Market Forces

Physician practice management companies offer relatively narrow benefits to affiliated medical groups

The proportion of physicians practicing in both single-specialty and multispecialty groups has increased in the past three decades, from less than 11 percent in 1965 to almost 35 percent in 1995. Physician practice management companies (PPMCs), which transfer ownership of a practice to public investors while maintaining significant equity control in the hands of a smaller number of physician group member-investors, offer certain narrow competitive advantages to these affiliated medical groups. This is the conclusion of a recent study that was supported in part by the Agency for Health Care Policy and Research (HS09536).

PPMCs provide a facilitating structure for accessing public equity, diversifying ownership risk, and "scaling up" the size of the defined populations for which physicians can assume capitated risk. However, PPMCs are not likely to deliver significant operating cost savings or revenue enhancements per unit of output, according to Douglas A. Conrad, Ph.D., of the University of Washington and his colleagues. Nor do these organizations as currently structured promise substantial coordination of care opportunities beyond those that medical groups and other provider organizations could achieve through cooperation and contracts with each other.

The relative financial and operating performance of the PPMCs during the past 2 years seems to favor the single-specialty companies over the multispecialty ones. Single-specialty companies are the fastest growing sectors of the PPMCs and appear to have the potential to achieve the greatest benefit from consolidation of physician practices. This is because the large number of small single-specialty practices offers relatively great opportunity for realizing incremental economies of scale. Will well-diversified stockholders encourage different economic and clinical behavior than physician owners? Probably not, according to Dr. Conrad, since the physicians retain sole clinical autonomy, and their reputation as the larger PPMC becomes as important as their group practice reputation.

See "Physician practice management organizations: Their prospects and performance," by Dr. Conrad, Shaun Koos, Alan Harney, and Martin Haase, in the September 1999 Medical Care Research and Review 56(3), pp. 307-339.

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