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Are independent practice associations still viable?

By Dennis Hursh, Esq.

A few years ago independent practice associations (IPAs) were all the rage and many IPAs were set up on a county-wide basis. Unfortunately, several of these IPAs were set up for the wrong reasons, and subsequent disillusionment with the results obtained has resulted in the physician owners either allowing these IPAs to languish or affirmatively dissolving them.

What went wrong?

Many IPAs were formed for the wrong reasons. Specifically, many physicians felt that by “binding together” they could exert “leverage” upon managed care payors, thereby increasing reimbursement simply from this “leverage.” There were several things wrong with that theory.

First, as a practical matter, managed care entities with good networks in place in a given county had no desire to renegotiate higher fees with the physicians. The only way these plans could be driven to the negotiating table would be by the physicians as a group boycotting the plan. This practical difficulty highlights the larger difficulty faced by these physicians, which is a presumptive violation of the antitrust laws. The antitrust laws exist to promote competition. A group of competing physicians (sellers of services) who band together against managed care plans (the purchasers of these services) is, almost by definition, anticompetitive. A group boycott of a managed care plan by physicians would certainly violate the antitrust laws. As physicians who formed these IPAs learned that the IPA could not be used to bludgeon managed care plans into submission (or at least greatly increased fee schedules), many lost interest.

Bringing together a group of competing physicians to jointly contract is generally per se unlawful. However, under some circumstances the joint contracting will be analyzed under a “rule of reason.” A rule of reason analysis generally seeks to determine if the pro-competitive benefits of the arrangement outweigh the potential anticompetitive results of the arrangement. One of the ways joint contracting arrangements such as IPAs can obtain rule of reason treatment is to jointly assume risk. Accordingly, many IPAs entered into down-stream risk-assuming contracts with managed care plans whereby the IPA actually assumed risk for a portion (or in some cases, all) of the health care costs associated with a given population.

Without any clear ability to analyze claims or track utilization on the part of the IPA, these attempts were almost uniformly doomed to failure. As grossly under-capitalized IPAs began to be presented with large payment requests from the managed care plans, many were forced to either dissolve or negotiate a settlement with the managed care plans. In addition, the Commonwealth of Pennsylvania became concerned that managed care plans were reducing required reserves based on these down-stream risk agreements, while no reserves were present in the entity which was assuming the risk (the IPA). Accordingly, regulations were promulgated which placed some limits on the managed care plans’ ability to improve their balance sheets by this technique.

The combination of more restrictive regulations and being burnt by insolvent IPAs, which theoretically had assumed risk, soon led those few plans that were initially willing to enter into such agreements to conclude that no further agreements would be prudent. Accordingly, one of the major avenues which would allow physicians to band together to jointly negotiate prices has been effectively closed.

Is there any reason for an IPA to exist?

An IPA is not an effective “get-rich quick” scheme. The entities that attempted to use it as such have generally fallen by the wayside.

However, not every IPA was formed for the sole purpose of increasing reimbursements. Some IPA founders felt that, by binding together, the physicians could jointly evaluate the quality of care given to patients, and generally improve this care. A happy byproduct of this collaboration, if successful, can be a sharing of the gains of the health plan with its physician IPA partners. IPAs that have been structured in such a way as to allow their physician owners to collaborate on care can be permissible under the antitrust laws. Specifically, an IPA which is “clinically integrated” can jointly negotiate a managed care agreement on behalf of its physician owners, even if this agreement does not involve the assumption of risk by the IPA or its physicians. In order to obtain a rule of reason analysis under the antitrust laws, the IPA must establish mechanisms to monitor and control utilization of health care services that are designed to control costs and assure quality of care, selectively choose network physicians who are likely to further these efficiency objectives, and invest significant capital, both monetary and human, in the necessary infrastructure and capability to realize efficiencies in banding together.

Needless to say, computer infrastructure and human capital must be made available, and the managed care plan must share its claims data on a timely basis in order to achieve any kind of effective results in improving the quality of care for a given population. Many IPAs have subcontracted with vendors who are skilled in retrieving and analyzing claims data from the payor. Once a properly designed “data dump” is accomplished between the health care plan and the selected vendor, analysis of data becomes possible.

Those IPAs who are willing to invest physician time and money in developing and implementing a subcontractor relationship to sort data, and in negotiating appropriate agreements with payors, may obtain a good picture of the delivery of care to their patients. This is accomplished by analyzing the information developed by the subcontractor, speaking to other physicians who appear to be outliers (good and bad), and generally doing the necessary committee work to detect and develop an appropriate response to inefficient care. A carefully worded gain-share agreement between the health plan and IPA can (and has) lead to large gains for both the health plan and the IPA where patient care is effectively managed.

A properly designed IPA can reap rich rewards to its physician owners. Gain-share contracts allow the IPA to share the financial benefits of more efficient care. However, most physicians in such IPAs believe that the greater reward lies in obtaining the ability to truly manage and improve the care of their patients.

Dennis Hursh, Esq., is a principal in Hursh & Hursh, P.C., a Middletown, Pennsylvania law firm concentrating on representation of physicians, physician group practices and IPAs.

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