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The Demise of Physician Management Companies

Stanley Feld M.D.,FACP,MACE

As I predicted, after the Practice Management Companies bought physicians practices, physicians’ productivity fell sharply, and collection dropped greatly. Overhead increased as the Physician Management Companies moved their bureaucratic machinery into the physicians’ office. The PMCs’ hiring practices came into conflict with physician hiring reflexes. Profit decreased even further. Most of the National Practice Management Companies went out of business. Many sold the practices back to the doctors at ten cents on the dollar and left town.

The Hospital systems were forced to sell the practices back to the physicians also. The consultants for the hospital systems had a plan. If the hospital system could not profit by owning the physicians practices, they could at least own the front office and back office management of the physicians practice and collect a fee.

You will recall hospital systems were pouring profits in expansion of their hospitals, as well as buying other failing hospitals. Their goal was to have greater control over their marketplace. The marketplace control should result in better negotiating power with the insurance industry and Medicare.

Physicians, in general, are lousy business men. I mentioned previously that physicians want to take care of patients. They do not want to be business managers nor deal with the complexity of managing large practices. The physicians permitted the hospital systems hold onto the billing and employment functions. The physicians were paid on the basis of salary plus productivity minus overhead. Most physicians had some ideas of the workings of the formula. However, most did not and do not know the components of the overhead structure. They also have little understanding of the percentage of collections. Again, the physicians were driven to work harder to increase productivity, but did not seem to be increasing income.

Presently, another layer of mistrust between hospital systems and physicians is developing. They are starting to question the hospital system’s ability to manage the practice and are starting to rebel against the multitude of practice rules imposed.

If only the hospital systems and physicians trusted each other. They could then promote the concept of delivering excellent care to patients and permit each others skills to implement this goal. This concept would go a long way to start repairing the healthcare system.

I think the tension between hospital systems and physicians serves as a potential firebox that can blow up the entire system.

Many single specialty practices merged in order to have negotiating power with the various hospital systems in their town as well as with the Managed Care Companies. Some of these mergers have been very successful. Most have not been effective. Merging cultural and personality differences between competing medical practices is a very difficult task. The development of efficient governance in large multi-office merged practices is extremely difficult. Information technology and systems development could help greatly but would require large expenditures of money. As practice revenue diminishes physicians are hesitant to make large capital outlays.

In any event, it is easy to see how the variety of tensions created could lead to the further dysfunction in the healthcare system.

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