PCP Group Formation Options

by Keith Borglum

Options in FP Group Formation

Everywhere you turn you hear "group, group, group" in preparation for managed care! At the national, state, local, hospital and individual physician levels it is the hot topic of conversation. In addition to existing affiliations, Family Physicians are being presented opportunities to join new hospital Managed Service Organizations (MSOs), independent MSOs/IPAs/Managed Care Organizations (MCOs)/Group practices Without Walls (GPWWs), foundations, local specialist- dominated single and multispecialty groups and small FP groups. Recruiters are singing the praises of corporate type groups and HMOs, both in and out of state. With this confusing array of opportunities, what should you do?

The first issue to consider is why all this attention is focused on you and how it could affect your decisions. Anyone watching how the changes in the health care system will effect the delivery of care knows that family practice is the key specialty required. That means everyone wants you, or will want you soon. Your specialty is in short supply in most areas, and demand will increase until the medical schools or retraining programs respond in five to ten years. The result of these factors is that your value is climbing. Smart organizations will try to acquire you or your practice as soon as possible while the price is still low.

As a strategy for the future, affiliation with some type of group makes sense for a number of reasons for most FPs. It provides economies of scale, allows for more sophisticated management, allows more delegation of the business tasks that many FPs find unpleasant, usually increases net income, spreads risk in capitation, makes it easier to attract contracts, patients, and associates, provides peer support, etc.. For certain FPs, remaining solo is appropriate, such as those with a demonstrated inability to function in a group setting, those with certain types of non- traditional practices, dedicated over-utilizers or those in certain niche markets. For some physicians very close to retirement the hassle of change will not be worth it.

For the majority of physicians what type of group is appropriate? The answer falls in a few categories with no one answer right for everyone. One main criteria is predominant in all categories though and that is, if at all possible, to try to preserve equity rather than selling out and becoming an employee. Preserving equity means retaining a form of ownership and control, with that ownership having tangible dollar value that has potential for increase. Remember, FPs have increasing value. You usually don't want to sell any investment at the bottom of the market, which probably is now in family practice. The exception is when you don't have any other choice because of factors in your immediate community.

The first, and most conservative, form of group formation for FPs is single specialty. Five physicians is an ideal minimum number especially for a single site, with the next logical steps of 10 then 15 or more. A group of five is usually well positioned to ride out the next few years and maintain equity for existence or larger group affiliation in the future. It also provides an excellent group dynamic, taking advantage of the benefits of economies of scale without the bureaucratic hassles of larger groups. The drawback is that it is too small to have significant managed care clout in most communities and may be squeezed out by larger competitors.

Larger group formation offers advantages such as dependable income, expanded benefits packages, freedom from business hassles, more free time for other interests and market dominance. Drawbacks often include loss of control of working environment and individuality, greater risk of loss of job, a clinic atmosphere, political stereotyping in the greater community, and having your clinical competence being assumed by outsiders to be equal with that of the lowest member of your group. The difficulty of large group formation is far greater, as is the risk of failure to achieve formation. Many groups now being formed are specialist dominated to protect specialist interests (read: income) and not FP interests.

Group Practices Without Walls (GPWW), in either single or multispecialty modes, offer physicians some of the benefits of group practice while maintaining individual practice locations and most of the feel of private practice. A major drawback, especially in comparison with "staff model" groups, is the often lesser commitment by individual physicians to the success of the group over their own "practice". GPWWs also have certain less efficiencies due to replication of facilities, staffing, etc., and so have higher costs resulting is less profits for the physicians from professional services. A major reason for many GPWWs to form was to be able to integrate ancillary services for additional profit. This profit may be in jeopardy in the future due to HMOs contacting separately for ancillary services, or from adverse legislation.

A common alternative being pushed is the Management Services Organization (MSO). An MSO is a legal entity formed to contract for management and services to physician practices, with varying levels of invasiveness. The identity and motivation of the funding entity must be carefully reviewed as "he who has the gold makes the rules" in many cases. You also need to carefully scrutinize who is doing the management, as there are few existing successful MSOs. Many people and groups represent themselves as MSO managers, including unemployed ex-hospital administrators and others with no experience in the field. Especially beware the hospital that wants to manage your practice but can't manage its own affairs. There are MSOs and related types of groups forming that are by family physicians, for family physicians or multispecialty that appear to have promise that bear watching. The main benefit of MSOs that succeed is that they are the main option for maintaining the flavor of private practice, while maintaining much control by the individual physician, with eventual involvement into the probable integrated systems of the future.

The differentiation between IPAs, MSOs, PPOs, HMOs and the newer labels of Physician Provider Associations (PPAs), Exclusive Contracting Organizations (ECOs), Physician Hospital Organizations (PHOs), is becoming blurred. As a family physician considering joining a group a key issue to remember is that "the large print giveth and the small print taketh away". You must read and understand the contracts in detail and get independent professional opinion on those issues in question and negotiate them in your favor, rather than depending on the label applied to an organization.

Unfortunately there is real risk in any decision you choose. Exercising due diligence should protect you from making a disastrous decision. If the decision you make does turn out to be disastrous remember, as a family physician, your skills will always be in demand somewhere.

Reprinted with permission from CALIFORNIA ACADEMY OF FAMILY PHYSICIANS' MANAGED CARE FORUM.

Author Keith Borglum is a consultant and medical practice appraiser with Professional Management and Marketing, 3468 Piner Road, Santa Rosa California 95401.

Keith is one of the few consultants in America to be accepted as a member of all of the following; the Institute of Business Appraisers, National Association of Healthcare Consultants, Society of Medical Dental Management Consultants (90-94), American Medical Association's Doctors Advisory Network, American Academy of Family Physician's Network of Consultants, and the American College of Physicians Managed Care Advisory Consultant Network.

Phone 1-800-79-CONSULT for consulting and appraisal information.

Permission is granted to reprint or quote any portion of this article provided that the author, firm, phone and city are named and two copies of the quoting journal are immediately mailed to the author at 3468 Piner Road, Santa Rosa CA 95401.