An attempt by two Baltimore physicians to launch the first doctor-run HMO in Maryland has foundered for the second time in two years-the latest belly-flop by doctor-run managed-care plans nationwide.
The two doctors-surgeon F. Graham Fallon and urologist Michael Naslund-asked Maryland physicians in late March to help them launch the Maryland Medical Group, the parent organization of the proposed health plan, Renaissance Health Care Systems HMO. But their goal of raising $5 million by enticing physicians to plunk down $5,000 each proved to be a pipe dream.
"The bottom line is that doctors, at least in this state, aren't willing to invest in something like this," Naslund says. "They just aren't doing it."
Naslund says physicians felt too squeezed financially to support the effort, were unwilling to invest in any new venture or didn't believe that a doctor-run HMO was likely to succeed, based on failures of similar attempts elsewhere.
Margaret Burri, deputy executive director of the Maryland State Medical Society, says she isn't aware of any functioning physician-owned health plan in the state.
"We looked at (launching a health plan) ourselves about four years ago; but after about 18 months of looking into it, we decided it wasn't going to fly," Burri says.
Fallon and Naslund attempted to launch a doctor-run health plan in September 1996, but at that time they couldn't find enough doctors willing to pay the required $10,000 entrance fee.
Even with a 50% cut in the requested investment, their second attempt hit the same obstacle.
The two entrepreneurial doctors are still looking for capital, according to Naslund, but for now their proposed Renaissance health plan is on ice.
Dog days. The HMO's apparent demise reflects the financial obstacles that have dogged other attempts to put physicians in control of their managed-care destinies.
In California, one of the most prominent attempts to start a doctor-owned health plan crashed this summer (June 8, p. 6), when the California Medical Association's highly touted physician-owned managed-care plan filed for bankruptcy protection. The CMA's California Advantage plan lost $11 million in just two years of operation.
The plan was started by 7,600 California doctors with investments of about $1,000 each. It had attracted only about 7,000 enrollees and lost many of them last spring. In late May it laid off all but a handful of its 30 employees. Among those let go was Chief Executive Officer Kenneth Reuter.
Industry observers say that no organizations track physician-owned HMOs and related managed-care organizations, so it's difficult to find solid statistics about their success. But anecdotal evidence shows that starting physician-run health plans is extremely hard and keeping them afloat is even harder.
Nationally, doctors' attempts to grab control of a bigger piece of the managed-care pie "are going very poorly," says Peter Kongstvedt, a healthcare partner in the Washington office of Ernst & Young.
"Access to capital is a major problem" in virtually all cases, because physicians are reluctant to liquidate other investments, he says. Most other investors aren't interested in taking the financial risks.
Even if they get enough capital to get things off the ground, physician-owned health plans typically founder quickly, Kongstvedt says, because doctors "almost universally underestimate the complexity of this business."
Doctors tend to be "babes in the woods" in marketing. They generally try to enlist their current patients in managed-care enterprises, ignoring healthier residents of their communities whom they don't typically see.
Too many sick people. As a result, physician-owned plans often have an enrollee population that includes too many sick people and too few healthy ones to keep an insurance plan afloat.
In fact, that was one of the major problems that sank California Advantage, according to CMA officials.
Nationally, just 3.4% of the HMOs surveyed in 1996 by the American Association of Health Plans were owned solely by physicians or medical groups. And the percentages for PPO and point-of-service plans were even lower.
Another AAHP study, released in June 1997, showed that provider-owned plans accounted for nearly 40% of the HMOs licensed in the previous two years. But the 1997 study didn't include a separate category for physician-owned plans. And it didn't deal with the plans' financial viability.
A spokesman for the American Medical Association says the AMA doesn't track physician-owned health plans.
Part of the problem is that physician-owned HMOs are late in joining the dance. Getting doctors to drop their allegiances is difficult, especially in places like California, "where a lot of the physicians are already in (multiple) HMOs," Kongstvedt notes.
But as Renaissance Health Care's would-be founders could tell you, it's not necessarily any easier in Baltimore.