You remember Butch Cassidy and the Sundance Kid," says Fred Hartley, M.D., a Johnson City, Tenn., obstetrician/gynecologist. "The (posse is) chasing 'em, and when they get to the cliff, they hold hands and jump."
To Hartley, the scene from the 1969 movie western is an allegory for physician groups' present situation. The posse represents the forces of managed care. The physician group and its partner--chosen from an alphabet soup of IPAs, PPMs, MSOs and others--are Butch and Sundance jumping off into an uncertain future.
In the movie, Butch and Sundance land safely in a river. In real life, physician groups don't always have such good luck.
Before leaping, physicians often look for answers at the plethora of conferences devoted to healthcare finance. But sometimes they leave feeling more confused than enlightened.
At least that's how it appeared at one recent meeting, where Hartley and other attendees received plenty of advice-most of it conflicting. Still, any number of speakers were willing to point the way to the kind of refuge Butch and Sundance were seeking when they fled to Bolivia. But none could guarantee their physician listeners wouldn't arrive there in the middle of a shootout.
Speakers at the September National Association of Integrated Health Organizations healthcare financing conference in Nashville alternately praised and disparaged physician practice management companies. They aired ideas for new business models. And in the case of former OrNda Healthcare Corp. Chief Executive Officer Charles Martin, taught the conundrum, "When you figure something out, it's too late."
"There were a number of visions of the future that were not only different, they were conflicting," says Irwin Katz, executive director of Nyack, N.Y.-based Vista Health Network, a 280-physician independent practice association.
Two basic questions came up during most sessions: Is delivering healthcare a local or national business? And, are physician practice management companies the best ones to do it?
Piper Jaffray managing director Brooks O'Neill, the only investment analyst who spoke, answered that healthcare is a local business that should become national.
PPMs, he said, could make that happen. A caveat, however: Piper Jaffray underwrites PPM initial public offerings and makes other investments in such firms.
O'Neill sees PPMs as the way the highly fragmented physician population--two-thirds are in one- or two-person groups--will consolidate.
"Local, in my opinion, is dead," O'Neill said. "Ultimately (healthcare) will have to be global as a result of a need for large companies to get healthcare purchased in a consistent fashion, in a convenient fashion, from one source."
O'Neill does believe there's one local issue PPMs have to solve: getting market dominance. Without it, he says, PPMs won't have sufficient leverage in negotiating contracts with managed-care plans.
Many speakers agreed with O'Neill about the importance of building local market power but for a different reason: Echoing another O'Neill, late House Speaker Tip O'Neill, who once described all politics as local, they believe all healthcare is local.
"Each of our 70 markets has its own personality," said Paul Keckley, vice president for strategy at PhyCor Corp., the nation's second-largest PPM in terms of annual revenue.
Keckley said PhyCor physicians have local control of contracts and clinical decisions. But PhyCor is encouraging them to create "virtually integrated" relationships in which physicians, hospitals and insurers enter contracts with similar incentives although they maintain corporate independence. One-third of PhyCor markets have such arrangements. "Physicians will need to sit beside--not above, not under--an institutional partner," he said.
After his talk, Keckley was surrounded by physicians, executives and others wanting to know more about PhyCor's plans and, in some cases, how to be a part of them.
In contrast, Larry House, chairman of the nation's largest PPM, MedPartners, left relatively unencumbered from his speech, which mostly focused on his company's acquisition strategy.
Not all speakers appeared enamored of PPMs. Robert Daly, managing director of Boston venture investor TA Associates, said he wouldn't invest in PPMs because they are attacking a "very trivial problem" by trying to manage office expenses.
"The whole notion you could go to the (physician's) office and put in computers and make costs go down-it hasn't happened," Daly said. The larger cost to be managed is inpatient utilization, on which "few PPMs can say they have an effect."
Instead, Daly proposes physician-run, multispecialty medical management companies in which a financial partner takes a minority stake--although it would supply all the capital--and provides management expertise. The physicians would take full global risk, thereby getting more control over the inpatient dollar.
Daly said this would work best only in the top 20 U.S. metropolitan areas. Another barrier would be getting physicians organized.
"It would require an organization and set of leaders that are hard to come by," says Hartley, the Tennessee OB-GYN.
"Physicians are great people, bright, and we understand our practices very well, but we're not good at organizing and being organized."
Daly did not advocate the continuation of hospitals buying and managing physician practices, a trend most speakers said was waning because of heavy financial losses suffered by hospitals.
Scott Fassbach, a spokesman for the Healthcare Advisory Board in Washington, also predicted the demise of hospital-run, integrated networks. And, he said, pure-play models like PPMs, for-profit hospitals, home health and outpatient surgery may not last forever either. Those systems don't take into account the fact that most healthcare consumers only use the system when they're sick, he said.
"Both these models will prove wrong," Fassbach said. "First, no one wants to buy integrated health care. Second, no one wants to buy (only) hospital care and physician care. It's like a Pentium chip; it's good, but no one buys just that."
Instead, Fassbach postulated healthcare would organize around "episodes of care." For example, a company focusing on cardiovascular problems would have a facility with staff cardiologists, surgeons and case managers. Companies would submit bids to healthcare plans based on episodes of care, then take that risk rather than global capitation with a hospital and primary-care physician.
A few companies already have put together some version of this model. Most notable, Fassbach said, are HealthSouth in rehabilitation, MedCath in heart care and Pediatrix in high-risk pregnancies.
Reaction to Fassbach's episodes-of-care idea is mixed.
"To me, I view that as sitting on the fence," Katz says. "To me, he took a safe approach. That doesn't really help."
Fortunately for Hartley, he already cast his lot before arriving in Nashville. Last year, his eight-physician clinic, Medical Center OB-GYN, sold its assets to privately held Nashville PPM UniPhy Services.
"To the question of whether these (PPM) companies are the way to go, we hope the answer is yes," he says.
Otherwise, it'll be a long fall off the cliff.