October 1995 Bulletin

Doctors taking back health care control

Forming physician-owned managed care organizations

Physicians all across the nation are taking back control of health care by forming their own managed care organizations.

Physician-owned and controlled managed care organizations are not new. State-wide HMOs have been operating for years in South Dakota and Connecticut. But all the planning that took place in the last two or three years when HMO growth accelerated and the national health care reform debate raged in Congress is now coming to fruition. In Oklahoma, California, Virginia, Florida, Pennsylvania, and New Jersey, physicians are hard at work forming their own managed care organizations.

A state-wide HMO, Pro Oklahoma, "is just getting off the ground in central Oklahoma," said M. Joe Croswaith, MD, the medical director. "We've targeted six of the larger cities in the state (for operations) in the near future."

About 1,000 physicians have purchased the class A voting stock in Pro Oklahoma.

The planning for the HMO began in January 1993, when the Oklahoma Medical Association authorized a study of managed care within the state and asked for recommendations of how to deal with the trend. "We recommended the formation of an IPA HMO to get into the managed care foray," said Dr. Croswaith, who chaired the study. The HMO is independent of the medical association.

"That was the only way to salvation, (the only way) to allow physicians to control their own destiny."

The 35,000-member California Medical Association is forming California Advantage, which bills itself as a state-wide "managed care organization of physicians, by physicians, for patients."

Ron Bangasser, MD, chairman of California Advantage, said that the response to a stock offering to determine physician interest in forming a managed care organization far exceeded expectations. In 90 days, some 6,400 physicians-more than double the number expected-purchased the $1,000 shares.

The organization is now evaluating the panel, establishing medical policy, and searching for a chief executive officer. He hopes to have a preferred payer organization operational in early 1996. Later, when sufficient capital is raised, California Advantage will develop an HMO. Officials also plan to form a managed care workers' compensation plan, and a 24-hour care plan.

"It's been a frustrating three years of work," Dr. Bangasser said. The project was launched in response to physician complaints that they were being left out of HMOs as individuals or groups. His own group lost a contract and 10 percent of its patients when it was dropped from a managed care organization.

Owning a managed care organization gives the physicians security and control. "As doctors we can't sit around and talk about fees or we would be in violation of antitrust laws," he said. "But as an insurance company we are legally permitted to set rates and fees."

The Medical Society of Virginia was expected to begin a stock offering in September to form an HMO that initially will cover more than half the state. It is a partnership venture with PHP, Inc., an operational HMO in Greensboro, North Carolina.

C. Gregory Lockhart, MD, society president, said the society took a partner because "we recognize that there is more to developing an HMO these days than simply gathering physicians together to treat patients. It is important to have the management expertise to operate a successful managed care company and market its products."

The 12,000-member Florida Medical Association also is gearing up plans to form a state-wide HMO with the 1,000-member Florida Osteopathic Association, and the Florida Independent Physicians Association, an IPA of some 5,000 physicians.

A favorable feasibility study in August set the stage for the physicians to move ahead with raising capital and searching for management for the HMO. The physicians hope to raise $30 million in a stock sale this year and be operational by January 1997.

Charles Hayes, MD, chairman of Doctors Health Plan, an organization formed by the medical association and osteopathic association for this venture, said, "we're doing this for all the same reasons that you hear in every state-the HMOs are high handed. They sign up the physicians, take the patients, and kick the doctors out. They enjoy big profits, offer low pay, and reduce services."

In August 1994, a group of Pennsylvania doctors lead by Gary C. Brown, MD, began laying the foundation for Pennsylvania Physician Healthcare Plan (PPHP), a state-wide, physician-owned and controlled managed care organization. Dr. Brown had looked at other smaller options to compete with managed care organizations, but said he was convinced that "the only way to fight huge, multimillion dollar companies was to create your own huge, multimillion dollar company."

The effort was bolstered by support of the Pennsylvania Medical Society, a survey that found 91 percent of the doctors were in favor of the concept, and a favorable feasibility study.

