Complexity of integration means PRP opportunities

Learn intricacies of organizations, experts say

New career opportunities for physician relations professionals (PRPs) are developing as a variety of provider networks pop up in response to the increasing influence of managed care, experts say.

They cover a full range of the alphabet, PHOs and MSOs, PPOs and HMOs. One thing they have in common is that there is a payment scheme involved, and PRPs need to understand those arrangements to operate effectively, experts say.

"If someone comes to a physician and says, ‘We’ll give you an average office reimbursement of 40 bucks,’ the physician needs to understand that or have someone who understands that," says Roy Fredrickson, MBA, vice president of managed care for Kirke-Van Orsdel. His Des Moines, IA-based insurance company is known for risk-sharing arrangements with physicians and hospitals.

PRPs must know all issues of managed care

For PRPs who are interested in working for the new wave of provider networks, "It’s critical that they understand the managed care issues that are coming down the pike at them." Fredrickson says its especially critical for PRPs to familiarize themselves with all the various kinds of payment mechanisms, from total risk, to partial risk, to capitation.

One reason it’s necessary to learn about a variety of issues, he believes, is that the characteristics of provider networks will continue to evolve. "I don’t know that I see any one [format] predominating," says Fredrickson.

It’s not unusual for a physician to receive a revised, abbreviated fee schedule in the mail from a payer, says Scott Taylor, MHA, director of the Permian Basin Healthcare Network (PBHN), a PHO in Odessa, TX. The physician doesn’t know if that contract includes covered lives, requires a change in referral patterns, or whether declining the contract will impact relations with other payers. A PRP who understands these issues can increase his or her value by analyzing those issues for physicians.

Other areas where PRPs have the background and skills to help the new wave of provider etworks include:

Legal issues.

Federal antitrust laws and new interpretations rules are changing quickly. Being up to date on those issues increases your value.


PRPs can help determine what parameters are used to measure a network’s physicians, Fredrickson explains.


Taylor, for example, says that much of his early work at Permian Basin involved recruiting physicians to the PHO. Rather than simply attract physicians to a particular community or hospital, recruiting into a network focuses on persuading physicians who already are part of the community. "My role was to explain to the physicians in the area what the vision of the organization was, where our values lay, and what type of value we would present to the physicians," Taylor explains.

Fulfilling those roles, Taylor adds, will be easier if PRPs remember their traditional position as the liaison for the physician. "It’s important to realize that by coming into this group and being their manager, you will affect their income," he says. "Don’t treat them as anything less than a complete partner."

Two of the most common types or organizations PRPs will encounter are physician-hospital organizations (PHOs) and management services organizations (MSOs). Here are the trends affecting both:


Many early PHOs had simple structures and complex problems. They were created and controlled by hospitals eager to begin the integration process. But too many ignored the role of physicians; while doctors may have had seats on the governing boards, the hospitals retained control.

This format ignored the power physicians hold over health care spending. "Eighty-five percent of the expense side of health care is driven by the physician’s pen," says Randall W. Killian MBA, MS, executive director of the American Association of Physician-Hospital Organizations/Integrated Delivery Systems (AAPHO/IDS) in Glen Allen, VA. "If you want to be successful in reducing costs and increasing the effectiveness and efficiency of our health care system, then physicians are going to be an integral part."

Over the past year or so, PHOs have been adjusting the power between hospitals and physicians. A recent survey by AAPHO/IDS shows that successful PHOs split membership in their governing boards equally between hospital and physician representatives, "with the physicians being equally represented by specialists and primary care and a physician being chairman of the board," Killian says. "The governance structure says that physicians are now at the table equally with the hospital."

Killian acknowledges criticism that the newer PHOs are sometimes seen as being unwieldy and complex to establish, but says the effort is worth it. "Why are they complex? Again, because for the first time, you’re bringing hospitals and physicians together in an equal partnership," he says.

Proof of the newer format’s success is their rapid adoption by for-profit hospital chains, Killian says, citing a recent report that Columbia/HCA works with 400 PHOs. "You realize they don’t do it to lose money; they do it to make money," he adds.

In other cases, the catalyst for establishing a PHO comes directly from the physician community. Permian Basin, for example, got started two years ago when one group of physicians "realized that sooner or later, managed care would penetrate west Texas," Taylor says. They thought that by organizing early, local providers stood the best chance of competing with larger corporations.

Today, the PHO includes 120 physicians in its non-exclusive network and represents about 10,000 covered lives. That number is bound to grow as managed systems make a greater dent in the region’s health care; their market penetration currently falls at less than 10%, and there are no managed care organizations (MCOs) devoted to Medicare or Medicaid populations.


Creating and maintaining a steady stream of capital is critical to success, and some organizations, including PHOs, are turning to MSOs to help with this. The beauty of an MSO is that it provides significant cost savings through the economies of scale by providing a variety of administrative or management functions from a central office for a whole group.

Hospitals set up many of the early MSOs as an integration strategy. (See Physician Relations Update, February 1996, p. 20.) More recently, MSOs are serving as subcontractors to PHOs and other provider networks, says Thomas M. Gorey, JD, president of Policy Planning Associates. The Crystal Lake, IL-based consulting and research firm recently conducted a study of MSOs for the Michigan State Medical Society.

The subcontracting arrangement allows the provider network to receive services from the MSO on a pay-as-you-go basis, either through simple payments or as a percentage of income. In fact, says Gorey, some MSOs have become so proficient at providing centralized services for disparate networks that they "may be in an entirely different region," Gorey says. "It’s not necessary that they be in the same city anymore."

"For us to increase our efficiency, we’ve got to combine like functions," adds Killian of AAPHO/IDS. "Why does each physician practice, and indeed a PHO or a hospital, need to have separate billing systems? Why not streamline the technology where you have one central system for everyone?"

Another key to MSOs’ attraction as subcontractors is their flexibility. They can provide such mundane administrative tasks as electronic billing and financial record keeping to more sophisticated management services, such as financial risk assessment and claims adjudication. Often, they also provide access to computerized information services for practices and provider networks that otherwise might not be able to afford the services. And one of their most popular services is in contract negotiation services.