Managed care has prompted thousands of doctors to join physician-hospital organizations, medical groups and independent practice associations in the past five years.
But none of these models ensured success. In fact, many new entities were a flop.
Now, physicians are pinning their hopes on the management service organization.
The MSO isn't another model for integration. Rather, MSOs provide contract management and/or practice management services to physician organizations.
Many MSOs are being formed by hospitals or investor-owned companies such as PhyCor and MedPartners, which previously was called MedPartners/Mullikin. Physicians who can obtain the necessary capital are also forming MSOs, and some are owned by a combination of entities.
Some MSOs purchase the equipment, furniture and supplies of medical practices and employ the office staff and physicians. Others contract to offer services to IPAs, which are networks of independent physicians. In most cases, MSOs use a combination of approaches.
Growing interest in MSOs led several physician associations to commission a case-study analysis of MSOs, which was recently published.
"I think MSOs have become maybe the most popular model in the last year or so," said Thomas Gorey, a consultant and attorney who coordinated the study.
Gorey, president of Crystal Lake, Ill.-based Policy Planning Associates, is a member of the American Medical Association's Doctors Advisory Network.
MSOs position themselves between payers and providers, adding information systems, administrative expertise and other elements needed to transfer risk to groups of doctors.
"The key component that was missing (in physician organizations) was the administrative component, and MSOs are providing a real strong administrative infrastructure," Gorey said.
The study examined seven MSOs with varying ownership, geographic locations and services.
According to the study, initial capitalization requirements range from $1 million for a small market with little managed care to hundreds of millions of dollars for MSOs covering multiple regions or the nation.
MSOs don't have to be large to succeed, but Gorey predicts they will consolidate. Large MSOs can purchase more expensive information systems and hire more experienced staff.
Significantly, the study found that MSOs are maturing in their dealings with payers and hospitals and casting out past animosities.
Those MSOs studied tended to develop long-term relationships with payers and hospitals rather than merely try to optimize their short-term financial arrangements. Several MSO leaders suggested the need for "equilibrium" among the parties, where everyone profits.
Related to that, many MSOs reject the idea of forming their own HMOs, even though they are conducting functions formerly associated with HMOs, such as credentialing, full-risk acceptance, medical management and quality assurance.
Physician organizations appear to have learned from the failures of previous antagonistic approaches to payers, Gorey said. Also, he attributed the more cooperative attitude to the fact that MSOs are hiring administrators who previously worked for HMOs and hospitals.
At the same time, successful MSOs include physicians on their boards and committees. Said one MSO administrator in the report: "If you have physicians from the IPA and the medical group on the board, you don't have to look real far if you have to make a decision or if you have a problem."
MSOs are striving for flexibility by incorporating both medical groups and networks such as IPAs.
Even in advanced markets like California, MSOs don't know which model will succeed, and they want to have their feet in both camps, Gorey said. Also, MSOs can attract more physicians by recognizing that some prefer the close associations of an integrated group while others want to maintain their own practices through IPAs.
That's a big shift from a couple of years ago, when many believed the IPA was a transitional structure.
"There is a feeling that not only are IPAs not dead, they are very much alive and a critical component of many of the MSOs," Gorey said.
Gorey, who conducted two previous studies on physician structures, predicts the next hot integration model will be single-specialty networks. In the past, specialists assembled in large groups to thwart managed care, but now many want to benefit from managed care with capitation and carve-out arrangements.
The MSO study was sponsored by the AMA, the American Academy of Otolaryngology (head and neck surgery), the Indiana State Medical Association, the Massachusetts Medical Society, the Medical Society of the District of Columbia and the Michigan State Medical Society.
Copies are available from the Michigan State Medical Society at 517-337-1351.