Context.— Medical groups are growing and merging to improve efficiency and bargaining
leverage in the competitive managed care environment. An increasing number
are affiliating with physician practice management (PPM) firms that offer
capital financing, expertise in utilization management, and global capitation
contracts with health insurance entities. These physician organizations provide
an alternative to affiliation with a hospital system and to individual physician
contracting with health plans.
Objective.— To describe the growth, structure, and strategy of PPM organizations
that coordinate medical groups in multiple markets and contract with health
maintenance organizations (HMOs).
Design.— Case studies, including interviews with administrative and clinical
leaders, review of company documents, and analysis of documents from investment
bankers, the Securities and Exchange Commission, and industry observers.
Setting.— Medical groups and independent practice associations (IPAs) in California
and New Jersey affiliated with MedPartners, FPA Medical Management, and UniMed.
Outcome Measures.— Growth in number of primary care and specialty care physicians employed
by and contracting with affiliated medical groups; growth in patient enrollment
from commercial, Medicare, and Medicaid HMOs; growth in capitation and noncapitation
revenues; structure and governance of affiliated management service organizations
and professional corporations; and contracting strategies with HMOs.
Results.— Between 1994 and 1996, medical groups and IPAs affiliated with 3 PPMs
grew from 3787 to 25763 physicians; 65% of employed physicians provide primary
care, while the majority of contracting physicians provide specialty care.
Patient enrollment in HMOs grew from 285503 to 3028881. Annual capitation
revenues grew from $190 million to $2.1 billion. Medical groups affiliated
with PPMs are capitated for most professional, hospital, and ancillary clinical
services and are increasingly delegated responsibility by HMOs for utilization
management and quality assurance.
Comment.— Physician practice management organizations and their affiliated medical
groups face the challenge of continuing rapid growth, sustaining stock values,
and improving practice efficiencies while maintaining the loyalty of physicians