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Stephen Krell, M.D., still delivers babies in Pennsylvania. So do the other 49 physicians at Women’s Health Care Group of Pennsylvania LLC; in fact, collectively they deliver 6,000 babies each year.

Three years ago, the financial hardships they were facing as 15 separate independent practices almost forced many of them out of the state. But the doctors refused to cut and run after legislative remedies didn’t work. Instead, the physicians united in a large group practice—a step that had once been almost as unfathomable as moving their practices. The result not only largely solved their malpractice insurance premiums, but also eventually helped them practice better medicine and opened their eyes to a multitude of new revenue possibilities, says Krell, president of the Oaks, Pa.-based practice. “This was a last-ditch effort to stay in this area, keep our families here, and continue to provide care for women we had relationships with.”

For years, the OB-GYNs at Women’s Health Care Group battled to convince state legislators to address their concerns about high malpractice costs driving obstetrics physicians out of state. “Philadelphia has six academic medical centers that were turning out residents left and right,” Krell says. “But only about 10 percent would stay in the state.”

Despite that fact, physicians’ efforts to get legislators to enact tort reform laws fell on deaf ears to a large extent, says Krell. In conversations with leaders at other small practices, he says, “things were looking very bleak.” But failing in the legislative arena didn’t cause them to give up—they just changed tactics.

Plan B

The drive to unite some of the Philadelphia area’s best obstetrics physicians and physician associates was an activist approach to addressing the malpractice crisis “by doing some risk management and practicing better medicine to reduce malpractice claims,” says Krell. WHCGPA’s docs now get malpractice insurance at a 20 percent discount from filed rates, and many get extra discounts above the 20 percent based on excellent claims records, says Krell, who previously worked in a six-physician group practice owned by a hospital. Further, WHCGPA is using some of the money saved on premiums to develop a risk management program that it believes will help get additional group discounts next year.

Solo or small group independent obstetrics physicians in many states collectively faced debilitating margin pressure from malpractice premiums in the early part of this decade, but few chose the Herculean task of creating a large group practice to address the problem, says Kenneth T. Hertz, senior consultant with the MGMA Health Care Consulting Group in Englewood, Colo.

“Nationally, what we’ve seen in states that didn’t have tort reform is that the premiums exploded and created a situation that really became untenable for the docs,” Hertz says. “So what you saw was kind of a retrenchment and people exploring alternative ways to address that.”

Hertz says some practices under such pressure strive to become owned by hospitals or large systems where their insurance is taken care of by the hospital, but that option crushes the independence that many physicians crave, he says. It’s rare, however, for many practices to come together and form a large independent group as Women’s Healthcare Group of Pennsylvania has. That said, if physicians can handle the administrative hassles, it may pay off in many more ways than just saving on malpractice insurance.

“You’ve got efficiency, you’ve got effectiveness and you have cost benefits,” Hertz says. “Certainly their ability to attract a higher caliber of administrative and management people increases.”

Other benefits, better medicine

In fact, with the malpractice crisis averted, other benefits of the large group practice environment, not the least of which were economies of scale, soon became apparent at WHCGPA. Although the group operates 15 divisions based on the locations of the previous practices, it has integrated billing, collections and negotiation with payors. It also has a central office and a 15-member board of directors.

“Having a group gives you more leverage” across all lines of business, Krell says. For instance, WHCGPA helped develop two prototype pay-for-performance programs in conjunction with the area’s two largest payors, thanks in part to the data collection capabilities of its billing system from Watertown, Mass.-based Athena Health Inc. Now those plans are being rolled out across the state.

WHCGPA allows as much autonomy as possible on the divisional level, Krell says. He concedes that finding the appropriate balance between a centralized and decentralized chain of command is a moving target, but it’s a task made easier by the fact that “we’re developed, created and run by physicians,” he says. “That’s a nice departure for these docs from those MSO hospital models where largely this stuff has been dictated to them.”

WHCGPA is evaluating a practicewide electronic medical record system for implementation later this year and is planning a number of ancillary businesses. The practice opened its first perinatal center in October 2005, which is staffed by five maternal fetal medicine physicians and three infertility specialist physicians. Krell sees it as the first of several like centers that will increase revenue and raise quality. Also, the size of the practice and the richness of the data it collects makes WHCGPA an attractive candidate for clinical trials for drug companies.

Finally, the practice is working with payors to look at what procedures currently done in hospital settings can be handled more efficiently in office settings. Some minor surgical and gynecological procedures that have been performed in hospitals can safely be done in the office, saving substantial healthcare dollars. “We’ve carved out arrangements with some of the payors already,” he says.

Krell credits his partners for their ingenuity when faced with the malpractice crisis. “If it weren’t for the malpractice crisis I don’t think the docs would have had the incentive to form this group.”

Philip Betbeze is finance editor with HealthLeaders. He can be reached at pbetbeze@healthleadersmedia.com.