Insurers play the game of risk management and reap sizable profits.
But risk has turned out to be a colossal failure in the world of physician practices. Imprecise financial projections, top-heavy management and slow claims processing have left millions of dollars in bad debts and bankrupt organizations in their wake.
Analysts are now questioning whether physicians’ groups can be saved, and if not, what will replace them. If enough organizations collapse, experts predict, an imbalance will emerge among the major players in the health-care delivery system.
As health plans and hospital systems continue to expand, independent physicians will have less clout to represent their interests and advocate for patients, industry analysts say.
“It effectively removes them from the table as a collective force, which makes it a very uneven playing field,” said Larry Levitt, a health analyst at the Kaiser Family Foundation, an independent research group based in Menlo Park, Calif. “Some other mechanism has to develop if the medical groups do, in fact, wither.”
Insurance officials and state regulators say they are doing everything they can to keep the groups afloat. Insurers are auditing financial statements regularly, and regulators are lobbying for tougher solvency laws.
The American Medical Association, the nation’s largest doctors’ lobby, said it doesn’t want to wait for groups to falter. Its leaders want to give independent physicians another option: unions.
Current antitrust law views independent physicians as small businessmen and regards collective bargaining as collusion. In order to legally negotiate together, physicians must share financial risk for the cost of caring for patients.
Together with union organizers, AMA leaders are lobbying Congress to pass legislation that would exempt physicians from federal antitrust laws and allow them to collectively bargain with health plans.
“The pressure has been on the system in the last 10 years to decrease reimbursement to doctors and hospitals,” said Dr. Thomas Reardon, the AMA’s president. “We’re finally seeing it bottom out to the point that it’s inadequate. The group collapsing is going to help us focus on the issue.”
The health insurance industry actively opposes such a measure and has successfully removed the issue from consideration this year.
“There are a number of groups out there that are trying to use anything going on in the delivery system right now to build a case” for unionization, said Karen Ignagni, president of the American Association of Health Plans. “In the quest to achieve a particular legislative objective, people can be swept away with hyperbole.”
Physicians’ group leaders say it’s wrong to speculate that every organization that manages risk is destined to fail. They say independent practice associations, known as IPAs, must spend more time scrutinizing their contracts and encouraging their doctors to adhere to treatment guidelines.
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“It’s like a teeter-totter,” said Albert Holloway, president and chief executive of The IPA Association of America, based in Oakland, Calif. “You’re up one point, you’re down another. Occasionally you fall off, but you get back on.
“The industry is going through a period of maturity,” he added.
Dr. Melvyn Klein, a Denver nephrologist, said he grew weary of health maintenance organizations making decisions about medical care because they had no hands-on relationship with his patients. So in 1995 he invited doctors to reclaim medical management and share financial risk with insurance companies.
Under a system known as capitation, IPAs receive a set fee per patient per month from insurers. They gamble that they can provide all needed services and walk away with a profit. They do, if the doctors stay under budget. If they stray over, however, the organization suffers a loss.
Although capitation encourages group leaders to cut costs and coordinate care, individual doctors have no such incentive. They are paid as they always have been a fee for every procedure performed. Analysts say the groups actually give doctors a reason to overtreat patients.
Dr. Klein’s group, Paramount Physician Network, lost sight of expenses last year and asked its 820 physicians to chip in $5,000 each to keep the organization afloat. When the vast majority of the doctors balked, Paramount liquidated in October 1998.
The group still owes about $1.2 million to physicians, Dr. Klein said. Doctors, who are now creditors, will probably collect 20 cents to 25 cents on the dollar. Some physicians have also filed lawsuits against three health plans, arguing that Colorado law forces them to pick up the tab when doctors’ groups become insolvent.