Just a few years ago, Lifeline Medical Associates in Parsippany, N.J., was a midsized doctors' group with about 20 obstetrician-gynecologists whose single-specialty practice was limited to one county in the northern part of the nation's ninth most-populous state.
Since then, Lifeline has made some dramatic changes as it adapts to challenges such as skyrocketing malpractice premiums and take-it-or-leave-it negotiating tactics by giant managed-care companies. In a calculated effort to simultaneously boost its size, market share and bargaining power, the physician-owned medical group has grown in number of physicians by about 250% over the past six years or so, expanding its reach to much of the northern half of New Jersey with a burgeoning network of about two dozen offices and more than 70 physicians. It's now one of the biggest physician-owned medical groups in the U.S.
What's more, observers say, this growth spurt is just the beginning for Lifeline and many other such single-specialty groups across the nation.
"Our philosophy is that size does matter," says John Feltz, a physician who is president and chief executive officer of the medical group. "But it's also a matter of improving the quality of care. We've grown big enough that (managed-care companies) have taken us seriously. They know that losing a big panel of doctors is not in their interest. The bottom line is that size, a good business plan and the right physicians give us a lot of clout in the marketplace."
Feltz and his colleagues at Lifeline, by far the largest OB/GYN practice in New Jersey, are among the more aggressive of a new breed of expansion-minded obstetricians-gynecologists. Beset by worries over everything from across-the-board increases in operational costs to steep spikes in malpractice insurance premiums, these specialists across the country are scrambling to add bulk in a world where size and strength usually go hand-in-hand -- especially when it comes to negotiating contracts with managed-care companies or underwriting the costs of big-ticket items like electronic medical records.
"Up and down the East Coast, from Connecticut to Florida, there's definitely been a big move toward consolidation," says David Newman, an OB/GYN who is president of Women's Care, Charlotte, N.C., which expects to triple its size in a continuing consolidation. "There aren't a lot of arguments not to get bigger. We've experienced all the benefits that we'd hoped for in the initial phase of growth, and now we think it's time to take it to the next level."
Hospitals feel the effects
The recent consolidation is also having an effect on hospitals, and that influence is likely to grow. For one, managed-care contracting is a zero-sum game, so the boost in payments to medical groups like Feltz's and Newman's can often portend lower payments for hospitals, says Steve Messinger, a principal with ECG Management Consultants, which specializes in physicians, hospitals and academic medical centers.
"Health plans have a pool of dollars that are allocated regionally," Messinger says. "If they negotiate a contract that's great for the local hospital, the health plan will feel like they have to make it up when they negotiate contracts with local doctors. When doctors do a great job of negotiating, or when they have the size to give them leverage, there's inevitably going to be less money for the local hospitals' reimbursement, so the physicians' ability to negotiate is going to have a definite impact on hospitals' reimbursement."
Newman's 26-physician group, one of the largest in the state, was formed through a merger in 2001 of five independent operations seeking to develop some strength in numbers. As expected, he says, the larger group immediately realized the financial benefits of operational efficiencies and economies of scale.
Meantime, reimbursement rates from managed-care insurers quickly shot up about 15% as the combined groups exercised more clout in their negotiations. Malpractice insurance premiums also became "more manageable," says Newman, as the larger medical group works closely on risk-management issues and quality-control seminars with its insurer, Mag Mutual Insurance Co. The typical obstetrician-gynecologist in North Carolina pays from $70,000 to $100,000 on malpractice insurance, Newman says. Premiums for members of his medical group average about 30% less.
Sharp increases in malpractice premiums have affected doctors across the nation, but few have been hit harder than OB/GYNs. In Harrisburg, Pa., for instance, rates for these specialists jumped 165% between 1999 and 2002, according to a recent report by the Government Accountability Office. Similar increases have hit practices in many areas of the country, forcing some doctors to avoid the potential liability by discontinuing obstetrical services. Last week, Medical Liability Monitor, which surveys 45 companies representing about 75% of the physician malpractice market nationwide, reported that OB/GYNs in Miami-Dade County, Fla., were paying about $300,000 a year for insurance. In Illinois, those specialists were paying about $267,000, according to the publication.
