When the California Medical Association asserted this month that nearly every physician organization in the state is on the brink of bankruptcy, it overlooked at least one major player: Hill Physicians Medical Group.
The 2,500-member independent practice association blanketing eight Northern California counties isn't in a crisis mode, according to Chief Executive Officer Steve McDermott. In fact, Hill Physicians announced what it called record performance for its most recent fiscal year, ended June 30. Net income was $2.3 million, up from $300,000 in 1998. Revenues increased 15% to $218 million, and capitated enrollment rose 12% to 340,000 members.
Hill Physicians, based in San Ramon, Calif., is a rarity: a privately held physician organization that routinely discloses its financial results. McDermott, known as an industry maverick who's only too happy to toot his own horn, says the IPA, an affiliate of Catholic Healthcare West, went public with its financials a decade ago following a previous round of medical group failures. McDermott says the IPA wanted to set a standard for risk-bearing physician organizations.
"We understood at the time that bad things would happen if (medical) groups didn't know what they were doing. When and if they went bankrupt, it wouldn't be pleasant," he says.
Bad things are indeed happening to many California physician organizations; the state's healthcare industry is wrestling with how to ensure the financial stability of physician organizations that sign risk contracts. But there's disagreement over how to address the basic problem of insolvent groups.
A CMA report released this month, on what the group calls "the coming medical group failure epidemic," warned that as many as 90% of the state's physician organizations face "imminent bankruptcy." It projected the closure or bankruptcy of at least 34 medical groups and IPAs during 1999, up from 31 last year.
The state's specialists have been hit especially hard, with their incomes falling below national averages (See chart).
The CMA is using its report to push for a host of legislation, including amending antitrust laws to allow independent physicians to negotiate collectively, requiring health plans to validate their capitation rates with third-party actuaries and barring contracts that require doctors to take on pharmacy risk.
The CMA report counters a study released in August by a very different interest group: the Integrated Healthcare Association, a statewide leadership group of health plans, healthcare systems and physician organizations, including Hill Physicians.
The IHA report concludes that the delegated model of managed care, in which responsibility for managing care and its related finances is shifted to providers, is worth preserving, but needs improvement. It estimates there are 300 delegated provider organizations in the state. But rather than legislation, the report calls for a partnership between plans and providers and a standard, public assessment of the operational and financial performance of physician groups.
Groups such as Hill Physicians, Healthcare Partners in Los Angeles and Bay Valley Medical Group in Hayward, Calif., which have embraced managed care, are not in financial distress, notes IHA Executive Director Beau Carter. As for groups that are failing, Carter says: "It should not be the role of government to save them."
McDermott says the key to physician market power is not legislation, but consolidation. Even Hill Physicians, which claims to be the largest IPA in the nation, is still dwarfed by hospitals, he says.
"We've seen dramatically higher premiums in other parts of the country, and there are still financial problems (in physician organizations)," he says. "I think you have to look at some core issues, which are organizational and structural issues." Founded in 1985, Hill Physicians set a 20-year timetable to evolve into a risk-bearing organization, whereas physician practice management companies such as MedPartners and FPA Medical Management rushed into managed care, McDermott says.
The CMA blamed doctors' troubles on a sharp decline in capitation rates, from a high of $45 per month for commercial HMO enrollees in the early 1990s to $29 in the past three years. But McDermott hailed the drop.
"Despite a lot of (reports), quality and service is up in California," McDermott says. "If the CMA's really behind the consumerism, they should be rejoicing over that."