Hospital losses mean PhyCor’s gain, exec says

Virtual integration strategy planned by PPM

The end of hospital ownership of physician practices is fast approaching, and PhyCor, the Nashville, TN-based physician practice management (PPM) company that owns 51 practices, plans to be there to pick up the pieces. That’s the assessment provided by PhyCor’s vice president of strategic development, Paul Keckley, during a presentation at the Medical Group Management Association’s 71st annual Group Practice Summit held in October in Washington, DC.

Although seven times as many practices are affiliated with hospitals as with PPMs, "the marriage between hospitals and group practices isn’t working in most markets," Keckley says. And staff model HMOs are not working due to consumer desire for open access. "We think the concept of physician empowerment is better. If you give physicians the right tools, they will make the right decisions in terms of quality and cost. They don’t want to be employed, but want preferred relationships with HMOs and hospitals."

PhyCor already is negotiating to purchase groups of physician practices from hospitals, and may help create a virtual integration between the group practices and the hospital, Keckley told Physician’s Managed Care Report. (For an example of one PhyCor-owned group that pursued such an integration strategy without previously being tied to the hospital, see story, p. 145.) It forms an organization in which "the physicians and hospital leaders sit side by side," but in which physicians are not employees of the hospital. (For an example of PhyCor virtual integration, see chart, below.)

PhyCor, in most cases, is looking for multiple groups to purchase outright or to operate on an independent practice association model, Keckley says.

In either case, PhyCor would do a valuation of each of the practices owned by the hospital and select which ones of the group it would be interested in purchasing. If there are practices PhyCor does not wish to purchase, the company will provide any services to these practices that the hospital had been contractually obligated to provide. (Most agreements between practices and hospitals are for five years, and PhyCor would honor the contract for the remainder of the contract term.)

For the practices that are purchased, the physician leaders are asked to sign a new agreement that allows them to become part of a professional corporation, Keckley says. The physician leaders receive the proceeds of the acquisition.

And what does the hospital get out of it? In some cases, a way out of a situation that’s losing money for the hospital, and in others, an objective distance from the physician practices it is associated with, Keckley says. "For example, if I’m a hospital and I buy one orthopedic practice, I make the other three orthopedic practices in my market mad. Our group practice structure gives the hospital some cushion."

PhyCor has yet to purchase a hospital as part of the package, although some deals involving a hospital purchase are in negotiation now, Keckley says.

In addition to partnerships with hospitals, he says PhyCor sees these other major trends affecting PhyCor’s future and the future of the industry:

• The company will continue to use the multispecialty group concept as the foundation of its practice management structure. "We see evidence that multispecialty groups have a long-term advantage — provided that they get to [operating on economies of] scale and have a common infrastructure," Keckley says.

• Keckley predicts an eventual demise of single-specialty practice management companies that have cropped up. He predicts that publicly owned single-specialty PPMs will lose favor with Wall Street. "Not a day goes by when we don’t hear from a single-specialty practice management company [to see if] we would be interested in acquiring them," he says. However, PhyCor prefers to incorporate specialists into a multispecialty setting in order to have a continuum of care in place.

• It’s essential to invest in systems architecture that allows multiple vendors to come together, rather than in just one single system, and PhyCor will continue to pursue this path in its systems integration.

• Successful multispecialty groups, including those owned by PhyCor, must track outcomes to provide evidence to payers of cost-effective population-based disease management. "Disease management is not single-specialty thinking, but multispecialty thinking based on a single disease," he says. But quality measures also have to show cost-effectiveness. "Unless any physician organization can address cost of care, you’re not going to get the opportunity to address the quality of care you can provide," Keckley says.