Steven Kmucha, M.D., has experienced the failures of four independent practice associations, leaving him unable to collect more than $300,000 in outstanding claims over the past four years.
"You're out whatever the IPA owes you," says the San Mateo, Calif.-based otolaryngologist and president of the San Mateo County Medical Association.
"We've seen that happen in quite a few cases--physicians don't see the money."
The future can indeed look bleak, but doctors need to continue to care for patients, even in a post-bankruptcy setting, and most need guidance after their reimbursement arrangements have gone bust.
The impact on patients has grown as the frequency of IPA bankruptcies has increased, says John Glynn, principal of the Oakland, Calif.-based management consulting firm J. Glynn and Co. The firm provides strategic planning and business negotiation support to medical groups and hospital systems.
In California, the number of IPA closures caused by financial failure jumped from four in 1998 to 16 in 2000, according to data compiled by consultants Cattaneo & Stroud under a grant from the California HealthCare Foundation. Less
than 50,000 enrollees were affected in 1998, Glynn says, "but by 2000, we're looking at 700,000 lives. IPA mergers and consolidations also are increasing, from two in 1998 to 10 in 2000."
The statistics exclude the well-known failures of physician practice management company MedPartners, which affected 1.6 million patients, and FPA, which affected 292,000.
More recently, the dissolution of the Family Healthcare Medical Group and KPC Medical Management also created a hefty challenge to continuity of care.
"Don't think you can read an article and do this on your own, that you're going to master all the financial complexities," says Alfredo Czerwinski, M.D., chief medical officer for CareScience, which is an online clinical knowledge management company with consulting services.
That said, there are some pointers that can help physicians make informed choices on the type of post-IPA bankruptcy action they might take, as well as sources of professional and legal assistance to explain physicians' contract obligations for ongoing patient care, with or without reimbursement.
The consensus recommends turning first to medical advocacy groups. The California Medical Association, whose members arguably have borne the brunt of medical group financial disasters, "is a formidable resource, having devoted a significant number of (full-time employees) to this," Czerwinski says. "CMA is thinking more statistically and less individually. They are also trying to position themselves as a friend of doctors and a help to the public. They've been very active in combining some legal representation into class action suits and filing friend of the court briefs."
Glynn adds that because the bankruptcy laws are federal, whatever approaches CMA has developed ought to be applicable elsewhere in the country.
Another good place to begin is with a review of the AMA publication "Bankruptcies in Healthcare: A Physician's Guide," which discusses bankruptcy law as it relates to healthcare and physician settings. Although most of the paper focuses on how to recognize warning signs and avoid a financially troubled group, it also provides practical information on how to proceed after bankruptcy.
"The first thing you have to figure as a physician is, 'What percent of my practice is coming through this bankrupt IPA?"' says San Francisco-based Henry Golembesky, M.D., a pediatrician with a history in administrative medicine who currently serves as principal and vice president of Computer Sciences Corp.'s Global Health Solutions Group. His expertise is developing organizational models for hospital and physician integration.
Understanding the extent of the crunch tells you what your exposure is going to be in terms of cash flow, Golembesky says. For many primary care doctors, one IPA may represent 30% to 50% of their revenue. They need to prepare their own operating plan to work with reduced income. Office staff hours may need to be decreased or certain positions eliminated, and physicians must have contingency plans, he says.
Glynn recommends that physicians become familiar with the "quick ratio" acid test, a figure calculated by dividing an organization's cash, marketable securities and accounts receivable by how much money it has to pay out. He says the ratio should be a minimum of 1.0, though a higher value is better. If physicians don't have that information prior to signing IPA-negotiated contracts, they should at least have a sense of their own practice's quick ratio before getting burned a second time, he says.
Ron Fuerstner, M.D., a Monterey, Calif., OB/GYN and former president of the Monterey County Medical Society, says during the low point of efforts to recoup claims from the now-defunct Mission and Central Coast IPAs, his three-physician group decided to set up a simple credit line with its bank. "It's always good to make sure you can cover your costs in an emergency," Fuerstner says.
Health plans are obligated to inform members, as well as physicians, of changes caused by broken contracts, but Czerwinski and others advise doctors to make their own connection with patients--especially those with serious or chronic conditions--"or things may get ugly in a legal sense down the road."
The doctor's letter shouldn't be inflammatory, Czerwinski says. Be frank with your patients without scaring them, let them know you're happy to see them, and help them find alternatives, when necessary.
Physicians may want to join another IPA that contracts with the patient's health plan. Because no one wants disruption of care, even the payer has a vested interest in facilitating that transfer, Glynn says. Golembesky points out that health plans want a stable base of providers for their own marketing and quality purposes.
But Czerwinski notes that because plans often know when a particular IPA is ready to go bankrupt, doctors may have to accept a lower capitation rate with the new IPA.
"In those cases, again, the physician needs to start looking at how quickly this new IPA is paying claims," Glynn advises. "If they are taking 60, 90 or 120 days, there's a real risk that that IPA is going to be filing Chapter 11 soon itself."
If a stable IPA says it is full, some plans will sign direct contracts with individual doctors. Yet another route is consolidation into a foundation model, where the physician is employed by a professional corporation, but the practice is generally owned and operated by a not-for-profit or hospital. Golembesky says few hospitals can afford to have 30% to 40% of their inpatient volume left vulnerable and therefore are willing to take on some risk. Usually, all contracts in these situations are transferred to the hospital, and the physician sees little interruption in terms of business or patient care, he says.
All creditors of a bankrupt entity should receive a notice of commencement that states the amount the IPA believes is owed to the creditor and provides a "bar date" by which time a creditor (doctor) must submit a proof of claim. This is how the physician formally gets in line to be paid. Glynn recommends that doctors be vigilant in these early stages and perform a thorough check of their accounts receivable, including recently filed claims the debtor may not have recorded.
"If that amount is different from what is on the notice, or if the debtor indicated that the debt was contingent, disputed or unliquidated, it is imperative that the doctor-creditor file the proof of claim before the bar date," Glynn says. "In most cases, claims received after the bar date will be dismissed. Depending on the size and extent of the claim, the physician may want to hire an attorney."
Once bankruptcy has been filed, any new physician claims generally are approved by the court and are more likely to be paid than prior claims, Glynn says.
Physicians should be aware of a legal provision that allows the court to look at large or unusual payments made 90 days prior to the filing that might indicate favoritism, in which case the payments may have to be returned. But normal physician payments are probably safe, he says.
Because contracting physicians' claims are unsecured, usually they are the last to be paid (after bankruptcy fees, attorney's fees, state taxes, enrollees' claims and secured creditors). That's why any reimbursement tends to be pennies on the dollar.
Glynn reminds physicians that the court has complete authority and no settlements can be made outside of the court. Physicians cannot approach the IPA directly nor continue to bill for prebankruptcy claims; the point of filing for bankruptcy is to protect the organization from harassment by creditors while the court works out a reorganization.
Most of the big failures already have come to pass, says a hopeful Golembesky.
"We are seeing the people who acquire or absorb these groups having to figure out how to make these things operate now."
But Monterey's Fuerstner still warns: "Be smart and don't just sign anything that comes across your table."