Independent but not alone (MGMA annual meeting)

The pressure of declining reimbursements combined with the increasing cost of running a small or solo medical practice has many physicians thinking about merging with other practices to stay financially viable.

Experts say, however, that independence does not have to be completely sacrificed. Strategies for linking, affiliating or otherwise integrating with larger entities while maintaining at least some autonomy were the focus of numerous sessions at October's Medical Group Management Assn. meeting in Denver.

"Clearly, physicians and hospitals are trying to be smart about their relationship for the future," said Sara M. Larch, vice president of physician services for Inova Health System in Falls Church, Va.

"We're looking at different models and other ways we can partner successfully."

Some options have long been on the table, but, in an era of declining revenues, are getting a closer look. MGMA's most recent data, released Oct. 1, showed a 7.8% decline in practice revenues per full-time group practice doctor in 2008.

Experts advise that practices examine what they are looking to gain from connecting with hospitals or physician groups before deciding how to do so. Those advocating integration all say that partnering with another entity can improve reimbursement, create economies of scale and improve the ability to retain and recruit physicians. But it is important to choose a structure that fits the practice and the community.

"Every market is different. Health care is local," said Lee B. Sacks, MD, president of Advocate Physician Partners, a physician-hospital organization in the Chicago area.

"Nine out of 10 Americans get some or all of their care from small or solo practices. How can we move ahead without waiting for dramatic changes in reimbursement?" asked Dr. Sacks, who also is executive vice president of Advocate Health Care, which runs numerous hospitals and health facilities.

What's out there

One option for medical practices includes having a managed service organization run by a hospital or other entity handle human resources and administrative tasks.

"It can be the first step towards other models, but it doesn't have to be," said Nick Fabrizio, PhD, a principal with MGMA's health care consulting group.

Practices would have to give up control of billing and other services. This could allow more focus on clinical care. The downside: the MSO might not be able to collect the same percentage of bills, and, if that company goes under, another would have to be found.

Another option is limited or "divisional" mergers, where a small practice maintains its core identity but comes together with other practices to form one corporation. The various "divisions" or practice groups make recommendations on compensation and hiring and generally run themselves. A parent board is ultimately responsible for decisions, but only a supermajority may overturn a division's recommendation.

"I call it 'merger light.' You create a new entity and each division more or less continues to operate as they always have," said David M. Glaser, an attorney with Minneapolis-based Fredrikson & Byron. "The minus is that if one division incurs some liabilities, such as malpractice or sexual harassment, the other divisions are on the hook for it."

Other potential drawbacks are the risk of clashing with antitrust regulation if the new company has more than 40% of the market. Anecdotal evidence also suggests that overhead can grow disproportionably as the number of physicians increases.

In another model, the physician-hospital organization, money matters are handled jointly, and support is provided to improve quality. This type of care model has become increasingly popular over the past couple of decades.

"Ultimately, physicians want to join your group. ... You have a real impact on your marketplace, and you improve outcomes in your communities," said Advocate's Dr. Sacks. According to his presentation at the MGMA meeting, the structure of Advocate Physician Partners allows small practices to collaborate more closely with each other clinically. Claims can be processed less expensively, and help is provided to establish electronic medical records.

Affiliated doctors can be members of other independent practice associations. Approximately 5,200 doctors are on staff at Advocate Health Care facilities. Of those, 3,400 are members of Advocate Physician Partners, with 800 directly employed.

The average size of a practice in the organization is 2.5 physicians.

"We have to earn the trust and confidence of the physicians so they stay with us," said Mark Shields, MD, senior medical director with Advocate Physician Partners. "And we have to minimize the administrative expenses. What goes into administration cannot go to the doctors. We're bringing a lot of infrastructure, especially to these small practices." He is also vice president of medical management with Advocate Health Care.

Possible challenges associated with becoming a member include the need to meet Advocate's clinical integration measures as well as safety and outcome standards, although physicians are, for the most part, have latitude on how to do that.

Other sessions at the meeting focused on the legal limitations on how physicians can relate with one another, other practices, hospitals and health systems.

The American Medical Association has numerous policies calling for antitrust reform that would allow physicians greater flexibility in joint negotiation arrangements. Experts say various collaborative structures, in order to avoid legal trouble, still must do more than just negotiate with payers.

"There's a whole bunch of [IPAs] that are not worth anything and are illegal because they negotiate contracts but they are not willing to become economically or clinically integrated," said Bruce A. Johnson, a partner with law firm Faegre & Benson in Denver. "If you are not willing to do that, you can be accused of being a price-fixing conspiracy."

Other situations to avoid include establishing groups so large that they would constitute a monopoly or any appearance of payment for referrals. Any money that does change hands must be at "fair market value."