In an increasingly competitive managed care-environment, small medical groups and loosely affiliated independent practice associations are losing the battle for managed-care contracts to larger, more tightly integrated physician groups.
"HMOs are not interested in contracting with small, single-specialty groups, and physicians are leaving IPAs because they just aren't getting any business," says Daniel Schuh, a consultant with Deer Creek Associates, Chicago.
Faced with declining revenues, many small medical groups are breaking up. Others are affiliating with larger practices or selling to physician-management companies and hospital groups, says Barry Scheur, founder of Scheur Management Group, a Boston-based consulting firm.
For example, in Nashville the independent nephrology group of Pettis and Anand merged in 1994 with 14-member Nephrology Associates. The merger coincided with the introduction of managed care into Tennessee's Medicaid program, says Laura Sadler, who is billing manager for Nephrology Associates.
"The physicians got worried they would be swallowed up by managed care and TennCare (the Tennessee Medicaid managed-care program)," Sadler says. TennCare covers about 800,000 Medicaid recipients and 400,000 formerly uninsured residents.
Nationwide, data from the Medical Group Management Association show the number of group practices dropped 2.2% to 6,673 in 1996 from 6,908 the prior year, but the number of physicians per practice grew in practices of all sizes. According to the data, 60% of revenue earned by groups of 10 or fewer members comes from at-risk managed-care contracts.
Consultants like Shuh help physician groups negotiate contracts with HMOs. "We help them refine their pricing strategies, set up capitation for services and review existing agreements for effectiveness," Shuh says.
Capitated contracts for small groups are risky and need to be closely monitored, he says. Under many contracts, 15% to 50% of payments to physicians are withheld until the end of the year. If, at that time, the cost of the physicians' services has exceeded the initial allocation they received, they won't receive much -- or any -- of the "withhold."
The HMOs' withholding of a percentage of payment serves as a substantial incentive to physicians to provide as much service as possible on an outpatient basis.
"Discounting has become so severe in some parts of the country that physicians are becoming concerned about loss of income and loss of practice security," says Edward Hirschfeld, an AMA attorney. "It's feeding the movement toward unionization and consolidation."
Because "physicians' revenue is going down, they need to increase volume," Scheur says. "One way is to become part of a larger organization where there are more doctors and more contracting opportunities."
AMA data show the trend toward employment is accelerating. While only about one in four physicians was employed in 1983, almost half of physicians -- 45.4% -- were employed by 1995. The total number of physicians with managed-care contracts increased to 83% in 1995 from 56% in 1986 (see graphic).
In general, success is dependent on the efficiency of the medical group and the contract it signs, Scheur says. Small groups that hold multiple contracts can become frustrated by having to operate under multiple contract rules, he says. "It's a nightmare for physicians. Everyone is into disease management, but they all have different protocols. The days of the (autonomous) solo and small practice are coming to an end."