A loss of investor confidence is forcing many physician organizations to cope without capital partners. Some aren't succeeding alone.
Take California, where at least four local physician organizations have filed for bankruptcy protection since November. At least three others are on the verge of insolvency, according to the California Medical Association.
Amid the alarm about failing medical groups, an advisory committee of the California Department of Corporations has been considering developing legislation that would enable it to monitor medical groups' solvency. Earlier, the department muddied its face by licensing FPA Medical Management for global risk shortly before FPA's July 1998 bankruptcy filing.
"California used to be the leading edge. Now we're the bleeding edge," says CMA Chief Executive Officer Jack Lewin, M.D., who asserts that premiums must increase or benefits diminish. The CMA is considering developing legislation that would require HMOs to offer capitation contracts without pharmacy risk, which has drained physician groups.
But Ira Davidoff, M.D., chairman of the American Medical Group Association, says "whining about premiums being too low" is unjustified.
Davidoff acknowledges that California physician groups have been walloped by drug costs and Medicare risk expenses lately. But he says he believes their financial performance has been marginal for several years. Until mid-1998, a hospital or an investor-owned management company was always ready to bail out ailing groups.
"In any industry, you have to learn to deliver your product or service for what the market is willing to pay," says Davidoff, chairman and medical director of the 30-physician Bay Valley Medical Group in Hayward, Calif., which has a 325-member independent practice association.
Bay Valley has turned a profit for each of the past eight years, Davidoff says, mainly by staying debt-free and
retaining earnings as a cushion against hard times. Keys to the group's success are putting the organization's needs before individual doctors' needs and empowering leaders to address market demands.
A newly published study supports the need for basic business skills in medical groups. Performance and Practices of Successful Medical Groups, issued by the Medical Group Management Association, says profitable groups use cost structures that are relatively low, bill and collect rigorously, use strategic planning, reward physicians for hard work, invest in quality management and information systems, and focus on customers.
Significantly, they aren't leveraged to the hilt. The debt ratio of better-performing groups is 79.62 vs. 79.75 for all groups, the study found.
Better performers generate more of their assets from internal operations than their peers do, making them more likely to weather adverse business conditions, the report says.
One of California's largest IPAs, the Brown and Toland Medical Group in San Francisco, learned the hard way.
The IPA posted an operating loss last year that caused it to withhold $4.5 million from its contracted physicians and lay off 10% of its 290-person staff. It had expected to pay for strategic and technology investments with venture capital, which never materialized, says Cecilia Montalvo, vice president for strategic development.
This year, Montalvo says, "we have committed to remain much more disciplined in (our) investments."