"One of our absolutely top priorities is protecting our malpractice rate," Newman says.
The added benefits of larger-size practices have stirred interest among other OB/GYN groups in North Carolina. Newman says his for-profit enterprise is in merger talks with two similarly sized groups in Greensboro and Raleigh.
"Right now," Newman says, "we're trying to figure out whether we should stay regional or do we take this across the state? The trend in managed care is consolidation. So, we see the future being pretty difficult unless we continue to grow and consolidate ourselves."
For Feltz, the sky's the limit in terms of size. He believes Lifeline could grow to 300 or 400 doctors, a number that represents nearly half of all the OB/GYNs in the state. "As long as we can maintain the quality of our company, we would like to continue to grow," he says.
Much like Newman's group, the doctor-owners at Lifeline, which added seven new physicians about two months ago, have enjoyed significant advantages since shedding an external management firm and nearly quadrupling the size of the group. Among the most significant long-term benefits: Lower overall costs, better payment rates and economies of scale, all of which have freed up cash for the kind of expensive information-technology systems that are usually beyond the means of smaller groups.
"With some of our negotiated dollars, we were just able to purchase a million-dollar electronic medical-record system that really represents the future for us," Feltz says. "If jetliners were flying without computers, they'd be falling out of the sky. A small practice could not have afforded that."
Bargaining power, of course, will always play a key role in the movement toward consolidation. It's no secret that small medical groups are at a distinct disadvantage in dealing with managed-care companies. Feltz declines to provide any specific financial information, but says that the consolidation has resulted in "increases (in payments) that have helped offset operational costs," including malpractice premiums.
"As our size has increased, certainly there's been a strength" in bargaining, Feltz says. "Doctors and managed-care companies have not played well in the sandbox for a long time. We're saying this can't be sustained unless we work together more effectively. And that's what we've tried to do. We think, as a larger group, we have the ability to improve (managed-care contractors') bottom line. Our goal is to make this work for both sides."
All in all, the changes have had more than just a financial impact on the doctors in the group, says Karen Ryer, Lifeline's chief operating officer. "These doctors are actually feeling good about practicing medicine again," she says.
Not just for singles
Single-specialty OB/GYN medical groups aren't the only ones growing in size. Some multiˆ¡specialty groups that previously operated without women's health specialists, such as doctor-owned Mount Kisco (N.Y.) Medical Group are growing as well, adding a seven-member OB/GYN practice to round out their scope of care and help influence a referral pattern that often begins with the woman of the house.
"For us, the advantage of bringing in an OB/GYN group is that women make the health decisions," says Scott Hayworth, a physician who is president and CEO of the 100-doctor multispecialty group in the upscale community in Westchester County, an hour's drive north of New York City. "What happens is they become patients, and then determine where the rest of the family gets their medical care."
Hayworth says his group was approached about the consolidation by Riverside Women's Health, which has built up a thriving practice in Dutchess County, a section of the state near Mount Kisco where the larger group currently has no presence. He says the decision by Riverside's doctors to join a larger group is consistent with the major consolidation that is happening in single-specialty practices not only along the East Coast but across the country.
"Without a doubt, larger single-specialty groups are forming all over," Hayworth says. "Doctors are definitely finding that they need to be in larger groups for two basic reasons: To get negotiating capabilities with managed-care companies and to get better management."
Riverside Women's Health, one of the largest OB/GYN practices in the Poughkeepsie, N.Y., metropolitan area, has been operating as a single-specialty provider for almost 40 years. The current economic environment triggered the decision to seek the affiliation with Mount Kisco, says Adele El Kareh, a physician who is one of the group's seven partners.
