As countless physician groups around the country join networks to gain leverage in their relationships with health plans, Hemet Community Medical Group of inland Southern California has persistently gone the other way.
The 56-physician independent practice association has fought hard to retain its local ownership and management. And today, at age 10, Hemet Community appears stronger than ever.
Kali Chaudhuri, an orthopedic surgeon who serves as chairman and chief executive officer of Hemet Community, says the association's success rests on its cohesion.
"The doctor's best friend is your fellow doctor, and your next-best friend is the local hospital," Chaudhuri says. "This is more important than what management company you choose. If local providers stand together, they can win mutual respect with the health plans. That is the key."
Hemet Community holds a five-year contract with Aetna U.S. Healthcare that accounts for the majority of the association's senior HMO patients. Doctors in the association serve 70% of the Medicare and private-pay patients in their primary market of Hemet and San Jacinto, Calif.
The physicians retain exclusive ownership of their association and contract with a local company for management services.
In part, the Hemet doctors owe their relative security to factors beyond their control. The Hemet-San Jacinto area is a 90-minute drive east of Los Angeles and has a population of 150,000 people, including a large retirement population that is rich in Medicare beneficiaries. In addition, the nearest competing hospitals are more than a 30-minute drive away, which makes it difficult for the health plans to hospitalize local enrollees elsewhere.
The association also credits its success to Geoffrey Lang, Valley Health System CEO since 1989. The system, which owns Hemet Valley Medical Center and two other hospitals, has never attempted to hire its own physicians and, under Lang, has worked to establish shared-risk agreements with local doctors. Those home-court advantages, however, would have made little difference to Hemet Community if its doctors had failed to unite when the chips were down.
In 1987, as senior-specific health plans began to catch on among Medicare beneficiaries in the Hemet-San Jacinto area, the region was served by eight separate medical groups plus individual practices. The gap between primary-care physicians and specialists was wide and clear.
"One consultant who came down to Hemet from San Francisco was adamant that the primary-care (doctors) form their own IPA and treat the specialists as a competitive enemy. We were supposed to beat the specialists up until we got good rates," says internist Alex Denes, medical director of Hemet Community. "All that did was divide us against each other."
That same year, a number of physicians organized as Inland Empire Health Care Medical Group and brought specialists and primary-care physicians under one roof.
Then in 1993, the group took another key step toward solidarity. Ownership of the association was in the hands of Chaudhuri and three other physicians at that time. To gain cohesion, the group organized under more democratic ownership and gave itself a new name, Hemet Community. A $1 million offering created 100 shares divided among 56 doctors. The minimum physician investment was $10,000, the maximum was $20,000; no physician was allowed to buy more than two shares.
Hemet Community confronted its first real crisis in 1994. That spring, Valley Health System had reached an impasse in its quest for a capitated contract with Aetna Health Plans of Southern California. Lang had called a capitated contract critical to Hemet hospital's financial survival.
In May of that year, Aetna announced the health plan opposed capitating the hospital. Chaudhuri and dentist John Jordan, co-owner with Chaudhuri of Hemet Community's management company, took sides with the local hospital, publicly calling upon Aetna to grant a capitated contract to Hemet Valley Medical Center.
At the end of that month, six physicians broke from Hemet Community to establish a competing group affiliated with PrimeCare Medical Group Network, a regional network of groups bound by long-term management contracts with PrimeCare International, a holding company owned by cardiologist Prem Reddy.
Aetna promptly shifted a number of enrollees to the PrimeCare affiliate. In November 1994, Aetna sent Chaudhuri a letter serving notice it would not renew Hemet Community's contract after the end of 1995.
"That was a real scary situation," internist Denes says. "We depended on that particular health plan for 70% of our business. It led us to believe that a health plan could unilaterally take away the comfort and safety we had felt as the largest provider in the community."
Aetna made it clear, Denes says, that Hemet Community could resolve the crisis by affiliating with PrimeCare or PhyCor. Meanwhile, Primecare and the new local affiliate of Hemet Community sued each other over issues related to antitrust and breach-of-contract allegations. In 1995, the warring camps settled their litigation, and the management company became a partnership between Chaudhuri and Reddy.
Throughout the struggle, Hemet Community had held firm in pressing the hospital's case for a capitated contract, one that would include a joint risk pool for Aetna-contracting physicians. In the end, new regional management at Aetna not only renewed Hemet Community's contract for five years but also signed a capitated contract with Hemet Valley Medical Center.
Although the showdown with Aetna was over, a new battle with PrimeCare was just beginning. Reddy was determined to fully integrate Hemet Community into the PrimeCare network, but Hemet Community doctors were adamant that they remain self-owned, with PrimeCare's role limited to that of a contractor, Denes says.
Chaudhuri, still chairman of the group, sold his 50% share in the management company to Reddy in exchange for a $7.5 million promissory note.
PrimeCare and Hemet Community sued each other, each accusing the other of violating the terms of the management agreement. In the settlement that ensued, Chaudhuri took back ownership of the management company from PrimeCare, but at a high price: He agreed to assume $12.5 million in debt from PrimeCare.
In January, Chaudhuri reorganized the Hemet management company as a joint venture with Valley Health System. The hospital district paid $4.9 million for a 30% stake in the new company and has options to buy another 20% share at a specified price.
Lang sees the joint venture as furthering the collaboration that began in earnest when the hospital and doctors began sharing revenues under the Hemet hospital's capitated risk contracts. In addition to consolidating claims management and other services, the joint venture will enable the two sides to work together in monitoring patient satisfaction and outcomes.
David DeValk, administrator of Beaver Medical Clinic in nearby Redlands, Calif., and president-elect of the American Medical Group Association, says other groups are taking notice of the Hemet doctors' successes.
"There are not enough examples of groups standing up to health plans," DeValk says. "The fact that a well-capitalized health plan can disrupt your revenues overnight is a scary thought. But you die the death of a thousand cuts unless you stand up and are willing to risk that pain in the near term."