December 18, 1998

By Robert K. Schreter, M.D.

In an article titled "A Radical Solution to Managed Care Woes," that appeared in this column in the September 18 issue, Steven Sharfstein, M.D., highlighted the advantages of Canadian-style, single-payer systems and medical savings accounts as alternatives to market-based approaches to health care.

Although these two models succeed in eliminating profit as a motive in health care, it is difficult to imagine either being enacted by our legislative representatives in the near future. The demise of the Clinton Health Plan underscored the power of the special interest groups that can be expected to oppose such reforms. All evidence suggests that those who pay for health care (corporations, government, and consumers) are not willing to respond to their discontent with existing managed care practices by spending more to purchase greater choice, increased access, and higher quality service.

I am writing this column to call attention to physician service organizations (PSOs) as an interim solution while we await more fundamental health care reform.

I do not believe that our country's political leaders or the electorate are ready to confront the difficult issues and make the courageous choices that are required to enact either of Dr. Sharfstein's two idealistic solutions. However, PSOs have the strategic advantage of being well suited to the existing marketplace where they can compete directly with managed care organizations for contracts and patient loyalty.

PSOs deliver significant benefits. First, they offer physician owners an opportunity to regain some control of clinical decision making by eliminating the managed care middleman and external watchdogs. Second, like Dr. Sharfstein's solutions, they can return a greater percentage of the premium dollar to clinical care if the clinicians are willing to forego profit. Third, clinicians can focus themselves and their systems on quality-of-care issues, the undeniable high road. Finally, provider managers will have access to the all-important data that they can then feed back into continuous quality improvement programs, outcomes data systems, and evidence-based clinical care.

Clinicians organizing to compete with managed care companies should consider the following models:

• Behavioral group practices-These multispecialty behavioral health organizations offer a range of services, providers, and fees that payers find attractive, but they may be too small to bid for contracts.



• Independent practice associations-IPAs take the behavioral group practice model a step further to include a much larger number of providers across a much wider geographic area. The size of these networks makes IPAs more attractive to payers and partners.



• Managed services organizations-MSOs are legal entities that contain professional managers and the administrative services to run large delivery systems. When paired with an IPA, these organizations can compete directly with managed behavioral health organizations for local and regional contracts in the private and public sectors.



• Physician/hospital organizations-PHOs have had little success in most parts of the country. Clinicians complain that hospitals are reluctant to relinquish control and are unable to provide the necessary expertise to manage practices effectively. However, hospitals do have capital to invest and beds to fill. Creative partnerships between clinicians and facilities may yet offer hope for the future.



• Physician service networks-These networks are physician-owned and physician-managed systems of care that combine physicians, facilities, and management services and integrate these components with pharmacies and other functions. These organizations are able to engage in direct contracting with payers without needing a managed care intermediary.

As many are aware, Physician Service Organizations are not without risks. These risks include proving unable to generate adequate capital for development and growth, succumbing to the same market pressures that have driven many for-profit organizations to near bankruptcy, becoming indistinguishable from the managed care organization they seek to replace, and losing or relinquishing control to investors, managers, or institutional partners.

Thus far, psychiatrists have shown little inclination to risk their money or careers on provider-owned delivery systems. This may change. As for-profit managed care organizations become increasingly aggressive in their efforts to improve balance sheets by drastically reducing fees and downsizing networks, physician-owned and -managed delivery systems may become an attractive survival strategy.

Dr. Schreter is medical director of Sheppard-Pratt Health Plan and an assistant professor of psychiatry at Johns Hopkins School of Medicine.