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Is it Time to Resurrect Physician Practice Management Organizations?

Beth Connor Guest and Michael E. Collins, for HealthLeaders Media, March 11, 2010

In addition, physician productivity often decreased after the practice sold out to the PPM. As a consequence, physicians saw a substantial decline in income after the income supplements had been paid, and the practices were not only unable to retain existing physicians but had a competitive disadvantage in recruiting. As a result, the PhyCor and MedPartners model failed.

What Have We Learned?
First and foremost, it is clear that a model that decreases physician compensation, absent an increase in profitability of the physician practice, is not a viable long-term strategy. . The model must be, at a minimum, cost neutral to the practice and the incentives of the PPM and the practice must be aligned. In the first generation of physician practice management models, the PPM did not provide any true centralized revenue cycle management function or materials management/group purchasing function. Under the new model, the PPM must provide these services.

Instead of the PPM receiving a Profit Share as a component of the fee, the fee could be based on a percentage of net revenues that is equal to the cost savings to the practice from the PPM providing revenue cycle management, materials management, reductions in salary and wages, and benefits costs. The management fee should also allow the PPM to share in the incremental profits recognized by the practice, other than from providing professional services. The PPM will continue to be reimbursed for costs and capital incurred on behalf of the practice.

What Are the Opportunities?
There are a number of profit opportunities that can be driven through the consolidation of a substantial number of physicians into a large physician group that has significant market share in a given region. Opportunities for physician groups include: (i) controlling and profiting from the revenue streams, (ii) improving revenue streams through demonstrated quality, (iii) development and commercialization of protocols, (iv) disease management, (v) clinical trials and genetic testing, (vi) pharma economics, (vii) developing and operating employer clinics, and (viii) developing enhanced ancillary services.

In order for physician practice management organizations to rise from the ashes there will, however, have to be sufficient returns on the capital invested in the physician practice management company. Whether there are sufficient returns in a broad-based physician practice management company remains to be seen. Early results in companies that focus on a segment of the opportunity (e.g., employer clinics, enhanced ancillary services, disease management and billing and collection) have been promising, and logic dictates that combining those revenue models with a critical mass of physicians who can exercise market power can be profitable.

Investors will, however, have to appreciate the differences in the opportunity, as well as key differences in the model, to move past the physician practice management failures of the past. Whether investors can do so remains to be seen.


Michael E. Collins is chief executive officer, managing member and founder of 2nd Generation Capital, LLC, in Nashville, TN. He may be reached at mcollins@2ndgeneration.com. Beth Connor Guest is a partner with the law firm Waller Lansden Dortch & Davis, LLP, in Nashville, TN. She may be reached at beth.guest@wallerlaw.com.
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