Loose links sink high prices
Save a bundle on malpractice insurance
If David Letterman had a top-10 list for common physician practice headaches, malpractice expenses would unquestionably get air time.
But before you reach for a bottle of aspirin as soon as the topic is broached, take heart. Many practices are cutting their malpractice expenses substantially by purchasing malpractice insurance in group purchasing arrangements.
For the Kansas City (KS) Women's Clinic, the answer was to form a loose confederation of 14 practices which have since evolved into the Kansas Women's Healthcare Network, a group of 100 physicians representing 30% of the Kansas City market. In the process, they managed to cut more than half a million from the group's total medical malpractice insurance premium - from over $2 million in 1996 to under $1.5 million now, says Gary Stanton, MBA, chief executive officer of the Kansas City Women's Clinic.
"We knew when we came together in January 1996, that we had to create an immediate benefit to get buy-in from the physicians," says Stanton. "We chose med-mal. It was a hard choice because physicians feel a real loyalty to a particular company, that it will look after their interests in a litigation situation. But we knew we could get real bottom-line savings because of our size."
Stanton and his management team met with several brokers. "It isn't a science, but you have to find a fairly large broker who understands who you are and what you expect in terms of price and service."
Stanton isn't alone in creating a loose affiliation in order to get volume discounts on malpractice insurance. David Astles, MHA, executive vice president for OB/GYN Management, a management services organization in (MSO) Dayton, OH, also took 35 doctors in his network of 113 and was able to bid out the malpractice premiums. In 1994, the physicians were paying about $42,000 each for typical $1 million/$3 million coverage. Now, that price is down to $14,000 per physician.
The benefit of an MSO, says Astles, is that the physicians continue to practice medicine in their own way, but they get the cost benefits of a larger group. And, he says, you don't even have to go the MSO route.
You can bring the idea to the table at any local professional organization meeting you happen to attend. "You choose someone to go to an insurance group and ask for a competitive bid for your group. This allows you to maintain independence while harnessing your bargaining power."
Stanton agrees that you can leave the links loose, but he has found his group forging closer and closer ties after each success. In 1997, his group started using its leverage for managed care contracting, and in the future, will be consolidating billing and accounts receivable functions. "We wanted to look at both reducing costs and increasing revenue," says Stanton.
In the spring of 1997, the network started discussing several models that would bring them closer together. They could stay a messenger model IPA - the loosest affiliation there was - merge or become an MSO.
In the end, they chose the latter, although Stanton admits it is probably a transitional step. "In the future, we may have a group practice without walls or even a full merger. But we have been focused until now on the business side, and before we take a further step, we have to address the consolidation of medical services."
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