Cutting out the middlemen: physicians as providers, direct contractors, and payers.

A group of Ohio physicians is taking to heart the old saw: "If you want something done right, do it yourself." The doctors are rejecting strategies that their colleagues around the country are embracing, such as selling their practices to hospitals, forming PHOs, and merging with other practices. As far as these forward-thinking doctors are concerned, these strategies share two fatal drawbacks: loss of autonomy and the possibility of reduced compensation.

The doctors blame the rising cost of health care delivery on insurance companies that, they say, are awash in profits and don't reward physicians whose cost-effective care made those profits possible and don't pass the savings on to enrollees in the form of lower premiums. These physicians decided it was time to lose the middlemen and take control by assuming the roles of providers and payers themselves.

"Our six-man urology group talked about this until we were blue in the face. Then, with some other physicians, we got a lawyer, formed a limited liability company, and put the incentives in the right place," says Daniel S. Murtagh, MD. "Right now, the incentives are in the wrong place. If I don't do a CT scan, I save $1,000, but I don't see any money, nor does the employer group. I want to practice medicine, and I want to maintain control," he continues. "I want to deliver a fair price for these services."

The company the physicians formed, Toledo Area Health Partners, LTD.(TAHP), combines an IPO, with an initial recruitment of 350 physicians, and the services of an independent medical cost-management organization, a bank, a software company, and an insurance company. It leases an insurance license from a carrier, Medical Benefits Mutual. TAHP direct contracts with employers and aims to offer fair premiums and high quality service. It is governed by 10 physicians, half primary care, half specialty, who are the decision-making body. The board also interfaces with employer groups and appoints committees that make determinations on care.

TAHP's Business Partners

American Health Group, Inc. (AHG), is the cost-management organization that formed the IPO. It will be responsible for acting as TAHP's independent claims review organization; will oversee its quality, insurance, medical admnistration, and health care policy development; and will deal with managed care contracting and negotiating. At this point, it is also sharing its office and staff with TAHP. "We've partnered with them so that we can have independent verification that our cost containment efforts are working and to make sure health care dollars are being used wisely," Murtagh says. "We don't want to be known as a health care company that makes more money. We're going to carefully watch the cash flow."

When AHG authorizes payment of a claim, it notifies the group's business partner, Huntington Bank. The bank will keep a record of everything paid out to show to covered employer groups at the end of the year.

TAHP is designated a limited liability company, which means that, if it goes belly up, the IPO members would have limited personal liability for debts. The designation also offers favorable tax treatment and appears to be a popular option in Ohio, where a law was passed last July allowing such designations, according to the Ohio Secretary of State's office.

TAHP is also discussing a partnership with Unisys to develop software and hardware for use in the financial, clinical, and administrative ends of the business. All the IPO physicians' offices will be linked to a central data warehouse, where they can access clinical guidelines and protocols as they are developed, and to AHG. "The doctors have had numerous meetings to set up guidelines of care for such things as otitis media in children, headache, and atrial fibrillation," Murtagh says. "Physicians are very interested in protocols and guidelines. When we sit down at these meetings, they come up with terrific ways to save money. We have a group of physicians devoted to critical pathways, and we plan to develop a system that can be marketed."

TAHP has, after a bidding process, contracted with four area hospitals, which have offered very competitive pricing, Murtagh says.

The IPO

Physicians who participate in TAHP's IPO make a small investment. Primary care physicians are asked to buy one share of privately-held stock for $500; specialists are asked to buy five shares. If there is a profit at the end of the year, a dividend will be paid. "They (specialists) have more money," explains Murtagh. "We're trying to be honest about this. We think primary care physicians have been beat up long enough."

Although fee-for-service is dying in many parts of the country, it will live on at TAHP. "Capitation goes too far," Murtagh says. "It gives incentives not to deliver care. You sign up patients and don't take care of them. We think that appropriate care is necessary." He believes reimbursement to participating physicians will increase by 10 percent as a result of cutting out the middlemen.

The IPO is limited to two groups in each specialty. Murtagh points out that there are 24 urologists, for example, in Toledo, and that was too many to ensure appropriate management of care. So only nine will participate in the IPO.

As it continues to recruit more physicians in the 16-county area of Northwestern Ohio, a 50150 mix of primary care physicians and specialists will be maintained, he says. "We want it to be collegial; we don't want one group to dominate another," Murtagh says.

He says response from physicians has been tremendous, but there are some who are reluctant to get involved. "I'm not sure they believe in their own power. Some physicians just don't believe they have the ability to run a company like this," Murtagh notes. "They can make life and death clinical decisions, but they shy away from these kinds of decisions."

The Future

Murtagh says TAHP has commitments from several employer groups but he is not prepared to name them. TAHP predicts premium revenue of between $75 million and $100 million by the end of the year 2000. It also anticipates adding more business partners, coming up with more than 1,500 clinical protocols and parameters, and creating the country's first regional medical database to track outcomes. "Employer groups are excited about this," he says. "They're tired of not having a seat at the table."

In the future, TAHP may want to be its own insurance carrier, Murtagh says. "We want the insurance to cover the risk, not the management of health care," Murtagh says. "Insurance companies were never meant to manage health care. Their job is to manage risk. Our view was that the best group in the country to manage and control health care without compromising quality are the people who deliver it: physicians.

Donna Vavala is Managing Editor of College Digest, the College's bimonthly newsletter for and about physician executives, and a contributing editor to Physician Executive.