Physician groups trying to recover from a traumatic breakup with their practice management companies face difficult choices: improve the relationship, find a new partner, go it alone or dissolve.
The options all entail risk, whether it involves the need for doctors to personally guarantee the loans used to buy back their groups or the challenge of rehabilitating practices that have been demoralized by bad management.
Earl Washburn, M.D., a pediatrician in Placerville, Calif., advises physicians to toughen up. "It's too easy for us to go into a tailspin over how bad we have it," he says. "Doctors have to have the same courage to face business challenges as the guy who opens a pizza parlor or a dry cleaners does. It's a tough world."
Like many other physician groups, Washburn's five-doctor El Dorado Pediatric was badly burned by the 1998 bankruptcy of FPA Medical Management. Contracts with FPA represented one-third of El Dorado's business. Although FPA dribbled out enough money to keep the group solvent, El Dorado eventually was forced to absorb a loss of $52,000 in outstanding claims.
On top of that, competition for pediatrics care heated up with the entry of new doctors. As a result, Washburn and his partners now earn about 30% less than previously. He says he feels betrayed by the PPM, which promised to make doctors lives better.
He isn't alone. Nearly 30,000 physicians have had to change practice managers in the past two years, because of FPA's bankruptcy and MedPartners' decision to exit the business, as well as other divestitures or bankruptcies.
Thousands more physicians soon could face similar decisions. Columbia/HCA Healthcare Corp. and Tenet Health System--which together manage 2,300 doctors--say managing doctors' practices isn't in their best interests and are looking at ways to reduce their involvement. Meanwhile, Burbank, Calif.-based UniHealth is selling the management services organizations of its six physician practices, including Huntington Provider Group, a 2,000-doctor IPA based in Pasadena (see story on page 3).
Some doctors will see their experience as a reason to leave their groups. For example, 69-year-old Burns Clinic in Petosky, Mich., which once had 125 doctors, lost its physicians' commitment under practice manager PhyCor and asked to be sold to a local health system so it could dissolve (see March, page 4).
Bart Wald, M.D., president of Huntington Provider Group, says many groups stopped building their internal leadership when they signed up with practice managers. Whether they continue to operate under management or decide to become independent, groups must restore physician leadership if they want to survive, Wald says.
Wald declined to discuss HPG's planning process while its fate is undecided, but he outlined issues facing groups in general as they review practice management agreements.
"They have to figure out what is their future: a loan, merger with another group, new management agreement, or do they disintegrate," Wald says. "If they go with a loan, they need to inventory what operating functions and skills they need and what shape they're in. If they select a new partner, hopefully they've learned something from the previous experience."
Many groups won't be able to find another PPM and, if they chose a partner, could find a local health system their only option, consultants say. That often means the doctors may have to accept employment contracts.
Sometimes a group's best option may be to repair its existing relationship. For example, 45-physician Sutter West Medical Group in Davis, Calif., had been disappointed by its 2-year-old contract with Sutter Health System, under which Sutter provided a gamut of services from practice management to information technology. The problem was "inadequate mutual accountability and the consequences," says Harris Levin, M.D., Sutter West president.
Still, Sutter West wanted to remain in an integrated environment and considered Sutter its best partner in the market, Levin says. When the contract came up for renewal this year, Sutter West prepared carefully for the negotiations.
Eventually, the parties were able to arrive at a new five-year agreement, both getting some of their desires met, Levin says. He declined to disclose details.
Sutter West hired a consultant to help it think through its negotiating strategy and gather the information to back its demands. Using a four-person team of physician executives for the complex negotiations helped prevent conflicts between individuals, Levin says.
"It was very important to choose the right people, people who were respected," Levin says." And it was critical for negotiations to be amicable. Whenever the negotiations turned acrimonious, the issues got blown to the side."
It's essential medical groups find partners that believe strongly in physician integration, or business and philosophical goals won't be supported, he says.
Also important, Levin says, is making sure management contracts contain specific clauses about how to resolve disputes, how assets will be valued if it's necessary to unwind deals that go bad, how patients will be assigned to the medical group, and what management services will be provided during the group's transition to independence.
Alfredo Czerwinski, M.D., the Sacramento-based consultant who helped Sutter West, says medical groups must distinguish what they want from what they need and know what concessions they can afford to make.
"Groups should role-play in advance: Are you willing to work longer hours but not take a pay cut? I can't tell you how many groups go into negotiations without knowing if they're going to bankrupt the group over an issue," says Czerwinski, chief medical officer at Care Management Sciences Corp. CMS, a clinical information systems firm with corporate offices in Philadelphia, hired Czerwinski in April to expand its consulting services.
Based on his conversations with doctors, consultant Steve Messinger, of Arlington, Va.-based MedTactics, says he believes 90% of physicians would like to buy their practices back from PPMs. "We're willing to believe one or two out there would like to stay," says Messinger, who provides strategic consulting to medical groups.
Survival after separation requires careful planning and aggressive action, he says. Groups should hire their own administrator to begin getting the practice in order even before they end their PPM relationship. Those that go independent should negotiate for transitional services from their current management.
"Do the things that you need to do to be successful," he says. "And it's incredibly important to communicate with physicians during the process--here's where we think the market is going; here's how were going to improve. You've got to have one-on-one conversations. It adds stability to the group."
Observers say the shakeout in the PPM industry should serve as a wake-up call to doctors about the need for contingency planning. "Most people think of disaster recovery only in terms of an earthquake or a hurricane," says Mitchell Paine, vice president of consulting services at Beacon Partners, a healthcare management consulting firm in Boston. "They don't think about the PPM or MSO that calls and says, 'We just went bankrupt.' "