PPHP hopes to raise at least $16.7 million through a stock offering to physicians who practice and live in the state; the offering was underway as this article was being written.

Dr. Adams expects the HMO to be operating within a year and would eventually like to offer an indemnity insurance plan.

Expects license

The prototype for the Pennsylvania program was the similar effort in New Jersey where, as this was being written, officials of a state-wide physician-owned and operated HMO were expecting a license from the state insurance department. Approval by the state medical department already has been granted, said Henry Rosin, MD, who has spearheaded the effort for the last 2 1/2 years.

Supported by the medical community and encouraged by a feasibility study, a stock offering was arranged to finance Physicians Healthcare Plan of New Jersey (PHPNJ). More than 3,500 physician purchased stock valued at $5,000 a share, raising $17.5 million. Another stock sale is contemplated to permit out-of-state physicians who practice in New Jersey to be part of the HMO.

"We want lots of physicians; we want to make this as broad possible," Dr. Rosin said.

PHPNJ has contracts with at least one hospital in every county in the state, he said. Explaining that it is a time- and manpower- intensive process, Dr. Rosin said "eventually, we hope to get all the hospitals on board.

"We will have enough doctors and hospitals so patients won't have to go across town for treatment. That happens now. We will not ration care. We will do what physicians know ought to be done for their patients."

Ten years ago, a group of physicians in Tulsa, Okla. felt the same way. Unhappy about the impact of HMOs on the control of patient care and discounting of fees, they united as Physicians, Inc.

Although their ranks grew to 330 members following a stock offering, the first two years were disappointing; the HMOs continue to deal directly with individual physicians. In 1988, Terry Harris, the president of Physicians, Inc., presented the board of directors a plan of action that drew on his extensive experience in third-party claims administration, marketing, and insurance underwriting, which he gained as a former Blue Cross-Blue Shield vice president. He recommended making Physicians, Inc. a holding company with subsidiaries to provide a variety of services.

Forms subsidiaries

Initially, he set up subsidiaries to provide claims administration; utilization review; and networks of physicians, hospitals, and other health care providers.

The organization began contacting employers and in December 1988, signed its first client, a school district with 600 employees.

In 1991, Access Insurance company was activated to sell health, life, and health insurance to small employer groups. The insurance company now has $11.5 million in annual insurance premiums.

The Doctor Network subsidiary includes 1,200 physicians, 85 hospitals, and 250 pharmacies, Harris said. Physicians, Inc. has 5,000 employee contracts.

"The organization is able to compete successfully with the HMOs," Harris said. "There has been a subtle attitude change (by HMOs). We're accepted as viable players. They know we can take business away from them."

That's not the end of the expansion plan. "We're offering our plan to IPAs that can't market themselves, which was what happened to us initially," Harris said.

One of the groups is Physicians Care of California, known as Peacock, based in Newport Beach.

"Three years ago, we (the executive committee at Hoag Presbyterian Hospital) saw what was happening in Los Angeles and decided we had to do something," said Gerald Wilks, MD, chief of staff at Hoag. "We traveled all over the country, looking at what other physician groups were doing and we found Terry Harris in Tulsa."

Impressed by his success, a joint venture was formed with Physicians, Inc. and stock was sold to 1,000 physicians.

Currently, Physicians, Inc. is handling third-party administration of claims through its Tulsa office and has set up a marketing office in California to contact self-insured employers.

The first client was Hoag hospital. "Employee health costs were about $10 million a year," Dr. Wilks said. "We saved them a couple of million dollars the first year. We're a doctor-owned insurance company that has cut out the middle man."

Peacock started serving self-insured companies because that doesn't require a large capital base; a company offering indemnity insurance in California needs $5 million in capital.

However, Dr. Wilks is looking ahead. "We need to have an indemnity plan on the street," he said. Peacock is trying to buy a company with a license to sell insurance in California.

Harris also is looking ahead. He is working with physician groups in Houston, Phoenix, and elsewhere, offering to help them put doctors back in control of health care.

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