Mark 1998 as the year physicians finally exercise their hard-fought right to manage Medicare risk directly.
Medical groups, independent practice associations, physician practice management companies and integrated healthcare systems all see big opportunities in provider-sponsored organizations, the vehicle Congress approved in 1997 to offload Medicare risk.
PSOs will increase demand for the basics: good management, good governance, capital and information systems. Most of all, they'll require real working partnerships between hospitals and physicians.
PSOs could prompt more hospital systems to offer PPM-like deals in which they buy practice assets and sign contracts to manage the doctors.
Key questions about how PSOs will work, such as solvency standards and criteria for provider affiliations, will come early in the year. One concern is that investor-owned practice management companies, which have extensive experience in assuming risk, will be left out of the picture because of a requirement that PSOs be majority-owned by providers.
One requirement that PSO sponsors must provide 70% to 75% of the care could limit opportunities for subcontracting by small medical groups.
Some industry analysts predict more hospitals will turn to management companies to run their beleaguered physician practices in 1998, following a few hospital-PPM deals in the past 18 months.
The PPM industry will undergo significant changes when the Securities and Exchange Commission implements strict new accounting rules, probably late in the year. Under the new rules, meant to standardize financial results, some companies will have to adjust their earnings downward to account for the amortization of goodwill of acquired practices.
Plenty of new companies want to launch initial public offerings in 1998, but they might have to wait a bit longer than in previous years. The SEC has cracked down on companies that try to tap the public market without a legitimate operating history. In 1998 PPMs must show a track record of increasing the revenues of the practices they buy.
PPMs will continue to consolidate but emphasis will shift to regional, not national dominance. The proposed acquisition of MedPartners by the smaller PhyCor, expected to be completed by April, indicates that an aggressive, national approach doesn't necessarily win out.
Accordingly, it remains to be seen whether any of the highly touted national payer contracts signed by PPMs such as MedPartners and FPA Medical Management in 1997 will be fuel for growth or simply hot air. Smart PPMs won't try to strong-arm HMOs into contracting with them in every market, notes Ira Coleman, an attorney with McDermott, Will & Emery in Miami.