When it comes to the size of physician practices, those on both ends of the continuum are scrambling toward the middle in today's morphing healthcare business.
Solos seeking negotiating muscle, doctors put on the street by free-falling physician practice management companies, a fee-for-service comeback and the need for costly information technology are powering a shift toward small teams of physicians.
"I've been in the business for 30 years, and I've never seen such confusion," says Dean Coddington, healthcare advisor with McManis Consulting in Denver. "But, quite frankly, I don't think the future's been as bright for small groups as it is today."
The number of physicians working in small pods is growing exponentially, says William DeMarco, of healthcare consulting firm DeMarco & Associates in Rockford, Ill. "That's where we're going to see the strongest growth market going forward."
Experts say clusters of three to 15 offer economies of scale and negotiating clout while keeping the independence physicians cherish.
"The thing that really irks docs is the lack of professional autonomy--either when they're an employee or dealing with a managed care company or in a huge practice," says Douglas Hough, healthcare consultant with Arista Associates in Fairfax, Va., and director of the Business of Medicine program at Johns Hopkins in Baltimore.
"In a smaller group, they feel they have more control," Hough says. "And once you get larger, you're going to need supervisors, you're going to need administrators, and the physicians are going to have to make decisions by committee."
General surgeon Gerald Schiff, M.D., of Torrance, Calif., has been employed by a vast organization, has practiced solo and is now in a small group. Schiff began with an 18-month stint in a network of several hundred physicians, then went solo for 20 years. Two years ago, he joined Association of South Bay Surgeons, which recently has increased to 10 surgeons.
Schiff, as a solo doctor in a market with heavy managed care penetration, had increasingly lost contracts to small groups of providers, including the association with which he is now affiliated. When Schiff took down his lone shingle and partnered with other practitioners, he gave up a degree of closeness with patients and flexibility in scheduling appointments. But he gained contracting power, the ability to do quick consults, and unprecedented defined weekends and real vacations. "On balance, it's definitely been an improvement," he says.
Schiff says the trend toward small groups is likely to continue, irrespective of managed care's future, because new doctors tend to be less willing than their predecessors to sacrifice family time for availability to patients as solos. "You don't have the Marcus Welby paradigm out there anymore."
Jon Dailey, M.D. came to his current small group from a larger one. He joined three other internists at Internal Medicine Associates of Montgomery, Ala., in January 2000 after leaving multispecialty Clark-Holder Clinic of La Grange, Ga.
He was one of about 25 of 48 physicians who departed following the clinic's acquisition by PhyCor.
Dailey is happy he made the switch to a smaller practice, where he enjoys autonomy and camaraderie with partners who share comparable expenses and similar practice styles.
"I'm glad I did it," says Dailey. "You're not on either edge of the golf club. You're right in the middle, where you need to be."
PPMs: grand failure
PPMs roared onto the healthcare scene amid fanfare in 1997. "They were expected to bring rationality and efficient business methods to the last cottage industry in the United States," says Hough.
Providers dispirited by wrangling with HMOs found PPMs irresistible, says Robert Bohlmann, consulting principal with Medical Group Management Association in Arlington, Texas. "They said, 'This is the knight coming in on the white horse that's going to save us as the whole world goes to managed care.' We almost had a lemming effect."
But by the middle of 1998, PPMs were bleeding red ink while snaring more providers, says Hough. "Here's the big lie: 'No longer will you have to worry about the business of the practice. You can concentrate on medicine.' But PPMs were so intent on buying up practices, they weren't concentrating on running the ones they had. It was a Ponzi scheme, and when it all started to unravel, it came apart fast. I pity those physicians who sold their practices, and all they got was stock."
The for-profit companies failed to deliver value to providers in exchange for fees running upward of 15% of revenue less operating costs. They also disappointed Wall Street and gobbled up practices under a mistaken philosophy: "He who ends up with the most docs wins," says Bohlmann. "Now they're revisiting that and kicking docs out of the nest--and it's just creating havoc."
John Guda, CEO of CareWide, a King of Prussia, Penn.-based online application service provider (ASP) designed for practices of 15 or fewer physicians, speaks around the country about technology adoption and changing business models for community-based independent practices. Guda says PPMs were a roll-up strategy promising increased revenues in exchange for management fees and, thereby, increased income for providers.
"They were applying a new kind of overhead with the promise of much greater efficiency, and it just didn't come to be," says Guda. "They acquired practices with modest assets, outstanding accounts receivable and a weekly payroll. It's not immediately apparent what the upside was, from a business perspective."
Guda says the PPM fad also ran counter to the unilateral or small committee decisionmaking most physicians desire. "Physicians tend to be very unitary in their decisionmaking. They're entrepreneurial. Consolidation brought shared decisionmaking and diluted the incentive to work hard because there is not a direct correlation between what they do and their income. In retrospect, it looks like a formula that was doomed to failure."
Ian Easton was senior administrator of Clark-Holder Clinic, which was sold to PhyCor on the promise of clinic growth via mergers within the local market. He's now the head of applied technology at Coastal Georgia Community College in Brunswick, Ga.
"Ultimately, we would have more clout, and that would scare some of the local physicians to affiliate with us," says Easton. "The sales pitch was after about six months to a year, we would do numerous local mergers. In fact, we didn't do any."
Easton says half of the clinic's physicians bailed out two years later when holdout money dried up and paychecks plummeted. "This was a major hit. They were making more when they were residents, in some cases."
PPMs were a traumatic flash in the pan for physicians, says Dailey.
