The Rough Road to Health Care Reform : Physicians: Many California doctors afraid of being squeezed out by HMOs under Clinton’s health plan are selling their practices to investor-owned ‘super-groups.’
Concerned about being also-rans in the race toward health care reform, doctors across California are selling their practices to large investor-owned companies that are piecing together giant regional physician networks.
These companies offer worried doctors a sense of security and greater access to the three out of four Californians who are insured by managed-care health plans. Many of the doctors who join these networks have watched their practices shrink as more employers push their patients into penny-pinching health maintenance organizations.
These moves are part of a broader effort by hospitals, insurers and physicians to forge alliances to respond to rapid change in California’s health care system and to prepare for the reform promised by the Clinton Administration. Although doctors are also forging alliances with hospitals and other medical groups, many physicians are opting for the more corporate-like atmosphere of for-profit companies.
The largest of these new physician “super-groups” is Artesia-based Mullikin Medical Centers, an aggressive acquirer of physician practices that now employs 400 salaried doctors throughout Southern California. Other large for-profit physician groups include Pacific Physician Services of Redlands and Healthcare Partners of Los Angeles.
For doctors, the large physician groups offer job security and the promise of new patients, primarily those enrolled in managed-care programs. Other advantages often include help with administrative tasks, cheaper rates on malpractice insurance and paid vacations and other benefits. Additionally, these groups usually allow doctors to buy ownership stakes in the company, which can prove lucrative if the firm eventually goes public.
But the decision can be an extraordinarily difficult one for doctors, who may be selling practices they spent decades to build. Used to managing their own destinies, doctors become employees of a large corporation more interested in bottom-line considerations.
Additionally, the acquirers often require doctors to sign long-term employment contracts that can make it difficult for them to quit and set up a practice nearby. The purchaser also collects a management fee--usually between 5% and 10% of revenue--plus a percentage share of any profits the physician group makes.
“The gut-wrenching trade-off for private-practice physicians is they like independence and autonomy,” said Jim Barber, executive vice president of the Hospital Council of Southern California and a former hospital administrator. Critics of large medical groups say they discourage doctors from providing the personalized care that many patients value. But doctors who belong to these groups say they actually spend more time with patients because they have fewer administrative chores.
Whatever the case, doctors say their decision to sell their practices to join a big medical group is often a matter of survival.
Doctors at Family Practice Associates in Torrance began searching for a deep-pocketed partner after TRW Inc., a major South Bay employer, began moving thousands of its workers into Prucare, the managed-care unit of Prudential Insurance Co. of America. The Torrance clinic didn’t have a contract to provide services for Prucare members.
“Some of us for the first time saw a big drop in patients,” said Terence M. Hammer, one of 30 primary-care physicians at the clinic who decided to link up with Mullikin “as a defense mechanism.”
Mullikin acts as a “super-agent” for Family Practice Associates, helping to funnel HMO patients to the Torrance clinic. “We saw Mullikin as being a very sophisticated and strong player that was going to be a survivor in the health care system of the future,” Hammer said.
Mullikin was founded in 1955 as Artesia Medical Clinic by Walter Mullikin, a doctor who believed that physicians working in a team provided better patient care than those in a solo practice. During the 1980s the company steadily acquired medical groups, expanding at a ferocious pace the past three years. Among its prizes: Moore-White Medical Group in Los Angeles, Hawthorne Community Medical Group and Arcadia Medical Clinic. The company also operates the 90-bed Pioneer Hospital in Artesia.
Mullikin, with 400 salaried physicians and nearly 300,000 HMO enrollees, now claims to be the second-largest medical group in California, after nonprofit Kaiser-Permanente, which has 3,200 salaried doctors and more than 2 million members. But other for-profit medical groups are nipping at Mullikin’s heels.
Los Angeles-based Healthcare Partners is completing an acquisition of Bayshore Medical Group, a large South Bay group. The deal would give Healthcare about 250,000 HMO patients in Los Angeles County, many of them Medicare recipients. Healthcare was formed in April, 1992, through the merger of California Primary Physicians and the Huntington Medical Group.
