By J. Daniel Beckham
The Power of Primary Care
Hospitals are already in a foot race even if they don’t yet realize it - the prize is the hearts and minds of primary care physicians.
An important shift is afoot. If the 80's defining event in heath care delivery was managed care, then what will we point to in the 90's?
One development that will be central to the shape of the decade -- the ascendancy of the primary care physician. Today there is little debate about the trajectory of pediatricians, internists, family practitioners and obstetricians/gynecologists -- it is up. Managed care plans rely on primary care physicians as gatekeepers, health reformers view them as fundamental to expanded coverage, and an ever growing shortage has fueled demand. The economic importance of a strong primary care base is so undeniable, even in a traditional fee for service environment, that it's surprising it hasn't received more attention in the past. Today, it's still possible to get blank stares from hospital executives when you ask them who their most significant primary care referral physicians are. This problem is particularly acute in tertiary hospitals where decisions have long been driven by the needs and concerns of subspecialists. In many such hospitals, primary care physicians are quick to complain about the many years during which they have been treated as second class citizens.
It’s Basic Economics
The connection between what happens in the office of a primary care physician and what happens in the subspecialist's waiting room and in the hospital is direct and powerful. The typical primary care physician might have 4,200 to 5,100 visits to his or her office a year. Of that number, it would not be unusual for 50 to 150 patients to be admitted to a hospital and for 50 to 85 outpatient procedures to be performed.
It's also likely that that physician's practice will produce 145 to 370 referrals to subspecialists which in turn produce an additional 25 to 40 hospital admissions and 95 to 135 outpatient procedures. In total then, that typical primary care physician is likely to produce, directly or indirectly, 75 to 190 admissions and 145 to 220 outpatient procedures for the hospital. How does that translate to dollars for a hospital? Well, if you assume that the hospital has a variable cost rate of 50%, then a primary care physician who admits 130 to 285 patients generates $390,000 to $855,000 of inpatient income and $85,000 to $110,000 in outpatient revenues.
Realigning the Medical Food Chain
By moving into gatekeeper positions in capitated markets, primary care moves from a break even or low margin business to a real money maker. Financial models developed by Quorum suggest that a 66-physician primary care group can generate revenues of more than $48 million and net income in excess of $4.4 million when the group's revenue becomes 50% capitated (50% derived from fee for service).
These kinds of projections have made primary care groups (existing and start-up) hot commodities based just on their future income potential (let alone the tremendous impact they can have on the income levels of hospitals, subspecialists and other players that benefit from their referrals.)
Primary care physicians have developed more experience with managed care than subspecialists and increasingly view it as an ally. Not surprisingly, they draw more of their patients from managed care plans than do subspecialists. According to Medical Economics, pediatricians draw 45% of their patients from managed care and family practitioners got 35%. Managed care provides 41% of the patient base for OB/Gyns.
In Southern California, Gary Groves, a primary care physician who is CEO of Pacific Physician Services is demonstrating the power of primary care in winning capitated managed care contracts and realigning the food chain in medicine. Groves' company has grown to 250 physicians contracting with more than 30 HMOs. In 1991, the company went public. It is a prototype for primary care groups springing up nationally.
Organizations like PPS and the fast growing, California-based Mullikin Medical Group (400+ M.D.s and 400,000+ insured lives) present a new kind of challenge for hospital executives. No longer must they simply be concerned with the hospital across town, the HMOs, or the large multispecialty group practice next door; now entrepreneurial primary care gatekeeper organizations are springing up all over. With them the economic center of gravity is shifting. By signing contracts with many HMOs, these new primary care organizations reduce their reliance on any one payment source thereby significantly increasing their own leverage in the market.
Insiders who work for the managed care plans will tell you that their own market clout is greatly overestimated by hospitals and doctors. It's only as durable as their contract. The fundamental point of power ultimately is not the contract but the ability to deliver affordable care to hundreds of thousands of satisfied patients across a geographic area relevant to employers and other payers.
The insurance companies, not surprisingly, have also set their sights on primary care. Blue Cross Blue Shield has been advised in Virginia and other states to move into primary care. In Atlanta and Dallas, Aetna is opening its own primary care centers.
Large multispecialty group practices historically have been subspecialist driven. But several years ago, groups like the Lovelace Clinic in Albuquerque and the Geisinger Clinic in Danville, Pennsylvania began to shift their physician mix from 60% subspecialist and 40% primary care to the opposite kind of ratio.
