Over the last decade the business of practicing medicine has experienced a number of significant events and changes. These include the rise and fall of physician practice management companies (PPMCs); the growth of group practice; the expansion of large, multispecialty group practices; the decline in staff-model HMOs; and the huge growth followed by the decline of hospital system-owned physician practices.
The reasons or driving forces for these events and changes are multiple. The driving forces include the goals of increasing or preserving markets in order to capture more volume and have better leverage with third-party payers; preserving physician income; making windfall financial gains through an initial public offering (IPO) of a new PPMC; and attempting to control a "wild-card asset" (practicing physicians). The health care financing environment catalyzed most of these efforts. For example, the growth of capitation or financial risk-sharing contracts with third-party payers (even Medicare and Medicaid) caused the need to control large numbers of "covered lives" as a method to spread the financial risk and increase leverage during contracting. The financial pressure on hospitals, made worse by the Balanced Budget Act and by large medical groups or PPMC pulling revenue-producing services away from the hospitals, created additional need to take action. These large medical groups and PPMCs went into the business of providing laboratory services; imaging with X-rays, C-T scannings, and MRIs; outpatient surgery centers and endoscopy suites; and other services.
Hence the flurry of acquiring physician practices and hiring physicians by hospitals, PPMCs, and large multispecialty groups took place. The various types of deals, profits, and losses are too numerous to recount. Those physicians that were paid in cash for their practices did well, at least financially. Those paid with stock or stock options had less reliable financial returns. Most physicians found their daily work lives drastically changed and they became very unhappy. Many acquiring PPMCs went the way of bankruptcy, as do most IPOs that do not meet Wall Street expectations. Many hospitals found the financial burden of being in a business that they were not expert at, nor focused upon, too much to handle in a difficult health care financial environment.
Many PPMCs went under. Physicians were bought and sold like commodities. Many large multispecialty groups, hospitals, and hospital systems sold physicians when they could, but mostly they just let them go, closed the practices, and cut the losses. Many physicians became unemployed, looking for work. Others began the task of going back into private practice, which meant getting start-up capital, reducing personal income, and increasing their personal debt. Even staff-model HMOs were "spinning-off" large numbers of physicians.
Much has transpired in the last decade, but where are we now and where are we going from here? The word "acquire" has been dropped from the business of physician practice, but large medical groups and hospitals still "hire." The same pundits that said "acquire" and "hire" are now saying "divest" and "fire." But such all-or-nothing proclamations are rarely wise or prudent strategies.
What is the optimal strategy? Divest? Hold? Prune? Grow? How do you decide? If you hold, prune, or grow, how do you minimize the financial burden? How do you manage the physician enterprise better? How do you motivate the physicians?
If you are going to be in the physician business, you will need to pay particular attention to developing physician leadership and governance, devising physician compensation models; improving quality, service, and efficiency; understanding local market conditions and opportunities; and achieving financial results that are sustainable.
In this issue a number of articles have been assembled that address many aspects of these questions, but no attempt has been made to explore the consequences of the rise and fall of the whole PPMC movement. That is an entire subject unto itself. These articles do provide the benefit of the experience of others, which hopefully can be incorporated into your own experiences. However, there are no all-or-none proclamations by pundits. There is the strong recommendation to incorporate these experiences and suggestions into your thinking as you map out strategy, tactics, and methods that apply to your local, health care market. Your thoughts and conclusions about your competition, payer mix, population demographics, supply of physicians, resources, goals, and mission are the keys to benefiting from these articles and the keys to success for your organization.