Ask the right questions before signing with a PPM
By Elizabeth Gallup, MD, JD, MBA
Physicians are rapidly shifting from the private practice of medicine to practicing as hospital employees or as members of a large physician group or physician practice management companies (PPMs).
Most physicians have asked themselves which option they would pick, if they haven’t already, to find a safe haven as the marketing warfare of managed care accelerates in their own backyards. While there is no foolproof firewall to protect physicians as the clinical side of medicine becomes integrated with the business side, projections are that at least 5% of the health care delivery revenue stream will flow through PPMs by the year 2000. At the same time, hospital purchases of primary care physician practices are slowing down, and physician-run IPA organizations are growing rapidly.
Until recently, PPMs were the darlings of Wall Street. However, the fervor for PPMs both from the standpoint of investors and of physicians looking for assistance in this competitive world of managed care medicine is cooling. Investors and physicians are finding that PPMs warrant some scrutiny with respect to benefit vs. cost and longevity.
If you are considering entering into a relationship with a PPM, ask yourself these key questions:
1. What would I be getting from the PPM?
The primary answer to this question usually is: capital.
Most PPMs seeking a relationship with a physician or physician group offer the doctor or group access to capital. We doctors whether we’re in groups, individual practices, or independent practice associations have in common one problem: We have trouble obtaining access to enough capital to compete effectively in a world that’s increasingly dominated by managed care. Our greatest need for capital is usually to acquire management information systems. Our second major capital requirement is for staff compensation. Physician organizations eagerly seek IPA management expertise, and executives can demand and get high salaries.
It takes money to compete for new recruits
We also need capital for expansion and recruitment. If we are competing with hospital systems in recruiting new physicians, those new physicians’ salaries have been artificially inflated because the hospitals are typically paying $20,000 sometimes even $30,000 more than what a private practitioner can afford to pay.
Besides capital, you may receive needed knowledge and management expertise from the PPM.
Some PPMs employ people knowledgeable in the management of physician practices and contract negotiation. Ascertain whether the PPM you are talking with does employ such staff. If so, how available will the staff be to you and your group? Are there only a small number of staff and a large number of physicians and/or groups to be attended to? Will there be staff that are dedicated solely to your group’s needs? Will any staff be located in your city, or will they all be located out of town, with the only access being through the phone and occasional site visits?
2. Is this PPM here for the long haul?
It had better be, because you are considering signing on for 40 years. Some PPMs aggregate physician groups in a geographic area or even on a national basis. When a certain number of physicians are aggregated, the PPM goes public. Or, when a certain critical mass is reached, the PPM may sell itself to a larger PPM. In some cases, this can be very good for you, your practice, or your group. If you have an ownership interest in the PPM, often your ownership interest skyrockets in value and you can pocket some significant monies.
3. What would I be giving up?
Joining a PPM may come at a cost. One day, you may suddenly find your group under new ownership. Worse yet, you may find your group under new management and worst of all, new management focus.
A group I know of was quite happy with the deal they worked out with a mid-sized PPM and with their new management. One week later, with no warning to the group, the PPM was sold to a larger PPM. The physicians made quite a bit of money on the sale. However, the new owners came with new management and a style that was onerous to the physicians. Within two months, the group was looking for a way to buy back their practices. Even the large amount of money received, and then required to purchase back their practices, did not make the thought of continuing to practice as employees of the new PPM any more tolerable.
There are no quick fixes, no black-and-white answers. Just do your homework, and make a choice you can live with.
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