A "HealthTweep" Pulse Check

Exploring transformational potential of social media

The ‘Medical Aggregators’: Are We Entering Round Deux?

with 8 comments

First a little historical context:

For those with a healthcare ‘event horizon’ slightly more seasoned than the current health reform and related social media data frames, you might remember the initial round of aggregation in medicine lead by disruptive nameplates such as MedPartners (now operating the PBM CareMark), PhyCor, FPA Medical Management, and their second or third tier physician practice management ‘me too’ copycats.

They all emerged from a robust round of venture capital backed industry determination tagged as ‘PPMC’s’, i.e., physician practice management companies. These ‘aggregators’ were the darlings of Wall Street for a while, though with some exceptions, i.e., US Oncology (formerly Physician Reliance Network), most witnessed relatively short life spans, from IPO to unwinding in perhaps a 10 year run (see: MedPartners collapse and Aftermath).

Yet, despite the promise outlined in the offering prospectus’, why did these entities fail so miserably as the ‘white knight’ consolidators or aggregators of a multi-trillion dollar ‘cottage medical industry’? Their business model proferred essentially three core benefits:

  1. Centralized, standardized and more efficient back office medical administrative management
  2. Scale of market asset concentration and therefore increased sophistication and leverage (improved pricing) with third party payor negotiation, and downstream contract management; and
  3. Serve as an ‘anchor play’ with respect to the broader design and implementation of rational though market based local delivery organization and financing, i.e., PPMC’s would harness and more effectively articulate a business culture among physicians that valued clinical integration, medical risk management, and ultimately the allocation of limited health care resources

At least this was the longer term expectation from a ‘win/win’, i.e., payor and provider perspective, of the more established players. Most however, in an effort to demonstrate value (i.e., earn their management fee) to their physician boards, focused on short term margin improvement (better rates, focus on more profitable services via improved payor mix, maximizing the contract revenue/recovery cycle, and reduced overhead, etc.), vs. the strategic focus of managing the risk (both quality and cost) of their local population (i.e., enrolled members).

So rather quickly the strategic basis of the PPMC appeal was subordinated to a short term focus (i.e., increasing net revenues) due to a rising chorus of claims that at its core the business model was merely a third party ponzi scheme which introduced another mouth to feed from an increasingly constrained health care supply chain.

Net/net, the PPMC industry flamed out big time and did not fulfill its ‘roll-up’ promise of the practice of medicine. Now many years later, we are at another tipping point. Witness the current round of promising vehicles with a similar vision of organizing physicians. These candidates include: hospital systems, health plans, integrated delivery systems, emerging ACOs, medical homes,  and even niche play organizers in the concierge, or direct practice space including SignatureMD, MDVIP, HealthAccess Rhode Island, CarePractice, Qliance, and HelloHealth, as well as the rapidly emerging series of retail pharmacy sponsored primary care clinics, e.g., CVS/CareMark Minute Clinic, etc.

Too many docs are unwilling to risk the capital of private practice, and instead are looking to hook-up with one or more of these institutional or VC backed entrepreneurial sponsors. Will they succeed where their predecessors failed? If so, why?

From my perspective, it will clearly depend on the business model chosen to enable competition of the right variety, and the degree to which the venture embraces, nurtures and expresses physician culture that values collaborative group practice. Top down, corporate strategies dependent upon an over worked and out gunned medical director or VP of medical affairs will miss the mark. The more likely way for these ventures to succeed is by ‘baking’ the culture from the ground up. In other words, ‘seed it and they will come’. One of my mentors (Ernest Holmes) once wrote long ago: ‘the soil can’t argue with the seed’. Lets nourish the soil first, then make sure we plant the seeds with the right constitution and vision.

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8 Responses

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  1. […] Clearly Mostashari’s work in building out the HealthIT infrastructure and population health connectivity that enables the vision if not spine of any ACO or accountable care initiative (better care, better outcomes, lower costs) is mission critical insight. Improvements in healthIT and reach of REC’s (Regional Extension Centers) is one big difference since the ambitious if not technologically ‘pre-mature’ launch of Healtheon and the associated rise and collapse of the PPMC (physician practice management company) industry. [Editor's Note: For additional PPMC context, see 'The ‘Medical Aggregators’: Are We Entering Round Deux?'] […]

  2. […] [Originally written by @2healthguru on June 1, 2010 at 11:00 AM] […]

  3. Hi Gregg,

    Good article.

    When I started my career in healthcare I signed on as a junior exec in a PPMC in charge of IT, then special projects and new product development. One of my areas of focus was maximizing reimbursement from increasingly difficult payers.

