MSO - the new kid on the block?

In response to pressures on the practice of medicine, new practice management styles and organizations are being created to meet market demands. Managed care environments have encouraged the development of IPAs, closed panel HMOs, and other corporate structures to provide care for their patients. Early resistance of physicians to joining in administrative arrangements has now melted. Providers are beginning to adopt the philosophy of joining resources for survival and to improve market penetration. Physician executives must keep their minds open to the possibility that these provider-based organizations will occur even in the most unlikely places.

"Medical Services Organizations" and "Offices without Walls" are springing up across the country. These new arrangements involve the purchase or joint purchase of hospitals, other institutional facilities, insuring organizations, and employers. Recent safe harbor regulations in federal health programs are going to accelerate these efforts, as it appears that referrals and cooperation within a corporate structure are acceptable. Recent implementation of RBRVS and physician payment reform has allowed providers for the first time to discuss fees and coding protocols in a rational manner.

In my hometown of Lebanon, Indiana, the process for moving to joint possession of the county hospital and physicians' practices is in the works. Returning from the recent ACPE conference in San Francisco, I found that I was one of the last of the practicing physicians who are in solo or "private practice" in our town of 10,000 people. I started practice in 1974 as a "solo" family practitioner, with the latest in computers and equipment, professional staff, nurse practitioners, and more than 2,000 square feet of office space. The first year overhead was 95 percent, but the willingness to be on my own to provide care to the community was incentive enough to succeed.

Successful implementation of the practice in the small community required the essentials of availability to patients, consistency of practice, and a friendly home town approach. I traded call with an older practitioner, who maintained his own practice style and management techniques. Primary care physicians in the town were an aging population at the time, and they welcomed my new practice. Nine physicians still delivered babies.

I controlled my accounting needs by implementing a pegboard system that was the back-up for the new computer system. All medical records were stored on the computer system, which was an on-line mainframe in Ohio. "Cash at the time of service" was the order of the day, but we filed insurance claim forms for patients. We were participating with Blue Cross/Blue Shield so that the check would come to us. We participated in Medicare and Medicaid. Accepting assignment was on a case-by case basis, usually for out-of-town visitors from the hospital emergency department. We rotated emergency department coverage, usually seeing only one to three patients per day. The hospital provided clinical space for out-of-town specialists.

With the arrival of managed care, I decided to participate with two IPA-model HMOs on a capitation basis. Twenty four percent of the United Auto Workers opted for the free visit HMO option in the first year. Four of the family physicians had to join forces and form a corporation to serve the HMOs' local patients, only 100 in the first year. Successful recruiting of a new primary care physician usually required only persuading the spouse to live in the town, finding space for the practice, and arranging coverage for trading call.

In 1979, I built a new office building for the four new primary physicians we had recruited. In the early '80s, the four physicians formed a group to manage overhead and the business aspects of their practices. They arranged for specialists to come to the offices to serve the referral needs of their patients. Most of the primary care physicians retired at the age of 65, and so the number of primary physicians continued to decline. I closed the office-based part of my practice in 1985 to become medical director for the Indiana State Medicaid Program, administered under a new Health Insuring Organization by BC/BS of Indiana. In 1987, the county hospital bought the practice of one of our most successful family doctors and kept him in practice by making him a hospital employee. Without the hospital's support, the pressures of managing the practice would have forced him to move.

Now, primary care physicians are scarce, and the basic requirement for recruiting has changed. Guarantees of the first two years' salary, benefits, and vacation are now the norm. New family practitioners are starting at $130,000 guarantees, which can be supported only by the financial strength of the hospital. Managed care programs are now numerous, although physicians have dropped the risky capitation programs. The only remaining decision is acceptance of participation in the Medicare program. With the retirement of one physician and the buy-out of another, the group now has the only primary care practitioners in town.

The group of practitioners has substantial clout with the hospital, with specialists, and with insuring organizations, as it has most of the patients in the hospital. When the group began to explore the feasibility of purchasing the hospital, animosity grew between it and other physicians and hospital management. Relationships improved by our going on retreats with the hospital administration and the physicians. Now active negotiations are being completed to join the physicians and the hospital in a Medical Services Organization. This organization would be the first buy-out of a county-owned hospital in Indiana. The last three physicians on the outside are now negotiating to fit into the organization.

I would expect a rush to similar organizations. Sharing of overhead and affording management skills for the complexities of the business of medicine are an essential driving force. The ability of primary physicians, the doctors with the patients, to work together effectively required a vision of the future and the administrative leadership of the physicians and the hospital administration- The time has come to cooperate to maximize the potential of medical communities and to put old power struggles aside. The potential of physicians' thus "repurchasing" their practices with the assistance of BC/BS of Indiana is being actively pursued, which would provide the advantages of group practice without the need to actually relocate or undergo expensive building. MSO, the exciting new alphabet word, could be the key to the salvation of rural health care delivery.

John J. SAALWAECHTER, MD, MBA, FACPE, is Corporate Medical Director, Koala Hospitals, Lebanon, Ind. He is immediate past chair of the College's Society on Insurance.