Physicians wonder about United's IPA deals

UnitedHealth Group subsidiary Optum is taking over the management of three independent practice associations in Southern California, as health plans continue to find ways to get into the clinical side of the health care business.

Neither United nor the IPAs has released financial details about the acquisitions. David Mellentine, spokesman for Monarch HealthCare of Irvine, Optum's latest and largest affiliation with an IPA, referred comment to Optum.

Tyler Mason, spokesman for Optum parent company United, provided a corporate statement on behalf of Monarch: "Monarch HealthCare has agreed to enter a strategic relationship with Optum to support our physicians in providing high-quality, cost-effective patient care in Orange County. Monarch and Optum share a goal of bringing patients, physicians, hospitals and health care payers closer together in the mission to improve the quality and affordability of health care."

Others in California, however, weren't so sure. "They certainly never had a lot of friends among the provider community," Penny Stroud, a Burlingame, Calif., health care consultant said of United. "I'm sure everybody is interested in how this is going to work out."

The California Medical Assn. said it is "closely monitoring situations like the one in Southern California where lay entities are seeking to more closely align with physicians," Dustin Corcoran, the association's CEO, said in a statement.

"From a broader perspective, we're concerned about these types of acquisitions by nonphysician entities and the necessary legal standards and regulatory oversight that should be applied," he said. "We continue to keep an eye on these developing deals, as we want to ensure that our 35,000 physicians are able to practice medicine with the ease and care that their patients rely on."

Optum's deal to take over Monarch HealthCare's IPA, announced in late August, has been of particular interest, because Monarch claims 2,300 physicians as members. Optum agreed to take over management of much smaller AppleCare Medical Group and Memorial Healthcare this year.

At a congressional hearing on consolidation in the health care industry, Rep. Pete Stark (D, Calif.) mentioned the Monarch acquisition.

"Consolidation of the health insurance marketplace raises interesting questions and concerns," he said. "What is the effect of health insurance consolidation on premiums? Does provider consolidation help to improve clinical integration of care? How is that balanced against the desire to not create provider behemoths that can be virtual price setters? ... And there are growing examples of new mergers -- like UnitedHealthcare's recent purchase of Monarch, a major physician group in Southern California -- that also warrant review."

California's Dept. of Managed Health Care is reviewing the Optum-Monarch deal, said spokeswoman Lynne Randolph.

Stroud said perhaps Optum is interested in developing its own network of physicians to develop accountable care organizations rather than dealing with independent or hospital-affiliated doctors.

IPAs have an incentive to hand over management to a health plan because attracting new member physicians is difficult now that so many are employed by hospitals, Stroud said.

"It's a transitional time in the market with the economy the way it is," she said. "It's really much more difficult than it used to be because of the growing dominance of hospitals and health systems."

Optum's entry into the IPA market has raised questions about whether insurers want to gain control of physician groups in anticipation of forming ACOs.

Sanford Bernstein investment analyst Ana Gupte said Humana, Cigna and WellPoint recently made similar acquisitions, suggesting that insurers are interested in at least experimenting with directly controlling the way care is delivered.

"We expect such deals where managed care continues to acquire physician practices to continue as the industry aims to gain greater control of the physician supply chain, and more directly drive care coordination," Gupte said in a note to investors.

Optum's relationship with United presents a wrinkle for Monarch -- what to do about an ACO that the group has been running with Blue Cross of California, a subsidiary of United's competitor, WellPoint.

"In light of the new relationship between Monarch and Optum, we are reviewing our options," said Blue Cross spokesman Darrel Ng. The ACO launched in May and has about 34,000 enrollees, he said.

This is not United Health Group's first experience running a physician group. It bought Southwest Medical Associates, a large multispecialty physician group in Nevada, in 2008 as part of its acquisition of health plan Sierra Health Services. In California, Optum is taking over administrative tasks for the IPAs but not buying the practices directly, which would be prohibited under a state law banning the corporate practice of medicine.

An IPA's management typically negotiates contracts with payers, handles billing and pays member physicians a capitated rate for care. In some cases, an IPA's management helps purchase or implement electronic medical records for member physicians.