It's tough for physician groups to meet the capital demands of managed care without losing autonomy to hospitals or Wall Street, but nine Midwest groups think they have found a solution.
By starting their own physician practice management company, called Stratum Med, the groups will combine their purchasing, physician recruitment, credentialing, information systems, telecommunications and malpractice liability insurance for nearly 900 physicians.
Unlike some other PPM companies, Urbana, Ill.-based Stratum Med was not created with the goal of going public. Rather, says President and Chief Executive Officer Gerry Tresslar, the aim is to help the groups lower their cost structures and stay competitive while remaining independent.
"Finding 8% to 10% (savings) certainly means the difference between financial stability and instability," Tresslar says.
Technological demands might force Stratum Med to bring in nonphysician shareholders. "In the future, we may look to some other capital partners (such as) insurance companies, pharmaceutical companies, computer companies," Tresslar says.
Other physician groups have combined their resources. Last fall, three Oregon medical groups merged and created a practice management company called Physician Partners (July 8, 1996, p. 12). And in 1995, 11 Washington state medical groups with 750 physicians formed an alliance to negotiate prepaid contracts and conduct joint purchasing (Dec. 18-25, 1995, p. 28).
Stratum Med presents yet another model. It emerged from a series of joint ventures between the 300-physician Carle Clinic in Urbana and other physician groups to franchise the clinic's insurance product, Health Alliance Medical Plans, which covers 165,000 people.
The joint ventures require the clinics to manage premiums efficiently. However, it became clear they were not prepared for managed care, says Carle's chief executive officer, Robert Parker, M.D. He says none of the franchise clinics use mid-level providers, clinical protocols or telephone triage techniques.
Another impetus for the venture was the fact that many of the groups' administrators have known each other for years, and trust was not a problem. "This is coming together largely because of the people," Parker says.
Clinical information systems are a critical need. Quincy (Ill.) Medical Group, for example, lacks the expertise and money to buy a clinical system on its own, says Bill Sullivan, administrator of the 65-physician group. Sullivan called the group's $30,000 investment in Stratum Med "insignificant" in comparison with what Wall Street companies would extract.
In fact, several groups considered signing long-term contracts with publicly held PPM companies.
Sterling (Ill.)-Rock Falls Clinic signed a letter of intent with Nashville-based PhyCor, but backed out last year. Sterling Medical Director Joseph Neiween, M.D., says the deal required the physicians to share governance equally with PhyCor managers and to set aside 7.5% of its earnings to be spent at PhyCor's discretion. In addition, PhyCor would command a management fee of 7.5% of the group's income.
"We found out we were giving up control of the management of our clinic and a good deal of revenue," says Neiween, who is secretary of Stratum Med's board, in which all voting members are physicians.
Stratum Med, which was incorporated in late 1996, raised $2.5 million from its owners and set up a line of credit from Health Alliance, Tresslar says.
Stock was allotted based on the number of primary-care physicians in each group. Carle Clinic, with 37% of the shares, is the largest stockholder.
The company envisions being a regional provider with 20 or 30 owner groups covering a 300-mile radius in Illinois, Indiana, Iowa, northern Missouri and southern Wisconsin.
Parker sees other opportunities for collaboration among independent medical groups, such as a national purchasing organization.
"It's a leadership issue. It requires a lot of work," he says.