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Worried by the rash of failures among independent practice associations (IPAs), more physicians, especially in California, are dropping their IPA affiliation and opting to contract directly with HMOs. Most physicians going the direct contracting route can expect to see their reimbursement rates fall. But many feel lower rates are better than taking the risk of not getting paid at all if their IPA goes belly-up.
"I would need an MRI of my head before I would join another IPA," says Robert Feher, MD, a family physician in Los Angeles’ San Fernando Valley, who has been a member of several failed IPAs. Over the past four years, some 300 California IPAs and group practices have closed their doors, according to the California Medical Association.
A combination of static payments and poor management have hampered California IPAs in recent years, says Chris Ohman, CEO of CapMetrics, a Berkeley, CA, consulting firm. This situation has been complicated by the fact many IPAs don’t have adequate financial reserves — or warning systems which will alert then when the reserves they do have are being dangerously drained by high utilization, he says.
The Redwood Empire Medical Group Inc. (REMGI), in Santa Rosa, CA, had 350 physicians serving 50,000 enrollees and an annual budget of $30 million, when it went out of business last April. REMGI’s former president, Don Van Giesen, MD, says the combination of high utilization, inadequate reimbursement from HMOs, and the inability of member physicians to work together to control costs were the basic reasons the organization failed. Founded in 1986, the REMGI was financially sound until the late 1990s, when HMO payments no longer were keeping up with rising utilization, especially for specialty services.
According to Van Giesen, because the specialists wanted "more control over their fate," in 1998, REMGI began capitating its 200 specialists through a new subcontracted specialty IPA. However, another consequence of placing the specialists in a separate organization meant was REMGI no longer had direct oversight of them. Also, because "we knew them personally," the parent IPA was uncomfortable "prying" into the group’s business practices, he recalls.
By 1999, the specialty IPA had accumulated $3 million in debts from overutilization, which forced it to suddenly close — the fall out from this move then bought down the parent IPA, says Van Giesen.