From Stillwater-Ponca City (OK) Ostomy Outlook Oct 1996:

The Solo MD - An Endangered Species

by Bob White, Editor, South Brevard (FL) OSTOMY NEWSLETTER, Sept 1996

After seeing their incomes rise for decades, physicians in the past two years have been faced with stagnant incomes. When Medicare began to limit reimbursements in the '80s, doctors made up for it by upping the bills they were sending to commercial insurers. Exasperated by this trend, employers turned to managed-care outfits like HMOs, which sought to keep a lid on corporate costs by reviewing medical claims for unnecessary treatments. As a result, HMOs began to exert a significant influence on physicians, in some cases demanding--and getting--discounts from participating doctors. The status of the physicians became more and more precarious as enrollments in HMOs increased. It became possible for an HMO to literally destroy a doctor's practice overnight, merely by refusing to honor claims from his patients.

The AMA reported in August that, in the ten years ended in 1994, the proportion of doctors in solo practice shrank from 41% to 29%, while those working on someone's payroll, such as a hospital or HMO, rose from 24% to 42%

Faced with this situation, a great proportion of doctors have welcomed a relatively new concept--management companies. At the present time, these include physician-practice management companies (PPMs) and independent practice associations (IPAs).

Some managers don't buy doctors' practices but instead, as IPAs, represent the doctors when they do business with HMOs and other managed-care outfits. Usually, the services are offered in exchange for a piece of any contracts with HMOs and the like. Under this arrangement, the doctors remain free to seek additional medical business elsewhere.

PPMs actually purchase existing practices, whether solo or group. At the present time, such purchases are based on a figure determined by 6 or 8 times the practices' cash flows for the coming year. Doctors are usually paid in cash, stock in the PPMs, or notes. They also receive income based on percentages of the practices' earnings in following years. An article in a recent issue of Barron's, which, understandably, is concerned primarily with the financial picture, notes that PPMs, many of which are publicly owned, have become well-liked by stock exchange traders. Another sign of their growing influence is their indulgence in the merger mania. One firm, FPA Medical Management, of San Diego, which began as an IPA, recently merged with Sterling HealthCare, which represents emergency room doctors; it's expected that FPA's revenues this year will exceed $480 million.

MedPartners/Mullikin, a Birmingham, Alabama firm, merged with a huge California group in November, 1995; merged with Pacific Physician Services in February, and has a merger pending with CareMark International, a larger company that has a fast-growing prescription drug benefits program. If approved, the merger will create MedPartners, Inc., which will have a $1.5 billion business in drug benefits alone, a home-infusion unit that generates $60 million by itself, and a network of medical groups and IPAs including 7300 doctors in 25 states, pulling down $2 billion in medical fees.

Against groups like these, the solo doctors, or small practices, have little chance of surviving on their own. Our own community has seen this illustrated, vividly and painfully. Yet there is little that we, as medical practice consumers, or individual physicians themselves, can do. Only those of us with exceptional secondary insurance can pick and choose any more. Another sign of the times!

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Content last revised 1996-10-14