Health Care and Insurance

Growing groups carry clout: Successful physician organizations drive deals for new health care facilities

January 31, 2005

Indiana's largest group of cardiologists was almost ready a few years ago to build its own specialty hospital in partnership with an out-of-town chain.

The Care Group LLC had entered deep discussions with North Carolina-based MedCath Corp. to create a potent duo in a profitable field. The doctors told St. Vincent Health, which depended on them for cardiology expertise, "at the 11th hour" of their plans, said Dr. Skip Hallam, a cardiologist and Care Group CEO.

"They stepped up to the plate quite promptly and said, 'Look, before you sign anything, give us a chance to make an alternative proposal to you,'" Hallam said. "They very much seem to want to work in cooperation with doctors."

That cooperation gave birth to The Heart Center of Indiana, a stand-alone hospital and joint venture between the cardiologists and St. Vincent. It opened in late 2002.

The Care Group's size and accompanying clout helped make that deal happen, health care experts say. Clout like that is just one of the reasons some specialty groups are growing bigger and bigger these days.

The growth of doctor groups-a trend that's gained steam in recent years-gives physicians more leverage when dealing with hospitals. It helps them focus on subspecialties, and it also reduces their overhead, among other advantages.

But the effect reaches beyond their circle and ripples into all corners of health care.

Urology of Indiana wasted no time carrying this trend into 2005. On New Year's Day, it announced a merger with Associated Urologists Inc. The combined group now includes 29 doctors and covers every Marion County hospital.

"The physicians had known each other for years; there was already a high level of trust and respect," said Tom Steinmetz, administrator for the combined group, which kept the Urology of Indiana name.

"It gives us the opportunity to provide combined services, new services that maybe either group separately would not have been able to provide."

That sort of thinking has been popular for years now. Physician groups started becoming more common in the late 1970s, as doctors started banding together to save money on things like overhead costs.

Doctor groups eventually merged with other doctor groups to prepare for managed care negotiations. Trade journals first started reporting this trend in the late 1990s, according to Bob Morr, vice president of the Indiana Hospital & Health Association.

Local examples of growth include The Care Group, which was created in 1999 and today numbers 135 doctors. It practices at locations throughout the state.

In 2003, a merger created Indiana Radiology Partners Inc. It now works with 76 doctors as a wholly owned, not-for-profit subsidiary of Clarian Health Partners, said Executive Director Keith Keplinger.

Other examples include CorVasc MDs PC, created by a 2001 merger; and OrthoIndy, which includes more than 60 doctors and is preparing to open its own northwest-side specialty hospital.

Larger groups can advance patient care by nurturing subspecialties that would wither on their own. Radiology, for instance, includes bone specialists and doctors who focus on nuclear medicine. Big groups let them concentrate just in those areas.

"That allows them to be more effective teachers for residents and fellows," Keplinger said.

Outside patient care, Greg Pemberton sees a simple advantage propelling the growth. "Mostly it's the economics that push it, the economies of scale," said the Ice Miller health care attorney who represents hospitals and doctors.

A bigger group spreads overhead costs over a larger base of revenue. In other words, more doctors chip in to keep the lights on. Those savings then can go toward top-shelf management or marketing, which feeds more growth.

Aside from spreading overhead costs, bigger groups also spread call duties. The more doctors, the less time each one spends on call.

"That is a huge deal to most physicians," said Edmund Abel, director of health care services for the Indianapolis-based consulting firm Blue & Co.

Of course, the picture painted by larger physician groups is not entirely rosy. They can be unwieldy. A group must abide by a standard set of rules or policies in order to operate efficiently, Keplinger said.

That can make life difficult sometimes.

"It's always a challenge to communicate effectively the basic principles and basic operating philosophy of your group and get everybody heading in the right direction," he said. "The larger the group, the harder it is.

"I just thank God every day that I have e-mail."

The bigger group strengthens its clout in many forms. To a lesser extent, that affects suppliers and malpractice insurance rates. For instance, the bigger group gains leverage because it might buy 10 treadmills instead of one, Hallam noted.

To a greater extent, it can threaten hospitals.

"Once they get to a certain size, they have enough [patient] volume that all their work alone would support a hospital or free-standing surgical center," Abel said. "Ultimately, they become dead-on competitors with the hospitals they once worked at."

That leads to more joint ventures between hospitals and their doctors, a la The Heart Center of Indiana. Abel noted that the four main hospital networks in Marion County-all not-for-profits-each engage in for-profit ventures with their medical staff.

"By and large, that's becoming the emerging model as a means to eliminate [doctors and surgeons] from becoming direct competitors," he said.

The downside to those for-profit deals, Abel said, is they tend to provide less charity care than a not-for-profit.

Many see the growth of doctor groups as a steady trend that won't explode upward anytime soon. Any time businesses grow larger, someone always becomes disenchanted and branches off on his or her own, Pemberton noted. That curbs expansion to some extent.

"There are only so many of the specialties for which this makes sense," Morr added.

However, market conditions will continue to make mergers and growth appealing. Reimbursement continues to shrink while rent, salaries and insurance rates rise, Steinmetz noted.

Doctors, he said, have few options to control those variables so they have to figure out a way to spend less money, "kind of like what [Indiana] Gov. [Mitch] Daniels is trying to do right now."
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