Physicians, hospitals form alliances to ease contracts

IPAs, PHOs offer one solution to health’s new era

New forms of physician alliances have sprung up in recent years, as doctors grapple with the changing economics of medical care.

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In Northern Colorado, both individual practice associations and physician hospital organizations have been developed to unite physicians in contracting with health-care organizations.

United Physicians of Northern Colorado, a 2-year-old IPA, is dominated by primary-care physicians, said Dr. Donald Wells, medical director of the group.

“The majority of us are family physicians, general internists and pediatricians,” he said.

About 50 percent of the United Physicians group consists of primary-care doctors and 50 percent specialists.

“We are balanced. We felt it would be a better business operation this way,” Wells said.

The IPA has 70 members but expects to add more specialists in the coming year. The group operates mostly around Fort Collins and in Windsor.

“Most of the members are group physicians. That’s the way the market has gone,” he said.

Wells said that few doctors starting practice today could afford to go solo. Some equipment used by primary-care physicians can cost as much as $10,000, a burden that can be shared in a group practice.

United Physicians is a select IPA, which chooses its members, unlike an open IPA, which any physician can join.

United Physicians favors capitation, the practice of accepting a set fee for the management of a given group of patients. For example, a health-maintenance organization would pay the primary-care physicians in the group a set amount to handle a certain number of patients, he said.

“It aligns the incentives of physicians, particularly if the hospital takes capitation as well,” Wells said. “Doctors are rewarded for keeping people well rather than for treating them for sickness.”

Capitation encourages preventive medicine and disease management, he said. For example, an asthma patient who is well-managed usually is hospitalized less and needs less medication, he said.

In contrast, a doctor earns more through a fee-for-service arrangement if the patient gets sicker, he said.

“We hope to start global capitation with the Fort Collins hospital,” Wells said.

By the first of the year, the group expects to have contracts with PacifiCare and Blue Cross and Blue Shield, two of the three major HMOs operating in the Fort Collins area, Wells said. The third large HMO, Cigna, does not work with capitation, he said.

IPAs do have some drawbacks, he said.

“When you enter into an alliance, you have to accept the majority rule,” he said. “You might not agree with the capitation rate.”

However, membership in an IPA provides physicians with a strong position to negotiate with large health-care companies, which can’t be done by small or solo practices. In those instances, doctors have very little power to negotiate and are forced to either accept or decline a deal with an HMO.

IPAs first appeared on the scene about 10 years ago as the medical environment began to change, he said. They offer cost savings through economies of scale.

As a not-for-profit corporation, the group has the ability to purchase equipment and materials together. However, it hasn’t taken advantage of that option yet, he said.

Meanwhile, the fee-setting issue in IPAs has resulted in a lawsuit against the Mesa County Physicians IPA in Colorado. The Federal Trade Commission has charged that the group combined to fix prices and other competitive terms between physicians in Mesa County and third-party payers as well as with collectively refusing to deal with other payers.

The FTC is seeking a court order to reduce the size of the Mesa County IPA’s primary-care membership.

Mesa County IPA has said it will defend itself against the charges and has received an offer of support from the American Medical Association.

Another IPA in the area, the Fort Collins IPA, was founded in 1985 and consists of 230 physicians and 80 physical therapists and social workers.

Jeri Jones, chief executive officer of the group, said that IPAs give physicians bargaining power as well as the ability to standardize processes in insurance billing.

“Usually, every insurance company has a different way of doing business,” she said. “We try to standardize that so doctors don’t have to have a big business office.”

A standard practice helps streamline the tremendous amount of paperwork involved in doing business with health-insurance companies, she said.

Currently, the Fort Collins IPA has contracts with 15 preferred provider organizations and six HMOs. The group is considering making purchases together. For example, all of its primary-care offices could bargain for immunization purchases to lower costs, Jones said.

The group is open to new members as long as they meet the credentials requirements of the insurance companies it contracts with, she said.

The Fort Collins IPA also takes professional capitation with HMOs.

“We’ve had a global cap for a year and a half now,” she said. “We get paid a certain amount per member per month, and we are responsible to provide physician services for that number of patients.”

Jones said capitation “promotes wellness because if we don’t have to see a patient for illness, there’s money there to see the ones who are sick.”

Most IPAs today are moving toward a capitation arrangement, she said. While the Fort Collins IPA has a global capitation rate with the HMOs it serves, it operates on a fee-for-service basis with PPOs, she said.

The group is trying to add some more primary-care physicians, up to 20 more in the next year, she said. Currently, about half of the Fort Collins IPA consists of primary-care physicians.

In Weld County, medical groups have gone a step farther than IPAs with the creation of Physician Hospital Organizations, which link doctors with a hospital facility. Together, they can contract more competitively with managed-care organizations.

The Western Plains Health Network, a division of Lutheran Health Systems which operates hospitals in 18 states, includes two PHOs in the area.

In Greeley, the High Plains PHO includes 190 physicians and the North Colorado Medical Center. About 60 percent of the doctors in the group are primary-care physicians, said Jim Humphrey, director of PHO operations for Western Plains.

Currently, the group has six contracts with managed-care organizations covering 8,400 members, he said. The PHO is about three years old.

Another group, the Mountain Shadows PHO in Loveland, has 90 physicians who work with the McKee Medical Center. About 28 of those doctors are primary-care physicians, Humphrey said.

The Mountain Shadows PHO has five contracts with managed-care organizations and also covers about 8,400 patients, he said. He said the groups have a capitation arrangement with PacifiCare.

PHOs are advantageous because they offer a single contract to managed-care organizations for both a hospital and area physicians. Otherwise, the managed-care group would have to contract separately for care, said Gene Haffner, communications director of the North Colorado Medical Center.

While PHOs give doctors and hospitals more leverage to negotiate with managed care, there’s also a greater risk involved because they must manage their own costs while providing health care for a certain number of patients, Haffner said.