When merging is too much of a good thing

Other options for practices abound

When managed care started infiltrating the Virginia market, the health care industry started consolidating — insurers merged and hospitals gobbled each other up. Even group practices were not immune to the trend. "It offered economies of scale, contracting clout, and more say over patient care," explains Janet McCauley, MD, a physician at Virginia Beach Obstetrics and Gynecology.

"But there is another side," she says. "If you want to have opportunities for new services, like urogynecology, you can’t support them with a small practice. You don’t have the opportunity to do research, either, unless you have a regional group."

Sure, merger was an option, but not one that McCauley’s practice was willing to consider right off the bat. Instead, her practice has joined with 11 others to form a 56-physician practice without walls called Mid-Atlantic Women’s Care, based in Norfolk, VA, which began operating Jan. 1.

The group has a single tax identification number and 12 divisions, based on the various member practices, and the physicians retain their own assets and authority within their own practices.

For the physicians involved, maintaining some independence was initially important. "You get to keep the revenue you generate in your divisions and your own assets, but you also get the full value of contracting with a large group."

The 12 practices each pay a per-physician fee, which will probably be changed in the near future, says McCauley. "Inadequate capitalization can cause failure. A per-physician fee is not really enough if we want to have a centralized information system." In time, she believes the group will move to a percentage of revenue fee.

Central leadership required

As it further integrates, the next step is central leadership, and McCauley says Mid-Atlantic recently hired a chief executive officer. "If you don’t have central leadership, you risk someone thinking about the various divisions, not the whole group," she says. For instance, malpractice insurance may be higher for one practice but lower for the rest of the group. Or a particular contract may be a boon to 11 of the 12 groups. "You have to have someone who will work for the good of the whole."

McCauley says it is too early to tell if Mid-Atlantic has recouped its costs. "The per-doctor tax has paid for legal bills and setting up our structure, and we don’t have many staff costs yet," she says. "We will have to see what happens as we align our physician incentives and recruit central leadership."

One thing is evident: Morale among the member groups is high, and Mid-Atlantic is considering expanding further within Virginia and into other states, as well.

Others may want even more autonomy than a group practice without walls offers. For them, an independent practice association (IPA) may be the better choice, says Naomi Fuchs, executive vice president for national development at the National IPA Coalition in Oakland, CA.

"An IPA is a contractual commitment that isn’t very long term," says Fuchs. "It is an excellent method of management if you are just getting into managed care and are dealing with an increasing trend of contracting."

One of the main strengths of IPAs, she says, is that they can respond rapidly to market situations. For instance, because it does not employ physicians directly, it can grow or shrink rapidly.

Fuchs says practices considering joining an IPA should look carefully at the contract and note any restrictions on specialties that may be included. She also advises you know what contracts the IPA holds, who are its enrollees, who does the administration, and your opportunities for ownership, governance, and bonuses for good patient management. "You also need to be aware that there may be exclusivity clauses for some," she says.

Whether you encounter such clauses or not, primary care providers should choose just one IPA, Fuchs says. "If you are in more than one, you lose your negotiating clout," she explains. "If you don’t like the rate someone offers you, the payer just gets to you through another IPA."

Specialists, on the other hand, should join as many IPAs as possible so they can get the referrals needed.

The costs for joining an IPA include participation fees — generally less than $1,000 — and opportunities for share purchase. Those shares can cost anywhere from $1,000 to $10,000, says Fuchs. "The only time I’ve seen an IPA not work is when the physicians are too fragmented and too competitive. Then they splinter into a bunch of small IPAs which offers a great opportunity for health plans to drive prices down."

Both IPAs and group practices without walls offer medical groups an option shy of merger. But the latter is a better starting point for groups that are leaning toward merger but nervous of that final step.

McCauley says she thinks the 56 physicians of Mid-Atlantic Women’s Care will end up as one practice, and it has recently started to cross-cover staff and set up central billing. "I think it will evolve, and that this is an interim structure. It has allowed us to ease into it."