October 1996 Bulletin

Big single-specialty networks thrive

Arrangement offers advantages to physicians, MCOs

This may be the era of "merger mania," but the small, single-specialty group of five to seven physicians is still the leading collaborative arrangement for orthopaedic surgeons. Larger networks, as big as 40 or more orthopaedists, are a relatively new phenomenon. They can be found, so far, in Atlanta; Seattle; Washington, D.C; the New York area; Florida; Texas; and Chicago. This article will examine four of these networks.

One of the basic advantages to forming a large single-specialty network is that it can offer wide geographic coverage-making it instantly attractive to managed care organizations (MCOs)-and capture larger segments of the market.

Orthopaedic surgeons in these networks can expand their opportunities to increase revenues through group contracting and to decrease costs by purchasing in volume for supplies, buying malpractice insurance together and consolidating administrative services such as billing and record keeping. The network also can offer shared financial risk for covered services and joint governance, planning, and marketing of the network.

Currently, there are two single-specialty networks in the greater Chicago area-Midwest Orthopaedic Network with 91 orthopaedists and Combined Orthopaedic Specialists with 93 orthopaedists. Although they cover the same geographic area from the Chicago area around Lake Michigan into northwest Indiana, they are not currently in head-to-head competition. Both groups believe that they can continue in this side-by-side arrangement, and that each group can survive. This might change in the future, if competition intensifies. For now, multispecialty groups appear to be their biggest challenge.

Midwest Orthopaedic Network

Ten individual groups joined together in February 1995 to form Midwest Orthopaedic Network (MON) and began marketing efforts in June 1995. Formation of the network, a limited liability company, was guided by a consultant and a law firm, and financed with capital supplied solely by the orthopaedists. As a physician-owned and -operated organization, the risk is shared equally by all.

MON, which currently has geographic coverage of more than 30 locations, was formed to meet the demands of the managed care marketplace in and around the Chicago area. Several different avenues have been pursued by the network to ensure the realization of that goal.

MON utilizes strict credentialing policies governed by its Credentialing Committee and the National Committee for Quality Assurance (NCQA) for its physicians. Currently, 95 percent of its physicians are board-certified and the remaining 5 percent are board-eligible. In addition, 64 percent are fellowship trained.

Original clinical pathways were developed with the input of all participating orthopaedists and are used to ensure consistency of care for patients throughout the network. Additionally, an in-house system is used to facilitate data collection (including patient satisfaction data) and outcomes studies for all locations. Information from these studies are reviewed quarterly and submitted to health plans and employers as requested.

MON has successfully negotiated several contracts, the most recent being a global pricing agreement that includes hip and knee replacements, knee and shoulder arthroscopy and other procedures. MON receives one payment for all patient services including hospital, surgery center and other ancillary providers. The network's contracts currently cover 430,000 lives.

"We are looking forward to the impact that a global pricing agreement will have on the market," said Susan Djonlich, executive director. "We believe other MCOs and employers will be seeking this type of product in the near future."

As a single contracting source for all orthopaedic services-from general to subspecialty care-MON has made itself more attractive to MCOs and more competitive in the marketplace. By using various payment methods, it is further expanding its contracting strategies.

Combined Orthopaedic Specialists

The formation of Combined Orthopaedic Specialists (COS) began in early 1994 as the result of the combined efforts of the physicians and administrators of three separate practices. James Lambur, MD, medical director of COS, had been approached by a major MCO and was
asked for assistance in the creation of orthopaedic-specific protocols to help in the MCO's pre-certification and utilization review process.

The original three practices added a fourth practice and together they addressed the MCO's request. By November 1994, the four practices officially formed a single-specialty independent practice association for orthopaedics in which each physician has equal ownership and there is no seniority.

COS attributes its relatively quick start up to the fact that its administrators had a great deal of expertise in network formation and were given the authority to accomplish the day-to-day business of the network free of board-level micromanagement.

The network, which has grown to include 21 practices with 45 offices, is now headed by a board of managers and a management committee. It has five subcommittees of physicians to address quality assurance, credentialing, contract review and finance, protocols/outcomes and procurement. In this structure, COS has the participation of more than half of its 93-member physicians. "COS is a network by physicians for physicians," said Brent E. Mellecker, vice president, sales and marketing.

The COS network has carve-outs for bone tumors and, on some contracts, for joint and pediatric reconstruction. If a particular patient wants Dr. X, an out-of-network physician, an adjunct contract is established to include that doctor, thus allowing COS to maintain some control.

