Throughout the 1990s, large multispecialty groups have been the model of choice as integrated care and economies of scale took hold in medical circles. Likewise, primary care gained prominence as health plans promoted the gatekeeper system.
But with the economy roaring, restricted access to specialists quickly became passe. Momentum has shifted toward specialists.
In the physician practice management industry, firms such as neonatology manager Pediatrix, heart hospital operator MedCath and American Oncology Resources have attracted investors. They are thriving in markets that lack integrated tertiary players.
Dozens of other companies have emerged to manage everything from fertility specialists to ear, nose and throat doctors. Specialty firms say they can bring best practices to the treatment of disease.
"In past, hotter markets, some people would say, `That's such a small category, you have limited growth opportunities.' Now investors are saying that such a narrow focus might actually be positive,' " says Larry Marsh, an analyst with Salomon Smith Barney in New York.
The recent misfortunes of multispecialty and primary-care players, such as MedPartners and FPA Medical Management, have made single-specialty strategies seem the safer route for investors.
In addition, specialty firms generally have an easier time merging practices into a cohesive unit. For example, Kelson Pediatric Partners, a private PPM based in Hartford, Conn., switched from managing multispecialty practices to pediatrics in January 1997 after a failed attempt to create a multispecialty group.
Different specialties had competing priorities, making it impossible to reach consensus on a strategic plan, says Skip Creasy, Kelson president and chief executive officer. As a specialty company, "we took off," he says. "It allowed us to hone our expertise to what makes sense for pediatricians."
Kelson manages 206 pediatricians and 47 midlevel practitioners at 22 practices in nine states, mainly on the East Coast.
In another case, PhyCor recently announced it would take a $92 million charge against earnings to restructure practices in seven markets where it tried to form new multispecialty groups by merging smaller practices. Practices are being sold back to physicians in some of those markets.
The strategy is a departure from PhyCor's normal model of affiliating with large clinics that have developed a strong, cohesive culture during many years of operation.
PhyCor President and CEO Joseph Hutts admitted to analysts last month that the company "went too fast" in merging the practices.
The success of single-specialty players will partly depend on payers' eagerness to contract directly with them for carve-out services, experts say. Others believe they will eventually be eclipsed by multispecialty players, who stand to thrive if they can win and manage global capitation contracts.
Critics say some specialty networks amount to cartels.
"I think anything that depends on fragmentation of healthcare is probably not in the interest of patients," says Albert Barnett, M.D., former chairman of the integrated Friendly Hills Healthcare Network in La Habra, Calif.
Ultimately, specialty firms will have to show they can manage costs, not simply pump more revenues into physicians' wallets. The dynamics could change if the country goes into a recession, which would give the entire physician practice management industry a shot in the arm by refocusing the nation on controlling healthcare costs, says Marsh.