Look before you leap with IPAs
Beauty is only skin deep. That's why smart suitors judge a potential mate not only on looks, but on the qualities beneath the surface. And that's why you should approach a deal with a potential independent practice association (IPA) partner by asking for the substance behind the flash - namely, the infrastructure that backs up the organization.
Once you have examined the key initial components of a strong IPA partner - its mission statement and focus as either a single-specialty or multispecialty organization (see related story on p. 133) - it is time to get a closer look at an IPA's infrastructure.
The IPA's infrastructure includes staff and management information systems. The staff need to be familiar with working with physicians and keeping a physician group cohesive and focused in the right direction. This is no easy task. Also, the management information systems must be highly sophisticated to manage capitation contracts and professional or global risk.
Here are some key questions to ask when investigating an IPA's infrastructure:
1. What is the source of capital?
Infrastructure and capital are intricately intertwined. Capital requires a revenue stream, and a revenue stream requires a professional or full-risk contract. In turn, a professional or full-risk contract requires infrastructure, and infrastructure requires capital. Therefore, many IPAs have a desire to acquire and mange professional and global risk contracts, but do not have the infrastructure to do it because the capital is lacking.
IPAs turn to many sources for capital. One source is a hospital. A hospital usually has an interest in promoting and developing an IPA because it is a means to drive patient volume for the hospital. Therefore, a hospital often will put up the cash for the development and capitalization of the IPA.
But this comes with a cost. Because the hospital puts up the capital, it often wants to use its own administrators to manage the IPA and its own management information system to support the IPA. Both of these initiatives can cause grievous problems.
Here's why: First, hospital administrators often make poor administrators of physician groups. They do not understand the independent and autonomous nature of the physician psyche. The physician psyche often causes distress among hospital administrators, who are used to bureaucracies with often rigid reporting relationships. Yet it is the physician psyche that can be capitalized upon to develop a unified and committed group. It is essential for the administrator of the IPA to understand and embrace this concept.
A second issue is related to the inadequacy of most hospitals' management information systems to handle an IPA's needs. Be wary of a hospital-affiliated IPA that uses its own home-grown management information system. It is an extremely rare hospital system that has a management information system sophisticated enough to handle full professional or global capitation. The databases must be compatible, and there must be an integration of the medical management process with the claims-paying process.
Finally, a difficulty with an IPA's affiliation with one hospital system is that it may prevent the physicians from participating in managed care contracts that use a competing system.
2. How much autonomy does the executive director have?
I don't mean to single out hospitals as the only entities that warrant these concerns. In fact, payers who back IPAs should carry the same set of warning labels attached to them. Just because an insurance company or HMO has been in the risk business, do not assume they can translate this knowledge and these systems to assist physicians in managing risk. In most cases, they cannot. If you are considering associating with a hospital or insurance company-affiliated IPA, find out who hires and fires the executive director and determine how much autonomy that executive director has in representing the needs of the doctors.
Another source of capital and infrastructure for IPAs are the large physician practice management firms that specialize in assisting physicians in acquiring and managing risk contracts. These entities usually have sophisticated management information systems and systems of medical management that can greatly assist IPAs. The trade-off is a multiyear management contract. However, with a multiyear contract, the physician members of the IPA do not have a large capital outlay and can gain valuable managed care expertise.
3. What is the IPA's size?
A final consideration regarding IPAs is their size. There is no uniform rule as to what size is most advantageous. A citywide multispecialty IPA can exert a lot of clout in negotiating managed care contracts. But to ascertain if this is the case in your area, look at the number of physicians and the types of specialties of those physicians outside the IPA. If there are quite a few nonparticipants, then HMOs and other insurance companies may circumvent the IPA and execute individual contracts with the nonparticipating physicians.
But size isn't everything. A small IPA can exercise significant market clout if it is located in the right geographic area. If there is a particularly wealthy or upscale section of a city where the benefits managers of large and medium-size employers reside, an IPA concentrated in that area can enjoy a great amount of leverage.
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