Physicians balked at that type of control.
Despite the problems, Highgenboten and Columbia officials believe the hospitals and physicians will come together. "Conflict ultimately leads to resolution," Highgenboten said.
But such an assumption may be faulty. "The basic fallacy that the hospitals have is that they believe that sooner or later the doctors will have to work with them," Korman said. Physicians may not see it that way, he said, noting that 11 surgery centers are now under development in the Dallas/Fort Worth area. Surgeons are saying, "We can do 80% of the surgeries that hospitals do and we can run it," Korman noted.
Common problems. Officials of investor-owned systems acknowledge that the problematic negotiations Columbia's Medical City is going through can be common.
For example, in Houston, Tenet has been trying to grow its MSO, which in less than two years has had three directors.
The present director, Tom Roberson, has been in the post for a year. Before he joined Tenet, Roberson was chief financial officer at a hospital in Saudi Arabia for 14 years.
Although his credentials may seem odd for an MSO director, Roberson said his position draws heavily on on-the-job experience. "A lot of hospitals have taken hospital administrators out of the hospital to start these MSOs, and that's not successful," he said. "They institute things like having the doctors sign a requisition order for medical supplies, and they're not going to do that."
Tenet, like many other hospitals, is trying to establish regional MSOs that can bring cost efficiencies to managing physician practices. However, some of those efficiencies can be wiped out by other expense increases because the staff of an MSO is more likely to share the employee benefits offered by the hospital.
"Fifty percent of doctors don't pay benefits, and 80% of doctors don't pay overtime," Roberson said. The MSO increases doctors' costs, he added.
Regardless, Roberson believes more physicians will turn to MSOs because they are having an increasingly difficult time sorting out administration of all the managed-care contracts they sign.
The Tenet MSO in Houston has 55 physicians in a variety of contracts. Four are salaried, but most contract with the MSO through a fee or a percentage of revenues. In addition to managing their practices, the MSO negotiates managed-care contracts for them.
Tenet wants to be flexible with market-by-market approaches, said Barry Schochet, executive vice president of operations in the company's Dallas operations center. "We didn't take the approach that anything is canned," he said.
Tenet owns or manages the practices of 550 physicians, but that's not a core strategy, said Randolph Smith, Tenet's executive vice president. Instead, the Santa Monica, Calif.-based company is trying to form IPAs at all its 75 hospitals. The IPAS would contract with its regional MSOs.
One of Tenet's biggest PHOs is in the New Orleans area, where it owns the practices of 102 physicians and has more than 600 doctors in a regional PHO.
OrNda's "Super IPAs." Taking a different approach, Nashville-based OrNda is turning away from PHOs. Although the investor-owned chain's hospitals have several of them, OrNda is in the process of turning them into "Super IPAs."
For example, in Florida, OrNda is turning its PHOs, which have 900 physicians, into a Super IPA. Carol Murock, OrNda's senior vice president for business development and managed care, said the PHO is a "transitional structure" that has a lot of strikes against it.
Not only do physicians balk at them, but "the payers aren't wild about them," she said, adding that with a PHO structure, "there's no way the payers can contract with just the physicians."
To keep its hand in the business, though, OrNda makes an equity investment in the Super IPA, typically between 30% and 45%, and supplies management support services, often through an MSO.
Tony Krayer, OrNda's senior vice president in acquisitions, said OrNda leaves governance of the Super IPA to the physicians. "Physicians need to manage physicians," he said.
Others echoed that feeling, noting that buying physician practices can be a financial loser. "They're buying their business back is what they're doing," said Steve Volla, president and CEO of Primary Health Systems, Wayne, Pa.
Physician strategy for Tenet Healthcare Corp.
Build regional MSOs
85% of hospitals have PHOs; most are 50-50 ventures
Appointed Dennis Brown, vice president of physician management services, to coordinate strategy
PHYSICIAN STRATEGY FOR ORNDA HEALTHCORP
Invest in physician groups through a minority equity interest
Form regional MSOs
Move away from PHOs and into Super IPAs