Providers casting aside the PPM yoke are finding a vastly different healthcare system that features stymieing regulatory requirements, complex reimbursement issues and fewer sources of capital with which to start a practice, Bohlmann says. "Here they are, out on the street naked in an environment they're not used to."
So what's a curbside doctor sans lab coat to do?
Easton says run for cover to a compatible small group with a built-in patient base, staff already on board, no start-up expenses, shared call, in-house conferring and often guaranteed income for a year or two. "They can really do what they were trained to do: practice medicine."
Many of those who jumped ship when Clark-Holder hit troubled water did just that, hopping aboard smaller practices, says Easton.
Bohlmann suggests other physicians who find themselves aground do the same or, for the stout of heart, establish a new practice.
Eric Hume, M.D., a Philadelphia orthopedic surgeon who has flown solo and with groups of varying size, is at a crossroads. He is currently practicing alone but plans to join with seven others this year to form a single-specialty partnership, The Orthopedic Group.
Hume says the group intends to build on existing market share by expanding into subspecialty areas.
Bohlmann's advice to physicians such as Hume? "Don't scurry around but invest in strategic planning. Have a game plan and be well organized."
There is a minefield of those billing themselves as consultants clamoring for the attention of doctors looking to set up shop, such as sales representatives who want physicians to splinter off from larger groups and buy products ranging from mutual funds to insurance, Bohlmann says.
It's best to rely on "pure" advisors with a proven track record and longevity in healthcare consulting, rather than on those out to make a sale under the guise of counsel. "There's a lot of cheerleaders egging these guys on. There's a lot of, lot of, lot of bad advice out there."
Launching a practice properly takes a minimum of six months' preparation and a transitional checklist featuring decidedly nonmedical considerations such as customer perks designed to garner market share, Bohlmann says.
While a small group makes sense these days, other business considerations abound. For instance, will the practice be single or multiple specialty? The former increasingly are coalescing into exclusive alliances for reasons such as sharing similar overhead to building a loyal patient following with top-notch care across the entire spectrum of a particular specialty, says Bohlmann.
Finding start-up capital, upward of $250,000 for a specialty practice, is a challenge, Bohlmann says. Marketing is crucial because "patients need to know where they can find you," and payers must be lined up. "You've got to be enrolled and approved for health plans. Otherwise, you can bill, but you're not going to get paid," he says.
Guda recommends evaluating potential partners thoroughly from personal, clinical and business perspectives. Look for "friends-partners" who are skilled professionally and productive vis-a-vis the bottom line.
Charles Metzger, M.D., of Glendora, Calif., did just that 10 years ago when he hitched his wagon with others in his specialty to form West Coast Urology, a now-thriving practice of nine physicians and one physician assistant in Southern California's San Gabriel Valley.
"What we looked for were a group of people that were similar in thinking, training and abilities--no 'my way or the highway.' There was a lot of trust," Metzger says. The practice established geographic coverage, implemented a patient satisfaction monitoring system on which to base customer service decisions and turned negotiations with health plans over to Metzger's wife, Barbara.
"For the first time, these health plans were actually having to have their people look at contracts and negotiate points," he says. "The group gave us the power to do it."
Bohlmann says a consumer focus, extensive clinical services and pleasant, knowledgeable, hard-working providers build muscle to flex in negotiating with health plans. "If small practices are patient-sensitive, and do all the right things to entice and hold customers, they can net a 10% to 20% difference in contracts with health plans over single docs."
Playing with the big boys
The PPM craze snowballed with physicians looking to gain leverage, says Hough.
"The biggest driver of the consolidation was managed care taking advantage of the individual doc that didn't have the clout to stand up to these behemoths."
The current trend toward small practices works for both payer and payee, Hough says. "Most health plans today prefer small groups over independents and would rather bypass the 800-pound gorilla megapractices and their negotiators."
Chuck Cutler, M.D., chief medical officer of the American Association of Health Plans in Washington, says it's more economical for plans to deal with small aggregates of doctors rather than with giant coalitions, with their attendant firepower, or solos that drain administrative funds by requiring individual negotiations.
"I think insurance companies are being kinder and gentler with physicians right now," Guda says. "The impression I have is they're not putting the squeeze on like they were, especially on small practices because they need them so much."
The swing in reimbursement has helped level the playing field, says Guda. "Smaller groups can take their ball and go home if they don't like the rules. What goes around comes around."
Players in the IT market are scurrying to assist doctors with everything from contract negotiations to HIPAA compliance.
The price can be steep, from $30,000 to $70,000 for an office-based practice management system, and is a factor bringing solo practitioners together.
But efficiencies resulting from such consolidations are a plus for practices and managed care organizations alike, Cutler says. "From the health plans' point of view, those things that physicians can do to make their practices more efficient serves everyone."
Some providers, like Hume, are being economic. Instead of forking over tens of thousands for an office-based technology system a large group could better afford, he's leasing access to online practice management services from CareWide, which charges $300 per provider monthly.
"The advantages of the dot-com product for the small group of docs is you don't have to spend a lot of money on the hardware and software; you can use your basic PCs," says Hume.
Physician groups of different sizes are sharing the expense of deciphering and implementing evolving privacy rules, says George Isham, M.D., medical director and chief health officer of Minneapolis-based HealthPartners, a 650,000-enrollee health plan and medical group with 650 physicians and an affiliated hospital.
"You'd need a full-time person just to figure out what the heck it all means. I don't think any physician can be an island on this issue," he says.
Linda Boone Hunt is a Prescott, Ariz.-based investigative reporter and feature writer.