Another health system is cutting its physician practices and abandoning the
risky Medicare risk business.
MedStar Physician Partners, a 140-physician subsidiary of Columbia, Md.-based MedStar Health, announced last month that it is dissolving 22 of its 37 practices, releasing 50 employed physicians and getting out of Medicare risk contracts. MedStar spokesman John Marzano says the group's losses were so significant the health system decided to dissolve the network rather than risk bankruptcy.
"The losses had become significant enough that we needed to do something," he says. "The reorganization was not an easy decision, but we felt we have done the right thing here by not declaring bankruptcy and walking away from our obligations."
MedStar, which owns seven hospitals in the Baltimore-Washington area, will continue to contract with a network of 700 physicians and will retain 85 physicians.
MedStar was formed by the 1998 merger of Baltimore-based Helix Health and Washington-based Medlantic. Each system brought its own risk-sharing physician network to the mix, and the two became MedStar Physician Partners. Neither physician group was profitable before the merger, and combining them was an attempt to gain economies of scale, a streamlined infrastructure and broader geographic coverage for managed care contracts, Marzano says.
Some of that was achieved, but the losses remained significant: The network lost $27 million in 1999. The entire system had a net loss of $70.3 million in 1999, a significant increase over 1998 losses.
Risk-sharing groups across the country have struggled in recent years, complaining that reimbursement is so low there's simply not enough money in the system to accept risk and be profitable.
In fact, MedStar is just the latest Maryland physician organization to struggle financially. Owings Mill-based Doctors Health, which managed the practices of about 120 primary care physicians, filed for bankruptcy in November 1998; White Marsh-based Maryland Personal Physicians, which managed about 100 physicians' practices, filed for bankruptcy last September; and Largo-based Dimensions Health Network, a 1,500-physician PPO, ceased operations last November.
"The strategy that was developed in the early- to mid-'90s has been disappointing and costly for most health systems," Marzano says.
The system plans to refocus on what Marzano calls a "hospital-centric" strategy, as the 15 practices that will remain with MedStar are more convenient to MedStar's hospitals.
"What that will do is provide patients better linkage between their physicians' practices and acute services," he says.
MedStar is offering consulting services to the 50 physicians who now face the prospect of looking for a job or starting their own private practice. MedStar hopes to complete the restructuring this month but will give physicians extra transition time if needed.
"We certainly want to continue working with these physicians who are no longer employed by MedStar. We do not want to sever ties," Marzano says.
A number of MedStar physicians were contacted but would not comment on the situation. Mike Preston, executive director of Maryland's medical society, says he is not surprised by MedStar's restructuring. Risk-sharing is a failed model, he says.
"There's just not enough money in the system, given the administrative load that is placed on the (networks). At the end of the day, there's just not enough money to do the real value-added work."