Tired of hemorrhaging money, more hospitals are exiting the physician practice management business.
Most recently, South Broward (Fla.) Hospital District disbanded its 4-year old primary-care management services organization and agreed to settle a lawsuit brought by the MSO's 10 Hollywood, Fla., doctors. It's the second Florida health system to abandon its practice management business in recent weeks.
In 1995, the MSO, operated by SBHD's Memorial Regional Hospital, approached the independent primary-care providers and offered to take all management and accounting responsibilities off their hands. Once the physicians agreed to join the MSO, SBHD bought their practice assets for an undisclosed price and consolidated the physicians at one location as the South Florida Primary Care Group.
According to the complaint, the MSO promised that bringing the 10 practices under one roof would reduce expenses, would allow it to negotiate more favorable managed-care contracts for the physicians, and would provide the doctors with revenue and expense reports on a regular basis.
What was most attractive to the physicians, says Orion Callison, their attorney, was that the MSO agreed to pay the physicians monthly revenues on an accrual basis.
"Normally, you get paid on a cash basis. You have accounts receivable, and as the money comes in, that's when you get your money," Callison explains. "But this was set up on an accrual basis, so our guys would generate bills and they were supposed to be paid right away, regardless of whether the bills were collected or not."
According to the complaint, the physicians received their last regular revenue and expense reports in April 1998. When they finally received reports later that summer, they indicated that the physicians were not making enough money and the MSO was going to pay them on a cash basis. The MSO then "undertook a series of wrongful acts breaching (the MSO contract), subjecting Care Group to economic duress, and interfering with Care Group's practice of medicine with potentially harmful results to patients," the complaint charges.
The physicians refused to accept the MSO's new contract terms and were threatened with unilateral termination, Callison says. After attempts to negotiate new contracts failed, the physicians filed suit in Broward County (Fla.) Circuit Court.
The settlement terms were not disclosed, but Callison points out that the doctors sued for millions of dollars and "wouldn't have settled if they weren't satisfied with the terms."
Neither SBHD nor the Care Group doctors (who will continue to practice together as a private group) would discuss the case.
A Hollywood physician who did not participate in the MSO says: "The hospital managed (the doctors) very poorly. They didn't have the business know-how or even the philosophy of how to treat patients in the office." The physician requested anonymity because he is on staff at another SBHD hospital.
Early this month Baptist Health System of South Florida dissolved its 17-doctor medical group and terminated a management agreement with another 13 physicians.
"We lost quite a bit of money on the medical group, and basically what we figured out was that nobody can manage a physician practice like a physician can," says Baptist Senior Vice President Dan Rosenthal. "The physicians jointly chose with us to take this course of action, which we view as returning the physicians to private practice."
According to a new report released by Cleveland-based healthcare consulting group Medimetrix, only 11% of MSOs sponsored by hospitals and systems broke even in 1997.
Miami attorney Gary Davis suggests that area physicians could view an MSO failure as an opportunity to form their own group practices or to shop more carefully for another practice manager.
Baptist's Rosenthal, however, is less sure anyone can succeed. "PPMs experience the same problems that hospitals experience, and I think the bottom line is physicians have to manage their own practices. To me, that's the answer: Nobody manages your business like you do."