Soft Landings: Dissolving a Physician Network - Statistical Data Included

Healthcare Financial Management, August, 2000 by C. Thompson Hardy, Iii

Many healthcare organizations established physician networks to strengthen their competitive position in the marketplace. Many of these networks, however, have been unprofitable. As a result, some healthcare organizations are dissolving their networks. Healthcare organizations should plan the dissolution carefully and help the physicians establish an infrastructure for their new practices. By easing the physicians' transition to independent practice, healthcare organizations ensure the likelihood of a continued business relationship with the physicians in the future.

Over the past decade, efforts to integrate independent group practices into physician practice networks have been intense. A variety of motives, including the anticipated expansion of managed care and provider at-risk contracts, led hospitals, physician practice management companies (PPMCs), insurance companies, and physicians to establish networks. Many networks, however, have experienced significant financial losses.

The reasons these financial losses occur are complex. They include:

* Lower-than-anticipated penetration of the market by insurance products, putting the providers at risk and reflecting national trends away from HMO products;

* Unreasonable investment in the acquisition or start-up costs of the network, group practices, or the size of physician compensation;

* Weak network management systems and infrastructure, resulting in an inability to deliver promised levels of service; and

* Failure of the network to achieve required productivity levels or clinical management standards.

When the dissolution of a network becomes necessary, practice management should ensure that the physicians achieve a "soft landing," without disruption to patient flow or negative financial impact on the physicians.

Physicians who are dissatisfied with the sponsors' management of the network and decision to dissolve it might seek relief from the sponsoring organization for the financial burden of this termination.

To ease the transition, support should be provided to the physicians as they wind down their operations. This support should include:

* Educating the physicians, particularly those whose practice experience is limited to the network, about how to manage a private practice;

* Helping each physician identify his or her ideal practice situation (solo, small group, single-specialty, or multispecialty);

* Locating and securing office space for the new practices, including negotiating to retain the existing practice space;

* Completing all the necessary registrations, license applications, certifications, and other paperwork;

* Identifying advisers and agents for practice insurance, retirement plans, legal and accounting services, and other requirements;

* Identifying the practice's staffing needs, establishing human resources systems, and recruiting and hiring employees; and

* Planning and implementing the practice's business infrastructure.

It also might be helpful to bring in objective third parties, such as attorneys, accountants, and consultants, to assist with the transition.

The cost for a well-planned transition of a network's practices to independence can range from 50 to 100 percent of network's one-year loss on the network's operations and take six to eight months. [a]

If the physicians in a network operated as a group practice, the first issue to consider is whether they want to continue to function as a single group after the network support is terminated. Often, even when the group practice has been housed in a single facility, the physicians have not shared economic risk. In these cases, a group culture might not have evolved. When faced with future financial uncertainty, these physicians often elect to establish smaller, usually single-specialty, practices.

Determining how to help all the new practices obtain the management and business systems they need is both a financial and operational challenge for the divesting organization. The three most common options for practices are to:

* Acquire the existing management structure and systems from the network (as a group practice or partnership of multiple, independent practices);

* Contract with an outside management/billing company for practice management, business systems, and support; and

* Develop and implement the needed business infrastructure in-house.

Acquiring the existing management structure and systems from the network. Allowing the practice or practices to use the existing network resources (eg, hardware and other assets, software license) usually is the lowest-cost option, at least initially Given the hospital's desire to ease the transition, the cost to the physicians of acquiring these resources should be liberally negotiable. Network personnel can be hired by the new practices. The transition time would be nominal, and systems could continue uninterrupted.

In addition, the divesting organization needs to help physicians develop a practice business strategy that will lead to improved financial results. Elements of this strategy could include replacing management, revising policies and procedures, expanding practice volume, and increasing physicians' commitment to and vesting in the new practice's success.