COS is striving to create a "seamless system" and believes that consistent protocols will help them to achieve this goal, as well as result in the more accurate tracking of statistical data, which is desired by MCOs. In an effort to achieve this uniformity, COS now licenses its protocols from and has its data collected by an outside firm.

"COS is committed to providing the highest quality of care in the most cost-effective manner," said Timothy Schmitt, president and CEO. "The network has developed a clinical database which will measure, analyze and report clinical results, cost functional status, patient satisfaction and outcomes." These data are used to demonstrate the quality of the network to payers. At present, COS has contracts covering over one million lives.

CareSelect Orthopedics, PA and CareSelect Orthopedics of Houston, PA

CareSelect Orthopedics of Dallas/Fort Worth began work on its orthopaedic network in October 1992 and was incorporated in July 1994. James F. Silliman, MD, the medical director, and eight to 10 other orthopaedists (each from different groups) were instrumental in putting together the initial plan.

After extensive reorganizing and restructuring, the IPA changed its name to CareSelect Orthopedics, PA and came under the management of CareSelect Group, Inc., a newly-formed management service organization (MSO). In December 1995, a second orthopaedic IPA, CareSelect Orthopedics of Houston, PA was added to the MSO.

A health care venture capitalist, Thomas W. Erickson, who is now the MSO's CEO, and Dr. Silliman contributed the capital necessary to launch the original single-specialty orthopaedic network. After the first contract was signed, they paid themselves back and established a $1,000 one-time application fee to all physicians in the network. The fee was used to cover credentialing costs, actuarial expenses and some insurance fees. Today, 60 percent of the MSO is owned by the physicians, the remaining 40 percent is owned by the management of the company and other non-physicians.

Both CareSelect Orthopedics, PA and CareSelect Orthopedics of Houston, PA offer comprehensive orthopaedic care, with the exception of oncology and digit replacement surgery. CareSelect Orthopedics, PA has 105 orthopaedists, a geographic coverage of 15,000 square miles and 250,000 covered lives. CareSelect Orthopedics of Houston, PA has 72 orthopaedists, a geographic coverage of 13,000 square miles and 100,000 covered lives.

According to Friedrich T. Elliott, the MSO's chief information officer, the one lesson learned in the past two years is that orthopaedics is often "too narrow of a specialty to be marketed on its own, and has greater appeal to MCOs when it is included as part of a musculoskeletal package." Today, the MSO usually markets its orthopaedic services with neurology, neurosurgery and physical therapy.

Currently, CareSelect Orthopedics, PA and CareSelect Orthopedics of Houston, PA have no real competition from similar groups. Other networks do exist, but they have not reached a sufficiently high level of implementation to be viewed as problems. However, there is the real possibility that two or three groups will form in "mirror image" of the CareSelect orthopaedic networks and create pricing pressures in the future. The greatest competition currently comes from primary care networks. Additional competition also comes from hospital-directed physician-hospital organizations.

The answer to whether or not these large single-specialty networks will continue to secure contracts appears to lie in two different directions: the network's approach to building relationships and its ability to effectively manage data. The networks that assertively and proactively seek out contracts seem to be the ones that get the contracts. The networks that have effective data management programs and can prove cost-effective quality care-or value-appear to be the ones that will keep the contracts.

Mellecker of COS said he "continues to create awareness of COS" and expounds on the positive points of his network to managed care organizations. By having one person dedicated strictly to sales and marketing, COS currently has three PPO contracts, one pending capitated contract and two workers compensation steerage contracts.

Its next focus will be the self-insured marketplace, where COS is in advanced discussions with two of the largest employers in its geographic area.

Djonlich of MON said, "We cater to the needs of our clients (payers, MCOs, employers) by tailoring arrangements that fit their particular objectives, administrative systems and business strategies. Once we develop a relationship with the payer and establish trust in the quality and outcomes of our physicians, an agreement can be reached. We are always looking to derive business from unexpected sources."

Dr. Silliman of CareSelect explained that the two orthopaedic networks hold three HMO contracts in the Dallas/Fort Worth area and one health plan contract in Houston. Several PPO contracts go directly back to individual orthopaedists' offices. For future contracts, CareSelect is banking on its data collections. "We have developed our own software program and now have very specific regional single-specialty data that will help us in renegotiating contracts," said Dr. Silliman.

- Reported by Rose A. Hepburn,
assistant policy analyst, Academy's department of health policy

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