Michael Z. Lazor, M.D., could be living it up on easy street. But that would be out of character for the 65-year-old nephrologist.
Thirty years ago, as Hartford (Conn.) Hospital's first utilization review chairman, Lazor wielded cost printouts to try to help physicians learn about the money they were spending on various tests. In 1982, he helped establish a not-for-profit hospital- and physician-led HMO, Farmington-based ConnectiCare, which at the time seemed to be "the socially responsible thing to do."
Lazor still isn't daunted by tough assignments. After nearly 34 years of practicing medicine, he has collected two new titles: president of a newly formed group of multispecialty physicians and president of the board of its management services organization. Lazor says he won't be settling into retirement anytime soon because he's having too much fun.
"This is a chess game," says the longtime solo practitioner, who began to anticipate capitation in the early 1990s by partnering up. "Leadership-wise it's a challenge; politically it's a challenge."
In 1994, Lazor's six-physician group began talking to two other physician group leaders--Robert Mueller, M.D., and David H. Hild, M.D.--about consolidating the three practices. Other physicians were invited to join, too. Eventually, 62 area physicians kicked in $1,000 apiece to explore the idea, and the three founding practices ponied up for consulting services. Lazor's group alone invested $40,000 to $50,000. Hartford Hospital handed over a six-figure sum to subsidize development of a business plan.
Last year, 35 of the initial 62 physicians agreed to form Connecticut Multispecialty Group, which now boasts 41 doctors, 14 locations and close to $18 million in revenues. The group also launched an MSO and hired staff to handle some administrative functions. The group can count on spending $600,000 per year just for salaries, equipment, rent and fees for legal and accounting services.
Rather than borrow working capital at double-digit interest rates, though, physicians agreed to pay themselves two months' income from the accounts receivable of their old practices before joining Connecticut Multispecialty Group. Right now, just 5% of the business is capitated, with most revenues coming from discounted fee-for-service arrangements, Lazor says. To expand and thrive in the market, the group needs to install data systems, recruit additional physicians, consolidate some practices and develop satellite sites.
"The important next step is capitalization," Lazor says. Data systems alone might cost $2 million if the group's projected expansion to 100 physicians by 2000 pans out. In total, the physicians believe they will need $10 million to $15 million for the next couple of years.
Funding growth internally could cost $100,000 to $150,000 per physician, which some doctors might not be willing or able to afford, Lazor says. Hartford Hospital isn't an option either because of its lending limitations and desire for a significant equity stake, he adds.
"Working with a hospital is like going into business with a sibling," Lazor says. You want to preserve the love, but you need to be realistic about business.
The group is reviewing proposals by two national physician practice management companies and will make a decision very shortly. "Our hope is to grow very quickly," says Hild, the group's vice president.
The PPM firms' strong capitalization weighs in their favor because they can afford data systems. And in Lazor's view, "Whoever controls the data systems over the next generation will control medicine."
But entering a 40-year contract raises serious questions, too. Will physicians get what they contract for? Will their professional standards be compromised if earnings fall off by a penny per share?
"For me at 65, selfishly, that's not a big worry," Lazor says. But he has one very personal reason for making the right choice: his son, an obstetrician/gynecologist, is a member of the practice.