlotte, N.C., a 120-physician group is supplemented by an IPA of 100 doctors.
Some physicians reject the comparison of IPAs to unions. But ultimately, well-run IPAs may help tip the balance of negotiations, now in favor of profit-rich HMOs, toward physician groups.
Lizerbram said FPA's physicians get a bigger slice of the capitation pie when they contract through an IPA than they would on their own.
Money savers.At the same time, IPAs save managed-care companies the expense of contracting with individual doctors. Of the five HMO models, IPAs hold the most marketshare-39.4%-according to InterStudy, a Bloomington, Minn.-based research firm. Plus, IPAs have 58% of the growing point-of-service market.
"We really service both sides of the equation," Lizerbram said.
FPA maintains physicians don't have to give up their independent practices to learn cost-efficient medicine. The company's bonus pool reimburses primary-care physicians for low utilization combined with quality care. Its San Diego IPA reports hospital bed-days per 1,000 enrollees of 140 for commercial patients and 850 for Medicare.
PhyCor's Hutts agrees. "I think IPAs will demonstrate they perform very well in controlling hospital costs. You're bringing medical management resources to them," he said.
Lizerbram says there is no reason IPAs can't stand on their own. He points out that his San Diego IPA competes with a staff-model HMO and other merged-asset structures.
But Hutts predicts many physicians will abandon IPAs and merge into groups once they overcome the fear of losing autonomy, in order to benefit from peer review and improve clinical results. He said IPAs will probably proliferate in the short term, but because they lack capital for growth and permanence, they will likely be a "transition vehicle."