PPMC troubles make capital search harder
PPMC troubles make capital search harder
What a difference a year makes
Remember the good ol’ days, when finding capital for your practice was as easy as searching out the nearest physician practice management company? Now, after a year of turmoil in the industry, PPMCs are no longer the darlings of medicine who can provide a practice with the funds they need to grow and compete in a fast-changing market.
The financial woes of PPMCs such as FPA in San Diego and the retreat from group practice management by MedPartners in Birmingham, AL, are just two of the more prominent cases. But don’t write off PPMCs entirely: Consultants and practices still point to them as a viable option for practices looking for capital, along with other avenues that are growing in popularity.
"A lot of physicians I know are rediscovering IPAs [independent practice associations]," says Elaine Scheye, president of The Scheye Group Ltd., a Chicago-based strategic advisor to physicians. "They’ve seen their colleagues down the street or across town affiliate with PPMCs and hear all sorts of stories of disenchantment. At last, as a result of recent turmoil within the PPMC sector and the attendant publicity, physicians are sifting through all of the promises that PPMCs have offered and are meeting it with a healthy skepticism."
Although IPAs traditionally don’t offer the kinds of management services that PPMCs boast, they can give physician groups the advantage of strength in numbers when approaching negotiations with payers.
Scheye says she has encountered no practices that report any value-added benefits from affiliating with a PPMC — especially given the typical 15% of monthly revenue PPMCs charge medical groups as management fees — although that’s not to say those practices are not out there.
PPMCs that stick to managing one specific medical specialty "are doing a better job and have the potential to satisfy the physicians affiliated with them," she says. Many of these firms are developing outcomes data and treatment protocols, particularly with respect to disease management for specific groups of patient populations during a time when payers are demanding evidence of superior clinical outcomes and utilization management skills.
Three owners in five years
A case in point of the uncertainty surrounding the PPMC industry is The Wheaton Clinic, a 20-physician clinic based in suburban Chicago, and several sister practices owned by MedPartners. During the past five years, the clinic has been through two owners and is about to encounter a third. Wheaton originally was owned by Aetna (now Aetna US Healthcare), which sold many of the physician practices to MedPartners. The MedPartners announcement in November means Wheaton Clinic is one of several Chicago-area practices (representing a total of 270 physicians) up for sale.
"The one piece of advice I have is, Don’t think anything is final,’" says Julie Kuehn-Bailey, a spokeswoman for the MedPartners Chicago office who also serves as marketing director for several of the firm’s Chicago-area clinics.
Kuehn-Bailey says the clinics realized some val ue from the MedPartners affiliation in two ways. First, MedPartners was able to bring together a number of small- to medium-size practices in the Chicago area and thus provide the strength in numbers that is so important in managed care contracting. Second, the firm provided employees to negotiate more favorable managed care contracts for the collective group of practices.
"But now that they’re spinning us off, I don’t think it’s a threat to our managed care contracts or their value," Kuehn-Bailey says. "They [MedPartners] are talking about keeping us together, and our physicians are staying together. That’s what gives us a competitive advantage in contracting."
MedPartners has given its group of Chicago-area practices two options: Either buy back the practices (which will not likely happen, given the expense) or have MedPartners sell them to a local health system or practice management firm, giving the physicians with current MedPartners-owned Chicago clinics a say in selecting the new owner.
"We’re looking at almost every health system in the area, entertaining what they have to say at this point," Kuehn-Bailey says. Because the collective group of practices have a patient base representing about 25% of the patients in the community, they are in a fairly enviable position. "We recently sold off one of our [affiliated] practices before the MedPartners announcement, and we had health systems that said, We know you’re not for sale, but if you ever are, let us know.’"
The clinics have received just two telephone calls from patients about the situation since the MedPartners announcement, she says.
The result of recent stumbles plaguing the practice management industry remains to be seen. One practice manager — who did not wish to be identified — sums up the feelings of some practices that have chosen to go the PPMC route: "I’m not sure who else is out there," he says. "Insurance companies tried to own groups and weren’t successful. Hospitals tried to own groups and weren’t successful. If PPMCs don’t work, how will groups get capital? It’s still difficult to get physicians to retain earnings, especially with reduced reimbursement. The question is whether they [PPMCs] can generate enough of a profit margin to make Wall Street happy."
Kuehn-Bailey, who has worked for her practice under three different PPMC owners, says PPMCs can work in the right situation. "If you’re out there by yourself, I would have to think it adds value," she says. For example, a practice may have an excellent marketing manager, but may need help in getting its management information systems up to date or improving its billing collections. "But if you’re already a self-sufficient operation, take a close look at the [PPMC’s] management fee and what you would be paying."
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