With 1998 going down as the year the physician market officially crashed, 1999 promises sobering new realities for doctors.
All indicators point to more ownership changes at physician organizations and stagnating physician incomes.
Many medical groups are expected to change hands. The spontaneous combustion of the physician practice management industry in the past 12 months leaves hospitals in a position to acquire physician practices -- a dubious prospect given hospitals' widespread losses and past poor management of groups.
Five years into the practice-buying frenzy, many hospital-based systems are trying to renegotiate expiring contracts with doctors, offering incentives for greater productivity. That strategy is challenging in competitive hospital markets in which physicians can take their business elsewhere.
Alternatively, hospitals could choose to sell unprofitable practices. That's the strategy employed by Columbus-based OhioHealth, an eight hospital system, which is divesting 87 owned physician practices that posted losses of up to $12 million per year, according to credit-rating agency Moody's Investor Service. The strategy is untested, however, and therefore risky. Systems that do sell could lose their referral bases, Moody's says.
Some physicians may choose to repurchase their practice assets from hospitals or PPMs. Going it alone will require financial discipline because of increasing capital requirements.
And PPM companies aren't out of the picture entirely. What remained of the industry enjoyed a slight rebound on the stock market at the end of the year, giving new hope to the prospect that the industry can fuel growth. So far, speculation that Nashville-based PhyCor will revert to private ownership has come to naught. PhyCor was the only major player left standing after the 1998 industry carnage.
Even insurers remain an alternative strategic partner and capital source. Consider 1998's groundbreaking of a new hospital in Fargo, N.D. The hospital was funded by a partnership between the Dakota Clinic in Fargo and Blue Cross and Blue Shield of Minnesota. Also in North Dakota, the Medical Arts Clinic in Minot and Noridian Mutual Insurance recently aborted an attempt to start a rural Medicare HMO when a hospital partner bowed out.
Nonetheless, hospitals may gain more incentives to partner with physicians to improve clinical quality and to lower costs in 1999. An issue to watch is how far the government will relax regulations against kickbacks and self-referrals to let hospitals and physicians establish "gain sharing" programs, which are being heavily promoted by consultants. Many independent practice associations and hospital-based physician networks are eager to try these approaches, which are akin to disease-management programs without the HMO middleman. The programs vary, but they generally involve compensating physicians based on a percentage of cost savings in a particular clinical area.