Multispecialty clinics like Guthrie in Sayre, Pennsylvania and Gunderson in LaCrosse, Wisconsin, launched new family practice training programs. In Rochester, Minnesota, the Mayo Clinic has gradually given growing emphasis to its family medicine department and recently moved it front and center in its primary care joint venture with John Deere in Moline, Illinois.
On a Razor’s Edge
Because of their traditional focus on subspecialists, tertiary hospitals are uniquely vulnerable in their relationships with primary care physicians. This problem is exacerbated by the tendency of growing numbers of family practitioners to increasingly focus on their office-based practice to the exclusion of hospital work.
Academic medical centers are balanced on a razor's edge. Unfortunately, most of them still don't recognize their predicament and many of those who do are responding too late. Crippled by decades of myopia built from assuming they exist in some sort of parallel universe, they are finding that international reputations are not enough to keep the patients flowing, particularly when the tertiary hospital in the suburbs can match their technology, beat their costs, rival their outcomes and steal their physicians. The market share for many academic medical centers is an inch deep and miles wide. The physicians they trained often fan out across the region and continue to send referrals to their alma mater. But the strength of these relationships is frequently weak, particularly among primary care physicians who still remember faculty who treated them like lower life forms during their training.
Innovative academic medical centers like the University of Michigan and the University of Alabama-Birmingham have been bullet proofing their referral base for years and last year, Stanford University Hospital jumped out of the box by acquiring primary care groups. But most academic medical centers are in danger of becoming islands, increasingly isolated in a growing sea of managed care.
These academic centers do have one asset, however, which is of overwhelming importance -- their brand identities. Stanford, Hopkins, and M.D. Anderson are synonymous with quality. And like Mayo Clinic, they were built by subspecialists. The most powerful brand names in medicine, in local and regional markets, are connected with the work of subspecialists.
Ultimately, it is not a question of choosing primary care over specialty care. As in many things, it's a question of balance. A strong primary care referral base is one kind of advantage. A powerful reputation is another. It's best to have both.
Ill Feelings Go Both Ways
Many subspecialists are openly disdainful towards the primary care physicians who provide the lion's share of their patient base. It's not unusual for subspecialists to quickly point out what they view as the relatively lower levels of training their primary care colleagues receive. Writing in a major publication recently, one subspecialist called primary care physicians "short order cooks."
When primary care physicians at one large midwestern tertiary center began to become more verbal about their concerns, one of the subspecialists seriously suggested that the hospital get them some psychiatric counseling. It shouldn't be surprising that primary care physicians harbor some ill feelings. A quick comparison of their personal income levels compared to those of specialty physicians usually pours fuel on an already smoldering fire of resentment. Richard Waltman, M.D., a family practitioner in Tacoma, Washington sums up the attitude of a growing number of primary care physicians today: "True, out surgical colleagues get the big paychecks and our subspecialty associates get the respect. So why are general practitioners, internists and FPs smiling? Family practice does still get something very special: the patients."
Supply and Demand
Demand for primary care physicians (particularly family practitioners) is predicted to significantly exceed supply over the next decade. Most primary care residents receive 100 interview offers or more. Hospitals hoped to fill openings for 8,220 family practitioners last year. They were bound to be disappointed. Only 2,300 family practitioners and 5,600 internists were produced by residency programs in 1990.
Studies suggest that primary care physicians receive only 6 to 12% of their patients as the result of referrals. Most are self-referred, usually on the recommendation of a family member or a friend. In the early 80's most subspecialists, on the other hand, received 50% or more of their referrals from primary care physicians. Over the past decade, that percentage has swelled. In capitated markets, it is now approaching 90%.
Projections from a number of sources already indicate that subspecialists experience a drop in patient visits in excess of 25% in markets where primary care physicians have integrated and where capitation is becoming a major force. At Friendly Hills Medical Group in southern California, 95% of its care is being provided to capitated HMO enrollees. And those visits break down into 55% primary care and 45% subspecialist care. According to at least one study, the eight specialties most endangered by over supply in a capitated environment are pathology, neurosurgery, general surgery, neurology, anesthesia, cardiology, gastroenterology and ophthalmology.
Virulent Responses
The primary care initiatives of hospitals and health systems are sometimes met with virulent responses from subspecialists. In Sacramento, subspecialists attempted to stop the merger of Family Physicians of Sacramento and Med Clinic, a 92-physician group owned by Mercy Healthcare-Sacramento. They also tried to block a contract between QualMed and the Mercy Medical Foundation. A letter sent to Mercy Healthcare-Sacramento by the subspecialists contained this plea: "We the undersigned 100 physicians respectfully request that you vote against ratification of the proposed contract between QualMed and the Mercy Medical Foundation . . . A vote for the proposal results in financial hardships for many of the Mercy staff physicians . . . Some will lose up to 30% of their practice income. . . . A vote for the proposal sends the message, "I don't care if you have been loyal to Mercy . . ."
