Although survivalists and doomsayers hunkered down and prepared for the apocalypse on New Year's Eve, the real Armageddon, many healthcare providers say, occurred over the course of the past decade.
During the '90s, physicians battled managed-care companies, experienced merger mania, saw the rapid rise and fall of practice management companies and jumped into and drowned under risk management.
The mayhem of the past decade has left many physicians limping into the new century, but don't expect providers to lay low. Instead, analysts predict, selectivity will be a watchword in integration, PPM partnerships and risk.
"I think people are still looking toward getting efficient relationships between physicians and delivery systems. No one is backing away, but what they are struggling with is how to improve or change what they have," says Edward Leary, M.D., a senior manager in Arthur Andersen's healthcare management practice in Chicago.
Rapid growth was the curse of integrated delivery systems in the past decade. Physicians, fearing being left out of managed-care contracts, spent much of the '90s teaming with other providers to form mega-multispecialty groups, large independent practice associations and immense integrated delivery systems. Many of those ubergroups, however, became unwieldy and now are collapsing under their own weight. According to the California Medical Association, 90% of the state's medical groups are now "teetering on the brink of insolvency."
According to Leary, the main problem with the merger mania is it simply didn't live up to its billing.
"The integration structure that people had great expectations for has not worked. The economies of scale and cost reductions of administrative overhead have not materialized," he says.
Bruce Johnson, a group practice consultant with the Englewood, Colo.-based Medical Group Management Association, says some of the new supergroups are struggling because physicians are inherently entrepreneurial. Even doctor-owned groups alienated member physicians, he says, because they lost that sense of ownership. That's not to say, however, that physicians will shy away from integration in 2000, Johnson says. The most likely integration will be the partnering of like specialty groups, Johnson predicts. Two orthopedic groups, for example, may partner to gain market share and pool resources by building an outpatient surgery center or sports medicine clinic.
"Group mergers have occurred for 50 to 100 years, and they're going to continue to occur because they make a lot of business and cultural sense," he says. By keeping the numbers within reason, probably 10 to 30 physicians, today's groups can succeed where yesterday's failed, Johnson adds.
Although the collapse of high-profile integrated delivery systems like Pittsburgh-based Allegheny Health Education and Research Foundation generated much news and raised concerns about the stability of many integrated delivery systems, such networks will play an important role in 2000.
"I'm not sure the diagnosis for all of these is automatically that they're going to implode or dissolve, a la Allegheny," Johnson says. "The integrated systems that are likely to stick around are likely to be in community hospitals and revolve around smaller relationships."
Johnson says foundation-type models, where physicians continue to run their own practices but are tied together through umbrella organizations, are likely to succeed.
"They respect that the cultures are different, and recognize that survival will depend on each one being able to manage themselves and maintain some distance and autonomy," he says.
No physician organizations have more vested in establishing efficient relationships than PPMs.
"The idea of getting together in an integrated group with sophisticated management and access to capital is absolutely still the right direction," says Brooks O'Neil, a director in the Minneapolis office of Piper Jaffray. "I think what happened in a lot of PPM companies over the last couple of years is that the execution of the concept was very poor. Everybody grew way too fast; they overpromised and underdelievered."
PPMs are largely considered to be the Hindenberg of the past decade. A number of the nation's leading PPMs have declared bankruptcy or exited the business altogether. The ones that are still standing are hobbled by shareholder lawsuits and poor stock performance. And yet, many analysts insist there is a place for PPMs in today's healthcare marketplace.
"The companies that are succeeding have a simpler model and are focused on replicating that model without going out and acquiring established practices.
They're not as aggressive about just going out and buying physicians' practices," O'Neil says.
Eleanor Kerns, an analyst with Credit Suisse First Boston, predicts that single-specialty PPMs will succeed where multispecialty PPMs failed because there likely will be more physician buy-in. "Single specialty groups tend to be much smaller and more homogeneous. So you're getting together with folks who have a similar focus, similar ideals and probably all bought into the idea of physician practice management--as opposed to a 250-physician multispecialty group where 51% probably bought into it."
There are more clear opportunities for the PPM to add value, Kerns says. In the case of oncology or orthopedics, for example, the PPM can provide the capital needed to build outpatient surgery or radiation treatment centers.
"In order for oncologists to grow and survive, they will probably need to add radiation to their practice. That is a big investment and that investment cannot be made any cheaper than (Houston-based) US Oncology can make it. Even if you could do it cheaply, how are you going to finance it? Often the doctors would have to personally go into debt," she says, adding that 13% of all new cancer cases in the United States are treated by US Oncology.
Peter Rork, M.D., president of Orthopedics of Jackson Hole (Wyo.), made the decision to join Nashville, Tenn.-based OrthoLink in July 1998. At the time, Rork and four other solo practitioners were considering merging. Instead, they formed Orthopedics of Jackson Hole and sold their hard assets to OrthoLink, a PPM with 200 physicians in six states. The group recently opened an outpatient surgery center, which is partially owned by the PPM. The group is now up to nine physicians and is looking to hire four more.
"Without OrthoLink I think we would have grown, but not as quickly. It would have had to come out of our own pockets," Rork says.
One of the weights on integrated systems and provider groups in recent years has been risk. Many provider groups have struggled with inadequate information systems and have had trouble getting patient enrollment data and utilization review data to physicians. Last year, several large IPAs declared bankruptcy after realizing they did not have the infrastructure to manage their risk.
Now, many physicians are moving away from risk, refusing capitated contracts and gravitating toward more traditional discounted fee-for-service or PPO contracts.
Leary says the provider groups that are exiting the risk business are getting out because they have no choice, but it is not a full-scale exodus. "Those groups that are moving away from risk are ones that don't have the medical and administrative management components working effectively, and it makes sense to step away from risk," he says.
There are a number of groups throughout the country who are doing very well in risk arrangements. Nancy Oswald, senior policy advisor at the Oakland, Calif.-based National IPA Coalition, says the recent IPA bankruptcies were natural growing pains, and physicians should not shy away from risk, they just need to be smarter about accepting it.
"Physician organizations are not going to shy away from risk. I think what's going to go away is taking hospital risk or pharmacy risk because, in fact, physician organizations cannot manage them."
Peter Boland, a Berkeley, Calif.-based managed-care consultant, says physicians can succeed at risk only if they have adequate information, and it's up to them to get that information.
"Medical groups have to press for risk information. There are tools available (such as computer software) now that enable a health plan to much more accurately measure and predict the financial risk of different types of situations," he says.
Robert Bohlmann, another MGMA consultant, cautions against abandoning capitation too readily. "A lot of physicians are saying we'd like to get away from capitation because they think it's a real pain in the neck. I'm not sure they understand what capitation has done for the economies of their practices. They may lose it and then wish it came back again," he says.