In the past, physicians in specialties often spurned managed care, convinced it would be little more than a passing fancy.
Not any more. Many specialists are now among managed care's most ardent suitors. Determined not to be left out in the cold, specialists are opening their arms wide to managed care, eager for a chance to share in potential savings--and to bypass insurance plans' gatekeepers--by creating their own capitation and carve-out arrangements.
In the three decades since Congress created legislation favoring HMOs, managed care-fueled by its ability to steer large numbers of patients to networks of doctors in return for discounts-has virtually engulfed the healthcare system.
Other pressure to embrace managed care has come from hospitals. While for-profit chains such as Columbia/HCA Healthcare Corp. have tried to tie doctors to hospitals through joint ownership arrangements, not-for-profit hospitals have bought hundreds of group practices to form "integrated delivery systems."
Another part of the equation is physician oversupply. Evanston, Ill.-based Sachs Group, for example, has estimated that 37,000 fewer specialists will be needed by the year 2000, assuming utilization levels are comparable to those of HMOs.
As a result, many specialists are trying to determine the best way to court managed care. A number are embracing single-specialty networks, transforming them into one of the hottest integration models; others are weighing the choice between single-specialty groups and networks and multispecialty groups.
"Specialists are realizing they have to get on board. Primary-care doctors had it all to themselves, and all the savings from managed care came back to the primary-care group," says Bill DeMarco, a managed-care consultant based in Rockford, Ill. The financial rewards available for brokering single-specialty networks can easily surpass income earned from the practice of medicine, DeMarco says.
"The money is incredible. Wall Street is throwing lots of money at it. You have docs making tons of money rolling over," he says.
Many specialists are joining single-specialty networks, such as Houston-based American Oncology Resources. AOR, which is run by a physician-management company, is a network of 250 oncologists in 15 states. The company went public in 1995 and has been faring well.
AOR posted gains in net income and revenues for the first quarter of this year. Net income increased 14% to slightly more than $5 million, or 11 cents per share, compared with net income of $4.4 million, or 9 cents per share, in the year-ago quarter.
R. Dale Ross, chairman and chief executive officer, attributed the growth to an increase in revenues in same markets, which increased 45% compared with the first quarter of 1996.
The company added 29 oncologists in 1997, he says.
"We don't own the physician groups; we manage them, do marketing, facility development and information systems management," says David Padgett, AOR's director of planning and budgeting. In addition, of course, AOR negotiates managed-care contracts.
Indeed, it was the difficulties inherent in negotiating managed-care contracts that led many oncologists to join AOR. "The doctors are no longer able to manage the managed-care component," Padgett says.
Slightly more than 45% of the company's income comes from managed care, with another 35% from Medicare and Medicaid. In return, specialists retain 23% of their collected revenues, turning the rest over to AOR, Padgett says.
Fueled by enthusiastic investors and eager physicians, similar single-specialty networks are popping up across the country. They are following the trail blazed by investor-owned primary- and multispecialty- management companies, such as Nashville-based PhyCor and, later, AOR.
Most specialists are in solo practice, and most single-specialty groups are small, according to the Medical Group Management Association.
Entrepreneurs are seizing opportunities to consolidate single-specialty groups, forging so-called roll-up single-specialty networks, the arrangement under which a large single-specialty group acquires other single-specialty groups across the country. At the same time, these entrepreneurs are seeking carve-out arrangements through contracts with independent practice associations.
No one keeps statistics on the number of roll-ups, but AOR and Physician Reliance Network of Dallas are recent examples of the trend.
There is plenty of room for single-specialty groups to consolidate, statistics
According to the Medical Group Management Association, some 70% of all medical groups are single specialty, and 85% have six or fewer physicians.
Such consolidation can bring economic rewards. Large single-specialty groups and single-specialty networks have the capacity to use economies of scale. With better ability to predict outcomes of treatment-which is critical for assuming risk under capitation--they wield a big advantage when it comes to managed care, says David Gans, survey director for the Medical Group Management Association.
In addition, they can amass an array of subspecialties absent in a multispecialty group. For many large single-specialty groups, forming single-specialty networks is a logical next step.
However, joining a single-specialty network doesn't necessarily ensure success. That's because forming a national network doesn't necessarily mean picking up new business, DeMarco cautions. While it looks impressive on paper, it can just mean "piling together business that is already there," he says.
Many organizations feel that having centralized management will provide economies of scale, but they don't extend their efforts to really managing care, he says.
"A lot of organizations talk a big story. But they haven't got a clue," DeMarco says.
Nonetheless, they can capitalize on their perceived strengths to win contracts.
"The most difficult part of managed care is getting the contract," Gans says. "In Denver, the Eye Care Network covers over 100 doctors and contracts for managed care with carve-out arrangements. It has the ability to give a comprehensive set of services and to predict outcomes because of the large volumes."
The Eye Care Network also has another plus going for it: It already is among the four specialties--ophthalmology, cardiology, oncology and orthopedics--that
industry observers say most often form large, successful single-specialty groups.
Not everyone agrees that single-speciality groups are the answer. Jeffrey Milburn, vice president of finance for Colorado Springs Health Plans, a large multispecialty group, sees advantages in multispecialty organizations.
The Colorado group comprises 65 physicians, two-thirds of them primary-care physicians and one-third specialists. Though all are in the Colorado Springs area, they are at 15 separate locations.
"A single-specialty group like AOR packages a product and sells it to the buyer, usually an HMO, working in a smaller niche than a group pulling together different specialties," Milburn says.
"We offer one-stop shopping. It makes us more attractive."
To offer providers specialties not included in the group, such as oncology, the group contracts with single-specialty groups, Milburn says.
Doug McKell, president of Physician Strategies 2000, a physician practice management and consulting firm in Franklin, Ohio, says it's not really clear yet whether managed care will favor the segregation of single-specialty groups, and thus their ability to get managed-care contracts.
Another major consideration is whether a single-specialty group has the four key ingredients necessary for survival in the managed-care environment of for-profit HMOs, says Breaux Castleman, president and financial operations officer at Scripps Clinic in San Diego.
"First, it has to be large," Castleman said. "It must have the size and scope to have alternative ways of delivering care.
"Second, it has to have an aspect of self-referral. People can go straight to the specialist, typically for an outpatient procedure associated with the doctor. One example in oncology would be infusion.
"Third, it has to have outpatient treatment that can generate technical fees.
"Fourth, the disease needs to be clearly definable, such as in the case of cancer."
An example of a disease that would be difficult to define, Castleman says, would be end-stage renal disease, because as kidneys fail, patients suffer blindness and other problems and wind up needing many different types of doctors. Nonetheless, Medicare is ready to entrust treatment of end-stage renal disease to managed care, he says.
The ability to define the disease and see what capitation would be is another requirement that must be met, he added.
Debra Beachy is a Houston-based freelance writer who specializes in business topics.