Physicians say they are eager for a chance to contract directly with Medicare through provider-sponsored networks, but circumventing HMOs won't be easy even if legislation is passed allowing them to do so.
Small physician groups are generally unprepared to assume risk, and some of the largest and most integrated groups would prefer to continue their contracts with HMOs.
Donald Lloyd, president of the Englewood, Colo.-based Medical Group Management Association, expects it will take a couple of years before physician groups are prepared to operate provider networks. In the meantime, he said, some will probably attempt it and fail.
Lloyd envisions provider networks in some cases partnering with small insurers for actuarial assistance, but he also sees an end to HMO profits being "squeezed from the delivery system," he said. "The Cignas, Prudentials, and Aetnas will never want to share the decisionmaking with us."
The MGMA's consulting division is busy teaching physician groups to develop computer capabilities, expand service sites, change compensation methods and alter physician behavior to accept risk.
Robert Bohlmann, director of the consulting division, said educational efforts are driven primarily by capitation in the commercial market.
"Unfortunately, some physicians are of the impression that if you press a button (the ability to manage risk is) going to happen instantaneously," Bohlmann said.
Bohlmann also is concerned about "an explosion in capital costs" for groups, with venture capitalists reportedly charging 18% to 20% interest per year.
"One of the problems I see is that capital is too available today, and physicians do not understand there has got to be a payback," he said.
There's also the question of whether it's reasonable for providers to conduct all the functions of HMOs. Some publicly traded physician practice management companies aren't eager for direct contracting.
Larry House, president and chief executive officer of Birmingham, Ala.-based MedPartners, which operates primary-care and specialty practices in 10 states, thinks few if any provider networks will succeed.
"We think those provider groups that attempt to (contract directly) may find it more difficult than it appears on the surface," House said.
MedPartners is merging with Long Beach, Calif.-based Mullikin Medical Enterprises, which cares for more than 360,000 prepaid HMO enrollees through 58 medical centers. House said the combined enterprise will continue to partner with HMOs and hospitals and stick to what it does best: manage doctors.
Another leading physician management company, PhyCor, also would prefer to share risk with HMOs and hospitals rather than contract directly, unless the Medicare rate was so low in a particular area that HMOs weren't in the market, said President and CEO Joseph Hutts. In that case, Nashville, Tenn.-based PhyCor would look to share risk with a hospital, he said.
"I think there's a legitimate contribution that the HMO makes in providing actuarial data and marketing and reserves," he said.
That's not to say that HMOs won't have a more limited role in the future as providers learn to manage risk.
Durham, N.C.-based Coastal Physician Group owns clinics in six states as well as three HMOs. Vice Chairman John Hemingway said Coastal's HMO capabilities and heavy investment this year in real-time information systems will position it for direct contracting. In fact, Hemingway said Coastal already has talked to some hospitals about joint venturing in provider networks.
But Hemingway believes HMOs will evolve into third-party administrators and their share of the premium dollar will decline to 12% to 13% instead of 20% to 30% today.