Physicians start their own MCO
The state’s first physician-owned PPO takes off
A group of Pennsylvania physicians has decided to slide over and take the wheel of managed care, creating the commonwealth’s first physician-owned and -directed managed care insurer. Experts say this is part of a growing trend of physician-owned insurance groups that is sweeping the nation.
Pennsylvania Physicians Care, which expects to receive its PPO license by the end of February, already has credentialed 350 of the first 2,100 physicians who have applied to the group, and is rapidly gaining momentum.
Pennsylvania Physicians Care gives providers frustrated with the restrictions some insurers place on physicians an alternative to traditional insurers, says Richard A. Felice, chief executive officer of the group’s operating subsidiaries.
"We are the only alternative to those corporate insurance practices that many physicians have seen become only stronger," he says. "Physicians feel that their individual skills and experience are not given the opportunity to be fully exercised for the patient’s benefit under the traditional system."
Physicians hold all equity
Pennsylvania Physicians Care, an insurer that will allow direct access to specialists, is backed by 4,000 physician investors statewide. "Even as CEO, I have no equity in the group because I am not a physician," Felice points out. The organization also is directed by a board of 25 physicians. Physicians have a hand in every facet of the business, from determining policy to setting rates.
Felice says the creation of a physician-owned insurer has widespread appeal in the medical community. "We have recruited physicians in the same way that traditional insurers do by going out and talking to them," he says. "The difference is that we can tell them that if they come with us, they will be in an environment where their opinions and experience count for more. They also know that the standards and practices in place have been devised by their fellow physicians."
"Physician-owned insurance groups are quite the trend," says William J. DeMarco, MA, CMC, president of DeMarco and Associates, a Rockford, IL-based management consulting firm. DeMarco, whose company specializes in health care organization management and marketing, says physician-owned insurance providers are the wave of the future. "This is really nothing new. Some of the largest insurance providers in the country were physician-started or are physician-owned," he says, including publicly held companies such as Intermountain Health and HealthSource.
Medical groups dabbling in managed care insurance have been criticized by some as trying to serve two incompatible masters maximizing quality of care while minimizing costs. Several Florida hospital systems have heard such grumblings as they’ve taken their first steps into providing managed care insurance. Felice debunks such fears.
"There are certain business practices, good practices, which all insurance companies must follow to survive. But this organization was in no way ever started to increase physician revenues or provide an alternative to managed care that was never one of our goals," says Felice. "We believe in managed care, we think it’s a good idea, but we wanted physicians to have more of a voice in that care."
Felice also says hospitals, 10 of which have signed up already, enjoy a feeling of partner ship and teamwork with the physician group, rather than the adversarial relationship they may endure with other insurance companies. "They know that we have the same priorities they do: the best care for their clients."
However, DeMarco counters that hospitals may soon cast a wary eye on physician-owned insurers. "They [hospitals] don’t want to be in the position where physicians are paying them on a per diem basis for services. They don’t necessarily want to be on the bottom of the ladder, with physicians in control."
Pennsylvania Physicians Care hopes to cover between 5,000 and 10,000 member lives within a year (HMO licensing is expected in early summer), and board members believe the 50,000-life range is achievable within five years. They are also working on a point-of-service insurance product to introduce later this year.
Follow these tips for a smooth launch
Pennsylvania Physicians Care has had a relatively smooth take-off, in part because of the sound business practices employed early on. Here are some of the important factors behind that successful launch:
• Discipline. "The No. 1 problem for these groups is having the knowledge and experience to run an insurance business," says DeMarco. "It takes time to learn how to do it right." Felice agrees, saying that even though by its very nature the group will want to be different from traditional managed care insurers, there still is a basic core of discipline that must be used in any successful PPO or HMO. "Successful HMO practices should be studied and emulated. You don’t have to start from scratch, and you can’t ignore the basic rules of the insurance business," Felice says.
• Control. Felice stresses that your group should get senior management in place as quickly as possible. "Rely on outside consultants as little as possible," he says. "Not because they’re bad or wrong, but because you want the people who are going to be there for the long haul to be the ones who put the systems in place, not someone who will be on to their next client in six months."
Money is necessary for foundation
• Capital. "I believe you would need at least $20 million in any market," says Felice. "It is not an inexpensive proposition, and you need that money before you start building the foundation." DeMarco points to several physician-owned groups across the country that have run into financing obstacles.
"Raising capital is an ongoing process. Managed care enterprises eat up a lot of dollars quickly. Kansas [doctors] tried and faltered, Florida couldn’t raise enough money, Illinois couldn’t even raise enough for a feasibility study on the issue," DeMarco says.
• Commitment. DeMarco says once you have all your physicians lined up and interested, the hard part is getting them to put up the money and stay committed. "In places where this has been successful statewide, you have unique demographics. Places like Connecticut and New Jersey have dense populations, focused physician clusters, employers and hospitals willing to be included, and facilitative governments," he says.
"It might be harder in some place like Pennsylvania, where Pittsburgh, Philadelphia, Allentown, and the rural countryside are completely different markets with completely different needs. You have to convince your country physicians that they can benefit from the same thing that their urban counterparts will."
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