    For the better part of three years we did our best to get doctors paid fairly. We made some significant progress and were improving the bottom line for our managed practices through expert systems, better billing, group purchasing, process improvement, new product development, and bulk payer negotiations.

    And then suddenly our claims rejection rates went through the roof. Shortly thereafter, when the scandals began during the abortive merger of FPA and Medpartners every PPMC, including ours, saw it’s share price drop 90% in a matter of weeks. Since most of our doctors were also significant stock holders this effectively killed consensus at the top, dealing the death blow to the model.

    So was the model to blame? Personally, I do not believe it was. I put the error more in the financial backing of the effort. In Healthcare, when your stake holders are not your stock holders, you invite trouble. I believe most PPMCs could have weathered the storm if they were not publicly traded. Organic, slower growth – proving profitability along the way – would have been more stable. Would the payers still have targeted us for higher denial rates? Probably, but that is a battle we were ready to fight with our advanced systems and teams of attorneys. The stock slide is what really pulled the rug out from under the PPM industry.

    I left the PPMC and went in to consulting, eventually leaving healthcare all together. Finally, in 2009 I imagined a new way for doctors and patients to take back control of healthcare. I went around and asked a few hundred doctors in New York what they thought of the idea and refined it further. The result is a direct provider to patient relationship building system I call FairCareMD.

    One of the key problems I wanted to solve was learned from my PPM days. First and foremost, Providers and Patients needed to be put in control as they have the greatest stake in the care given. When only 16% of doctors don’t make medical decisions based upon payer rules and restrictions, you know quality is reduced. Patients and Doctors care about quality and services first and prices second (see blog.faircaremd.com for more on this) They are also least likely to be corrupted by secondary motivations that can come into play. Payers want to pay as little as possible, Pharma wants their drugs prescribed, banks want higher margins, and government wants votes – none of which has anything to do with running a good practice or taking great care of people. The only unbiased stake holders in medicine are the Patient and the Doctor so I designed my system for them. Everyone else can advertise on the platform, but only doctors and patients can use the system.

    A second lesson I learned, which I agree with Maria on, is that Doctors are an independent lot. This is a good thing as it means they are open to free thinking, which they need to be to solve many medical challenges. On the other hand, it does not let them form groups well. This puts them at a disadvantage when faced with the challenge of dealing with other groups that are not so organizationally challenged. While there is no dearth of organizing strategies for providers, the simple fact is that most don’t want to be organized. They like their independence and that is okay, as long as they have a system to get what they need that respects their independence.

    These experiences have led me to rethink the change that healthcare needs this past year. I liked the single payer idea but it isn’t happening. Once Obamacare became Everyone-must-buy-approved-insurance-or-pay-a-penalty-care I started creating FairCareMD, a place where the two stake holders – Doctors and Patients can meet and agree on pricing and services without any interference. If patients want to choose the best doctors who are out of their network or have HDHPs, HSAs, or are self-insuring this is a great place to get the care they want at a price that is fair. Our funding comes from doctors, patients, and freelance programmers who believe in the cause.

    We didn’t raise 60M in capital and we don’t plan to. It is free for patients and almost free for doctors.

    The beta site launched on Monday and there are about 60 doctors in the system already. Every request you post in the system will help show providers the utility of the system and bring more doctors into the system. We hope you like it and spread the word. We also will be adding groups and networks so Gregg’s great idea of a fair Provider Network will have a platform to develop on as well if he wishes.

    Thanks for reading and we hope you find what you are looking for!

    … and yes, that is my real name. It gets worse, the middle initial is “B”.

    Alex Fair

    June 12, 2010 at 11:17 AM

    • Alex, thanks for your thoughts. You pose a very interesting question though, i.e., might the short term focus on EPS of public companies have caused the ‘run on the bank’ hysteria which tanked the MedPartners stock, FPA Medical deal, and serve as the shot off the bow for the official unwinding of the entire PPMC industry. Certainly considering the stock basis for these acquisitions, a collapsed share price undermines the consideration in the deal structure, yet, I am not sure if the model were shielded by the absence of analyst reports, and quarterly results whether it may have baked long enough to achieve the promise in the original PPMC vision. Yet, this is a very tempting thought to chew on. Thanks again for your candid remarks, your and my paths sound remarkably similar!

      2healthguru

      June 13, 2010 at 8:49 PM

  4. Greg
    You AskedMariaTodd so here goes…

    PhyCor – Told ya so
    PhyMatrix – Told ya so
    FPA Medical Management – Ran into the former CFO who did jail time at a medical tourism conference in Miami last November. He’s now running a medical tourism company. If you know the story and the players you can search the particulars on your own.