"What we get is their ability and intelligence in running a business," says El Kareh. "They have a great upper echelon of people who know how to run the practice efficiently. I'm also hoping, when you have a mass of physicians together, you have more leverage in negotiating fees and perhaps better malpractice rates. But the biggest advantage, honestly, is not only in the managerial aspect but the ability to provide even better care for our patients," she adds.
The number of physicians in medical groups continues to grow as doctors grapple with financial and regulatory concerns. Almost 32% of the nation's doctors were practicing in medical groups in 2004 -- compared with 20.3% in 1980, according to the most recent statistics available from the American Medical Association. An AMA analysis in 2003 of all physicians found that obstetrics-gynecology was the fourth-largest specialty field in medicine, with about 42,000 practitioners, trailing only internal medicine, family medicine and pediatrics. The 2005 edition of the most recent AMA report charting medical groups shows that about 16,700 OB/GYNs -- or almost 40% of the total -- are employed by medical groups.
From all evidence, that percentage should climb in the coming years.
Feltz, who has guided Lifeline as its top physician-executive for the past five years, says he expects his growth-oriented business model to be emulated by other small groups across the country. Like many of these consolidations, Lifeline is an umbrella operation overseeing separate practices that retain considerable autonomy yet operate with a central business office and a single tax-identification number.
Asked why more groups aren't following suit if the benefits are so obvious, Feltz replies, "I often wonder about that. Most physicians have been brought up as the big fish in a little pond, and giving up autonomy is painful. I think the inability to give up that small amount of control has prevented some physicians from seeing the bigger picture."
`Always cultural issues'
There are some potential stumbling blocks to this rapid growth, however, especially when medical groups fail to properly assimilate their new members, says Hayworth, the physician-executive at Mount Kisco. "You have to be careful not to grow too big, too quickly," he says. "You have to worry about the infrastructure first. You have to be able to absorb the (new members). And whenever you add to an established group, there are always the cultural issues, the management issues. It can be very difficult."
Messinger, the consultant who believes growing clout by doctors often can mean fewer dollars for hospitals, points out another fiscal dynamic between independent OB/GYN groups and large hospital systems with their own employed specialists: As hospitals get squeezed by stingier managed-care contracts, there's more incentive than ever before to steer women's services to their employed OB/GYNs.
The significance of obstetrics, gynecology and other women's health services varies significantly from market to market. Women's health services represented about 8% of total acute-care days in the nation's hospitals last year, says Kaveh Safavi, a physician who is chief medical officer at Solucient, a large healthcare data company. "It's measurable," he says, "but it's a small category and becoming even smaller (in hospital business)." The one category of these services that has grown is obstetrics, Messinger says.
The increase in powerhouse OB/GYN practices will almost certainly result in a continuing shift of services from hospitals to doctors' offices, observers say. Doctors across the country are already performing many procedures that were restricted to hospitals or ambulatory surgery centers until recently. Now, high-margin women's services will follow that same path, Newman says, providing a boost to the bottom line through procedures such as colposcopies, hysteroscopies, dilation and evacuation for miscarriages, and the loop electrosurgical excision procedure, or LEEP, which involves removing the top layer of skin cells from the cervix to eliminate abnormal tissue.
"In addition to expanding, we need to grow in terms of finding opportunities for in-office procedures," Newman says. "I think that's where the next real effort is going to be (for all OB/GYN practices). A lot of procedures traditionally done in hospitals, at enormous cost to managed care and patients, can now be done through advances of technology in the office, at a big savings in cost."
Of course, not everyone is enamored of group practices, big or small. While the percentage of doctors employed by medical groups has steadily increased recently, doctors remain reluctant to join groups because of issues like the loss of control, tensions between primary-care practitioners and better-paid specialists, and the inherent independent streak that is so much a part of most doctors' personalities.
Despite those drawbacks, Newman says, consolidation is a key to survival in a business that only gets tougher as hospital systems and managed-care companies wield more clout. Together, these two behemoths tend to dwarf unaligned medical groups that don't have the size to fight back.
"We had to get bigger," he says.
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