Two or three years ago, HMOs were eagerly establishing their own primary-care groups. At the time, it seemed like a good idea.
After all, owning the physicians allows a plan to control the quality and cost of care, track outcomes and place practices in marketable locations.
But the strategy has proved troublesome. Several HMOs have throttled back the development of physician groups or sold them off.
Just this month, Brookline, Mass.-based Harvard Pilgrim Health Care announced it might restructure its 14 health centers, with 640 physicians.
And Miami-based Physician Corporation of America agreed to sell its 40 medical centers in Florida to FPA Medical Management, a San Diego-based physician practice management company. The centers employ 118 primary-care physicians and seven specialists (May 13, p. 29).
Some other examples:
Fountain Valley, Calif.-based FHP International, which started as a staff-model HMO in 1961, placed its 500 physicians in a separate company, Talbert Medical Management, on Jan. 1. Talbert's 58 centers in Arizona, California, Guam, Nevada, New Mexico and Utah now have 24 contracts with other managed-care organizations.
Rancho Cordova, Calif.-based Foundation Health decided in March to close two of its care centers in Northern California.
Cigna HealthCare sold its staff-model delivery system in Los Angeles, with 29 clinics and 330 physicians, to Caremark International, a physician practice management company based in Northbrook, Ill. (Oct. 2, 1995, p. 3).
Why the pullout? Each case differs, but most HMOs cite underutilization. Patients are loyal to their doctors, and it's tough to make them switch to an HMO-owned practice.
In areas with heavy managed care, practices can't be supplemented with fee-for-service patients, and competing HMOs are reluctant to send their enrollees to practices owned by a rival.
But there are other factors as well. Harvard Pilgrim decided its doctors would be more productive and patient-friendly in an affiliated group practice in which they own 50%, rather than the current staff model, a spokesman said.
The rollback does not, however, signal a wholesale retreat from physician practice ownership by HMOs. Foundation Health and Aetna, for instance, say they are staying the ownership course.
Several private plans-such as Seattle-based Group Health Cooperative of Puget Sound; Health Partners of Bloomington, Minn.; and Kaiser Permanente-maintain staff-model systems.
It's often easier for private plans to stick with physician practices in the years it takes to make them profitable, said John Penshorn, senior research analyst at Piper Jaffray, a Minneapolis-based brokerage firm.
"They don't have to show steady, consistent earnings growth.....so some of the short-term cost issues are a little less important. They've also got capacity well in hand," Penshorn said.
For some plans, owning practices has become a market-by-market decision.
Aetna, for example, operates 62 medical centers with 200 physicians in eight markets under the name HealthWays Family Medical Centers. Aetna has succeeded with the strategy in some markets, but recently postponed plans to develop eight primary-care centers in the New York metropolitan area, saying practice acquisition prices were too high.
HealthWays also decided this year to offer management services to independent physicians.
Kim Peters, executive director for HealthWays in northeast Ohio, said he expects his centers, which started two years ago, to sustain themselves financially in a year or two. The 11 facilities have 18 physicians.
Unlike some other HMO-owned groups, HealthWays markets to other health plans and fee-for-service patients. In fact, only about 5% of HealthWays' patients in Ohio are Aetna enrollees. "I try to work with people at Aetna, but frankly I'm here to build a viable practice, so I work with other (plans), too," Peters said.
In fact, distancing medical groups from the HMO owner could prove a good strategy.
Talbert, the FHP progeny, had a promising first quarter. Since Jan. 1, it has garnered 24 contracts with managed-care payers, as well as continuing to serve FHP patients. Talbert reported a net loss of $6 million on revenues of $200 million in the first quarter ended March 31, compared with a $25 million loss on $209 million in revenues in the year-ago period, FHP said. Enrollment grew 6.6% from the year-ago number, to 1.9 million.
Talbert expects to reach profitability by the end of June.
Analysts had speculated that HMOs wouldn't contract with Talbert because FHP continues to own a controlling interest.
"I was skeptical and I credit them. They have done a good job of developing outside relationships for those facilities," Penshorn said.