Physician Practice Management Companies: Allure for Physicians or Added Value to Populations?

Abstract

Introduction In their article on physician practice management companies (PPMCs), Dr. R. Lawton Burns and Dr. James C. Robinson advance some firstgeneration data on the market forces leading to remarkable growth in the number and variety of PPMCs. They also differentiate the various legal forms of PPMCs and contrast these models with not-for-profit integrated delivery systems (IDSs). Forecasts are made with respect to future development and the ongoing struggle to create for both the involved physician practices, shareholders, and customers. The article is novel to the healthcare management literature. Much has been assumed and inferred about the new PPMC sector, but far less written from a health services research standpoint. The authors' findings and forecast are most compelling for physicians, IDSs, insurers, and Wall Street investors alike. For physicians, PPMCs constitute a viable and timely alternative with respect to practice economics, style, and strategic positioning in their local markets. IDSs will continue to find these PPMCs, particularly the multispecialty variety linked with a publicly traded company, a formidable competitive threat. Left unchecked, they could well impair some IDSs with marginal physician hospital organizations or physician economic alignment practices and structures. Not surprisingly, independent hospitals and evolving IDSs are now paying the supreme price for decades of neglect with their most precious resource-the medical staffs who principally drive their core businesses. Insurers, on the other hand, could anticipate the larger PPMCs, particularly those virtually integrated with a dominant IDS, capable of not only leveling the managed care contracting playing field but extracting significant concessions with price, delegated medical management authority, contract duration, and the like. Finally, shareholders will likely see this PPMC market grow and yet consolidate to mirror the massive restructuring elsewhere in the healthcare industry. With the U.S. healthcare industry still a largely not-for-profit enterprisehighlighted of late by developments at Columbia-one must ask whether investor-owned health businesses will ever dominate in this country. Questions and Dilemmas A strong case can be drawn from the Burns and Robinson article for PPMC growth and increasing market presence. With a cheaper cost of entry and a growth strategy predicated on virtual integration, new and existing PPMCs may experience unabated expansion. As a relatively new business entering a large and entrenched healthcare industry, however, PPMCs will undoubtedly encounter provider competition and market resistance. With a market penetration of approximately five percent-or 55,000 physicians-some 100 PPMCs have yet to reach their full potential or demonstrate a value creation capacity in their structures, practices, and economic policies. It must be remembered that customers, employers, employer coalitions, and consumer groups are far less impressed with or immune to provider consolidation and corporate development than they are the end product or service as it touches and benefits them. Americans seek simple, direct, and repeated addedvalue qualities from a disorganized health services industry, which has long been more obsessed with internal control issues than an external customer focus, including systemic improvement. The following arenas of healthcare afford other perspectives on the future promise of our nation's first 100 PPMCs and others to be incorporated. Physicians Individuals are attracted to medicine as a profession because, among other attributes, it allows, if not encourages, professional independence. The historical one-on-one doctor-patient relationship undergirds this culture. Men and women enter clinical medicine, aside from the human and caring dimensions, because it enables them-much like college professors-to apply their vast knowledge, seasoned judgment, and sense of morality in the individual management of their patients. …