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Hot Off The Press

Growth of Physician Sponsored Healthcare Networks Accelerating

Manasquan, N.J. -- "It's not going to be Marcus Welby, M.D., anymore, especially if the Federal Trade Commission liberalizes its physician network guidelines," according to a health industry analyst.

Physicians have been attempting to organize their own healthcare networks in response to hospital chains, medical centers and insurance companies acquiring group practices, said Robert K. Jenkins, of The Managed Care Information Center (MCIC).

For instance, MedPartners Inc., Birmingham, Ala., and Mullikin Medical Enterprises, L.P., Long Beach, Calif., merged. The combined enterprise, known as MedPartners/Mullikin Inc., is believed to be the largest physician practice management company in the United States, with combined projected 1996 revenues of approximately $1 billion and a pro forma market capitalization of $650 million.

MedPartners is currently affiliated with 397 physicians in 14 markets; Mullikin provides care to more than 360,000 prepaid HMO enrollees through 58 medical centers, which are staffed with 400 physicians.

Aetna Professional Management Corporation, Middletown, Conn., purchased the Wheaton (Ill.) Medical Clinic Ltd., a private practice of 17 primary care physicians, which serves approximately 30,000 members.

And, Blue Cross of Western Pennsylvania, Pittsburgh, acquired Premier Medical Associates P.C., a private, multi-specialty, multi-location physician group practice. Premier currently has 39 physicians representing 11 specialists and 16 offices located mostly in Pittsburgh's East End and eastern suburbs in both Allegheny and Westmoreland counties. Under the agreement, the practice was realigned into a professional corporation and a management services organization.

Sierra Health Services Inc. has two senior-level executives on-board with the primary responsibility of finding profitable new business development ventures in physician practice acquisition arenas, among other areas.

To compete in this environment, doctors are responding by creating in their own networks.

For instance, Physicians Healthcare Plan of New Jersey was formed by doctors in New Jersey. The state's 17,000 physicians were sent applications to join the health plan. The cost for a physician to invest in the plan was $5,000. The plan expected to offer a competitive premium for New Jersey employers because the plan will not distribute a dividend -- all of the profits will go back into the health plan.

The 40 owner organizations of the health plan invested $14 million through a private placement of stock, and planned to raise another $40 million through the sale of shares to other participating providers, including physicians and other hospitals that join the network.

The HMO expected to cover about 150,000 subscribers, between employees of participating hospitals and other businesses.

Toledo Area Health Partners, Ltd. (TAHP), a fully integrated independent physician organization, was formed by 250 physicians. TAHP will utilize an integrated medical/telecommunications link to help patients and employers realize a reduction in the cost of healthcare services to employers in Northwest Ohio.

TAHP retained American Health Group Inc. to develop, implement and validate the quality of managed care products offered by them.

And, Allegiant Physician Services Inc., Atlanta, a provider of physician staffing and management services to physicians and hospitals, signed a letter of intent to form an alliance to develop a physician owned and controlled community healthcare delivery system in the Dallas-Fort Worth area.

"The docs are seeking to regain control of medical decision-making, as well as gain control over the healthcare premium dollar," said Jenkins.

The FTC will make a final decision on the guidelines currently in place by August, according to Victoria Streitseld, director of the FTC's press office.

Currently, physician network joint ventures, independent practice associations (IPAs) preferred provider organizations (PPOs), for example, that represent no more than 20 percent of the physicians in a specialty "with active hospital staff privileges" in the relevant market fall within the antitrust safety zone, which applies to exclusive and non-exclusive physician network joint ventures. Physician network joint ventures in a small market with four physicians in a given specialty are allowed to include one physician in that specialty even though the physician represents more than 20 percent of the specialty, according to the Statements of Antitrust Enforcement Policy in the Health Care Area issued by the Department of Justice and the Federal Trade Commission.

Furthermore, participating physicians must also share substantial financial risk in order to qualify for the safety zone. For example, physicians share substantial risk when there is an agreement that the insurance company pays the physicians a capitated rate or when the network joint venture offers its member physicians financial incentives for achieving cost-containment goals.

Since all physician network joint ventures that fall outside the antitrust safety zone are not anti-competitive and some might even be pro-competitive, the federal agencies will use the rule of reason to determine if a particular physician network joint venture raises antitrust concern.

For more information contact The Managed Care Information Center, 1913 Atlantic Avenue, Suite F4, Manasquan, NJ, 08736, toll-free telephone 1-888-THE-MCIC (1-888-843-6242), fax 1-888-FAX-MCIC (1-888-329-6242), e-mail or online at

For more information contact The Managed Care Information Center, 1913 Atlantic Avenue, Suite F4, Manasquan, NJ, 08736, toll-free telephone 1-888-THE-MCIC (1-888-843-6242), fax 1-888-FAX-MCIC (1-888-329-6242), e-mail or online at

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