Health Systems Invest and Grow Physician Practices (Again) - Many Consider Outsourcing Practice Management

Concurrent with the development of the PPM industry in the 1990s, hospitals, health systems and some academic medical centers acquired primary care physician practices.(1) Most of these acquisitions were a defensive response to the threat of competing institutions and PPMs acquiring their loyal referring physicians. In addition, these institutions were almost universally pursuing a global capitation strategy that required significant primary care capacity.

Much has been written about the demise of health system sponsored physician practices.(2) While many health systems have elected to divest all or a portion of their owned physician practices, most institutions continue to employ physicians for a number of reasons:

• New breed of physicians wants a "JOB" - Physicians out of training are seeking employment opportunities that offer a balanced lifestyle. It is rare for new physicians to " hang a shingle " and open a private practice.
• Ensure long term commitment - Physician employment continues to serve as an important vehicle for aligning physicians with the institution over time.
• Facilitate succession planning - Mature physicians are reluctant to accept the business risk of recruiting and hiring their replacement, or to grow their practice. Through employment, the institution is able to accept this risk and the initial investment while partnering with senior physicians to serve as mentors and leaders of the employed physician practice.
• Platform for expansion - Just as physicians are reluctant to invest in succession planning, they are reluctant to invest in growth. Employment offers a vehicle to grow a loyal physician compliment, including the ability to locate new, loyal practices in strategic geographic areas.
• Address malpractice crisis - Especially in certain specialties such as OB/GYN, physicians are increasingly seeking health system support for the cost of professional liability insurance.
• Managed care clout - Aligning with physicians through employment offers the ability to strengthen managed care contracting leverage with third party payors.
• Deal with Unfriendly Aggregators - For health systems that face specialty groups seeking to open hospital like facilities, those institutions that maintain a strong employed primary care physician base are positioned to ensure that referrals remain inside the system. For this reason, many institutions find ways to share system financial success with their employed physicians in order to align incentives against unfriendly aggregators.
• Vehicle for quality initiatives (EMR) - The holy grail of employed physician practices, the ability to deliver documented quality health care through large physician groups on a common information system platform, continues to represent a significant opportunity for health system sponsored medical groups.

Increasingly, today's health systems are investing in and growing their employed physician practices. Moreover, a sea change is taking place with respect to system management's willingness to consider outsourcing the management of their physician practices. While in the 1990s hospital administrators were aspiring to own and operate HMOs, physician practices and other "non-core" services, many health system executives today see the need to own practices but not manage them. This presents a mutual opportunity for systems in need and Southwind, a provider of physician practice management services.

(1) See related article entitled, "The History of Physician Practice Management Companies (PPMCs): One Company's Experience."

(2) Deane, John A. and Cecala, Alan H., "Seeing the Light at the End of the Tunnel: Why Many Health Systems Continue to Own Physician Practices," MGMA Connexion, October 2001.

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