Pacific Physician Services, one of the few publicly held medical groups in the nation, recently agreed to acquire the Riverside Medical Group in a deal that would boost its HMO enrollees to 270,000, primarily in the Inland Empire. The company hopes to mount a strong challenge to Kaiser’s dominance among employers in Riverside and San Bernardino counties.
Meantime, hospitals have been forming close ties with physicians by creating their own medical groups. Some doctors are more comfortable affiliating with a hospital because they fear that for-profit companies will overemphasize the bottom line. “Some physicians see their future as one where a close alignment with a hospital--especially one with a good reputation--is an advantage to their succeeding in professional practice, said Thomas Priselac, chief operating officer of Cedars-Sinai Medical Center, which is forming several physician groups to try to secure more managed-care contracts.
Besides their ability to lure HMO contracts, administrators of these large medical groups say they bring a number of other benefits to physicians, especially professional management.
“Most medical groups suffer from a non-focused governance system . . . where everyone has an equal voice in what’s decided,” said John S. McDonald, Mullikin’s chief executive. “We bring stable governance and direction based on patient and group needs, not on political needs.”
Moreover, McDonald said a bigger company can afford costly new medical technology or information systems that are needed to keep tabs on patient health records or the performance of individual doctors and clinics. “We believe that the new health care system will require us to prove that we are providing quality health care, and that will require large computer systems,” he said.
HMO officials say the large physician groups are more convenient for their members because they have more options to choose from. And it is easier for the HMO to contract with a few large groups than with many small ones.
“To the extent they can organize themselves, it’s simpler for us to deal with,” said Mark Wagar, vice president of private-practice physicians for Cigna Health Plans of Southern California. Also, larger groups “have been able to deliver some rather outstanding cost results for our clients.”
While the move toward large medical groups appears inevitable, some critics contend that bigger is not always better.
Stephen C. Cohen, a San Antonio doctor and president of the National Organization of Physicians Who Care, contends that large doctor groups are often more concerned with economics than patient care.
Such groups, Cohen said, “monitor the doctor’s every move and . . . pressure you to see a certain number of patients. They ask you: how many patients did you see, how much money did you spend and how many X-rays did you order?”
At Pacific Physician Services, primary-care doctors receive a minimum monthly salary and are eligible for bonuses based on their “gross production per month,” said Chairman Gary Groves.
“The harder you work, the more patients you see, the more you do yourself, the more money you get paid,” said Groves, a former emergency room doctor whose company employs mainly primary-care physicians. In essence, the doctors are rewarded for handling patients and procedures themselves rather than referring them to specialists.
But physician group administrators say that such financial oversight is exactly what President Clinton has in mind with his health plan. And, they say, patient care won’t necessarily suffer as a result.
Doctors at Healthcare Partners, for example, are paid bonuses based on patient satisfaction surveys, said Robert J. Margolis, the company’s chief executive.
“We’re very committed to customer satisfaction,” Margolis said. “With a prepaid health plan,” he said, “if the company doesn’t give good care the patients can go back to the employer and complain.”
Southern California’s For-Profit Medical ‘Super-Groups’
MULLIKIN MEDICAL CENTERS
Headquarters: Artesia
Chief executive: John S. McDonald
Managed care operations: Nearly 300,000 enrollees covered under 22 HMO contracts
Staff: 400 salaried physicians at 42 sites; 1,500 other physicians under contract
Revenue: $274 million for fiscal year ended Jan. 31
PACIFIC PHYSICIAN SERVICES
Headquarters: Redlands
Chief executive: Dr. Gary L. Groves
Managed care operations: 200,000 enrollees and 15 HMO contracts (about 270,000 enrollees after merger with Riverside Medical Group)
Staff: 180 salaried physicians at 29 sites; more than 1,000 physicians under contract
Revenue: $93.5 million for nine-month period ended April 30
HEALTHCARE PARTNERS MEDICAL GROUP
Headquarters: Los Angeles
Chief executive: Dr. Robert J. Margolis
Managed care operations: 130,000 enrollees in 15 HMO contracts (about 250,000 enrollees after merger with Bayshores Medical Group)
Staff: 175 salaried physicians at 20 sites; 800 physicians under contract
Revenue: $135 million for 1992 (company estimates annual revenue of $250 million after merger with Bayshores)
* Related stories: A1, A7