    Trying to get physicians to work together is like trying to herd cats or have eagles fly in formation. Trying to coordinate this through wall street investors of the 1990s = ROFL…still.

    @Scale of market asset concentration and therefore increased sophistication and leverage (improved pricing) with third party payor negotiation, and downstream contract management……….

    many things have to implemented or rectified, the first of which is physician apathy and rescue mentality and learned helplessness. The late George Carlin said “Ya Gotta Wanna” These are smart people. They just “don’t wanna” change. This is not the medical career they signed up for in the 1970s, and it’s gotta be someone else’s fault! So somebody needs to fix it.

    As Brandon said, If docs ain’t happy, ain’t nobody happy! Reminds me about the guy who finds the genie lamp and asks the genie for a bridge to Hawaii. The genie says, “Oh, pick something else, I am tired.”
    so the guy says he wants to understand women. The genie asks “How many lanes do you want that bridge?”
    Gimme the lamp – I want to know what will make all the doctors in America happy.

    Then I can build a blueprint and make it so.

    AskMariaTodd

    June 3, 2010 at 2:24 PM

  5. Brandon:

    Great thoughts and I get your point, well made. Am ruminating a little to distinguish the PPMC motive from the incentives driving the present ‘eclectic’ mix.

    For instance, at least three of the names listed MDVIP, SignatureMD, HelloHealth, are for profit companies (not a bad thing, imj). In the two former cases, their incentives are to retain a negotiated percentage of the fees generated by the practice (much like a PPMC).

    I suppose if you supplant a billing and collections model, for a concierge platform, say good bye to your entire back office and most of your front office staff, and carve out 33% to the management and marketing company, while still improving net physician take home pay, one can chalk that up as a ‘win’. Yet, who’s winning? Clearly the management company, and most likely the affiliate practice from a monetization stand point.

    But is this sustainable progress, particularly at the systemic level? Or is it a niche solution that merely exploits know deficiencies in the current failed model?

    I don’t know the answer to those questions, but do believe they are minimally open for debate. Where is the data to support many of the concierge claims of better care, reduced hospitalization, and improved health outcomes. What about access and serving the needs of the community regardless of the ability to pay?

    It’s hard to lump all of the above into an alternative delivery bucket, and treat them equally. My point was primarily to raise the question of who will be the next aggregator in medicine? In other words, will medicine lead proactively, or will it default to interested third parties due to the endemic internecine fighting of a dis-organized medical community? Clearly these are some of the candidate disruptor’s/change agents though.

    Thanks again for your time and thoughts!

    2healthguru

    June 2, 2010 at 11:04 AM

  6. Gregg,

    These emerging models (i.e. hospital systems, integrated delivery systems, medical homes, direct practice or concierge) are designed to remove the unnecessary clutter within healthcare, but for a different purpose than the PPMC’s model.

    Instead of straining the model to maximize revenue for the benefit of investors, the new model is creating efficiencies that allow patients and doctors to have a more intimidate relationship.

    So it seems to me that PPMC’s rise and failure came as a result of different market dynamics than what we are seeing now with this more “personalized” healthcare model.

    It terms of success, I think it all hinges on whether or not medical providers adopt a model.

    If medical providers are not content, we all suffer as a result. Therefore, the prevailing model must ensure that doctors are able to provide the best care possible for their patients.

    And one thing is for sure, our current system doesn’t always help to achieve that goal.

    Great discussion.

    Brandon (aka @PediatricInc)

    Brandon

    June 2, 2010 at 9:56 AM

    • Change need not be radical. Revolution is not required. How does evolution work? Tiny stepwise change that outcompetes the old approach. Only humans use guillotines.

      I love what HelloHealth, CarePractice, One, and dozens of other companies are doing. They are radical giants steps in the direction that puts the humanity back into healthcare and gets 3rd parties out – but they are not for everybody.

      What makes more sense to me is to follow the model of nature and encourage stepwise change – one provider – patient relationship at a time. When you make an offer on FairCareMD or accept a request from a patient it is one better paying patient today. When the patient does a verified review it become two patients tomorrow. When you have five reviews you can fire your worst payer. In time, when you have a great reputation then you can go all direct pays and get down to a 1:1 or better Doctor to staff member ratio. We help you build a direct pay practice, one patient at a time.

      Baby steps to freedom. Much safer than giant leaps. A radical idea, but not a radical plan of action.

      Try it, it’s free until you start getting patients and then it is pretty fair afterward! I have to be, it’s my name.

      Alex Fair

      July 16, 2010 at 6:38 PM


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