Mercy Healthcare had good reason to stick to its strategy. Partly because of its integrated relationship with physicians and its managed care strategies, Mercy turned a $20 million loss into a $30 million profit in 1992. It completed the merger and signed the contract.
At Sacramento Sierra Medical Group (Sac Sierra), the first and still one of the largest prototype "group practices without walls," the group's owner, Sutter Health Care, recently held the door open while 43 subspecialists left in opposition to the group's decision to shift income from subspecialists to primary care physicians. 70% of the 85 physicians remaining at Sac Sierra are now primary care.
Health care reform only reinforces the move to primary care. In the weeks preceding and following the release of the Clinton Plan, numerous articles identified the "winners and losers." At the top of the winners' list were primary care physicians. And at the bottom of the losers' list? Subspecialists. This outcome may help explain the considerable support given to the Clinton Plan by the American College of Physicians, which represents the nation's internists.
Groups Do It Better
Government is also lending momentum to group practice start-up and growth not only because Clinton's "accountable health partnerships" and "purchasing alliances" favor such aggregation, but because other legislation (particularly that originating from U.S. Representative Pete Stark) favors groups over independent practice.
Health care reform has also set off a new flurry of discussions focused on merging hospitals across local and regional markets. HCA tried to ring cities with hospitals it owned in the early 80's. The move delivered scant advantage and HCA ultimately abandoned the strategy.
Putting hospitals together accomplishes little unless primary care physicians and managed care contracts are woven together at the same time. Those hospitals that are focusing all their attention on pulling off a crosstown merger would be better served by doing the hard work first -- forging a primary care referral base of sufficient size to command contracting clout.
Beyond the direct short term benefits of admissions and referrals in a fee for service environment and the attractive economics that can be brought into play under capitation, a strong primary care organization can deliver other strategic advantages including these:
•Primary care physicians united under one group practice or holding company can work closer together on the challenges of demonstrating a cost/quality advantage.
•Economic alignment and organizational fit can be cultivated using primary care as the focal point.
•Participation in a single shared information system can allow the group, over time, to convincingly demonstrate greater value.
•Formation of a primary care group can put, into a single economic entity, physicians who are increasingly scarce in number and in overwhelming demand. By definition, this creates an asset with meaningful value.
How to Secure a Primary Care Referral Base
Health care executives will not arrive on high ground unless they tackle the challenge of securing their primary care referral base. Here's some suggestions for building the primary care partnership:
Get visibly involved in the primary care strategy. You've heard it before. And it gets old. Every major strategic initiative requires the CEO's visible endorsement and involvement -- quality improvement, managed care, cost reductions -- and now this? Yes, most of all this.
These are your customers. And even though it was never written down in an agreement somewhere, they are also your business partners and have been for years. But in the current environment, they could quickly become somebody else's customer and somebody else's business partner. Where we've worked with hospitals to build primary care strategies, there's a clear difference between those that have CEO involvement and those that don't. Where the CEO is involved, the projects move much more quickly and painlessly.
The doctors are making, what are for them, monumental decisions about their future. They understandably want to be able to look their partner in the eye and they want to deal with people who have the authority to say "yes" and "no."
Many doctors have shared with us one of their most pressing concerns -- "What if this CEO leaves? What happens to our deal?" It's a good question, and it deserves a good answer. Don't be surprised when doctors ask for employment contracts and long-term agreements.
Get to know your primary care physicians. The differences between primary care physicians and their subspecialist colleagues are profound. A psychographic study conducted by the Chicago-based firm of Sieber & McIntyre revealed that Family Practitioners tend to be more independent than their colleagues in pediatrics and internal medicine but that all three demonstrated lower levels of dogmatism and rigidity than their subspecialist colleagues. There were significant differences between Family Practitioners and Internists, however, particularly when it came to openness to new ideas as well as concerns for income and status.
The differences between primary care physicians and subspecialists are significant but the differences between primary care physicians are also significant. Internists and OB/Gyns spend more time in the hospital. Indeed, some family practitioners are not comfortable in a hospital and prefer to turn their acutely ill patients over to an internist. Some hospitals have responded to the family practitioners interest in staying in their offices by starting up hospital-based internal medicine groups to care for patients admitted by family practitioners.