League of Their Own: What Makes a Winning IPA?

n a familiar cartoon, a professor writes long, learned equations on a blackboard. To connect the profundities on either end, he writes in the middle, “Then a miracle occurs.” IPAs, done well, are the miracles that connect the ends of health care.


In a familiar cartoon, a professor writes long, learned equations on a blackboard. To connect the profundities on either end, he writes in the middle, “Then a miracle occurs.” IPAs, done well, are the miracles that connect the ends of health care.

Karen L. Trespacz, J.D.

Contributing Editor

When you look at a brick wall, what do you see? Most people focus on the bricks and completely ignore the stuff in between. Yet it is the mortar that turns a pile of loose, unconnected bricks into a functioning wall. IPAs have that problem, too. People looking at health care focus on the building blocks of HMOs and physician offices, yet in many instances, IPAs provide the connections that turn the sources of funding and the sources of care into a functioning health care system.

Who? What?

The visibility problem starts right up front when you ask the perfectly logical question, “How many doctors have a relationship with an IPA?” Nobody seems to know. Even the IPA Association of America uses estimates, although it has tried to come up with numbers and is using new approaches to get numbers now. Despite the impression that IPAs are common, the matter hasn’t seemed important enough to get physicians to return survey forms.

Even more of a surprise was the number of people who confessed — not for publication — that they weren’t really sure what an IPA was, and they were even deeper in the dark about what IPAs do. Even folks you assumed already knew.

Perhaps some of the confusion stems from the adaptability of IPAs.

They are rather like carpetbags. What you pack into them depends upon where you are and where you’re going. Nancy Oswald, president of the National IPA Coalition, says that how an IPA is organized “really depends on local market forces.” Factors include specialty relationships, relationships with the health plans, what employers ask for, and what relationships with local hospitals have been like. Of course, local history comes into play. Walter Lane, M.D., an executive board member of several IPAs in Florida’s Tampa Bay area, reports that in his area, a health plan once tried to put individual physicians at risk for all patient care. When the physicians ran out of money, hospitals and other providers didn’t get paid.

“Now, in Florida, a more common practice is for HMOs to place reserves in a physician escrow account and act as a third-party payer for the IPA,” says Lane. “This allows IPAs to maintain control of the disbursement process, but assures HMOs that claims are paid on a timely basis.”

In California, IPAs not only pay claims, they generally do just about everything else, says pediatrician Barton Wald. (IPAs in California are “fully delegated,” to use the vernacular.) Wald should know; he is president and CEO of an IPA whose 350 primary care physicians and 400 specialists serve more than 140,000 HMO enrollees.

Given the differences, there is a strong temptation to think that the evolutionary theory of managed care applies to IPAs — you know, the theory that California is the crest of the evolutionary wave, and what you see in California will wash over the rest of the country in the next 10 years or so. Resist. If one accepts that medical care is local, then what we may have are different medical environments — just as we have mountains and seashores and deserts — and the local medical tribes are adapting to their own environments without blindly adopting whatever pops up on the West Coast.

Moreover, it is a mistake to assume that IPAs everywhere else are primitive. Jeff Kovaleski, chief operating officer of Florida Affiliated Physicians Inc., says, “By almost any measure I’ve seen from any of the plans we deal with, we have higher levels of patient satisfaction, we come out higher on any type of quality indicator, and our costs are almost always 12 to 15 percent below whatever business we don’t control.” Lane adds with justifiable pride, “We take risk contracts and we do it well; we’ve never lost.”

So when we talk about the best IPA, we’re using criteria that cross the various types. We’re talking about IPAs that provide high-quality care, that are fiscally sound, and that make good business partners.

There are, Oswald notes, functions that are unique to physician organizations. “The physician organization has the responsibility to organize and manage medical services for a local population.” This is, she points out, different from what physicians do for their own patients; it’s also different from an insurer, “which has the responsibility for contracting for benefits.”

How different? It’s as different as that great divide between funding and delivery. Health plans focus on the needs of employers. Individual physicians — or small group practices — focus on the needs of patients. Health plans deal with groups of people — the bigger, the better. Physicians typically deal with one patient at a time. Health plans look to a fairly large geographic area; the bigger ones are national. Physician offices are very local. The center of gravity for health plans is funding; for physicians, it is health care delivery.

The two sides are so far apart, they often don’t realize how far. When asked what his greatest surprise was after he left an HMO for an IPA, Kovaleski mused, “I was surprised to learn how little physicians understood about HMOs, their wants and needs. Likewise, when I ran an HMO, it was the same. You tend to make a lot of judgments about physicians, and you don’t fully recognize their wants and needs.”

Yet these two different worlds have to be connected for the health care system to work.

This is where IPAs come in. To win contracts with health plans, IPAs have to meet their needs. Yet to win the hearts of physicians, IPAs must meet physicians’ needs. Often, IPAs are competing for both; health plans frequently have more than one IPA to choose from. Oswald points out that “Many individual doctors have joined more than two or three IPAs sometimes to keep their patients.”

Did you know?

So, what can IPAs do for health plans? It’s not so obvious as you might think. Fasten your seat belt, for there is more than one jolt of irony coming up.

The Best IPAs… bring members to health plans. Yes, most people think of health plans bringing patients to IPAs, but that was before the advent of the “second sale.” The first — and only — sale used to be the employer’s purchase, but when employers offer a choice of health plans, the size of the health plan’s business is really determined during open-enrollment periods. Lane notes that the most influential factor in choosing a health plan is whether the patient’s doctor is in the plan. So signing up an IPA’s stable of popular primary care physicians brings a swarm of patients who are much more likely to choose your plan if offered.

The Best IPAs… can bring carefully selected physicians to health plans. To be attractive to health plans, the best IPAs know they have to meet health plans’ need for geographic coverage and accessibility. The best ones build it in. “We take care of that headache for them,” Lane says.

The Best IPAs… can jump-start a new HMO. Providing both a physician network and patients can make a critical difference to a new health plan. Lane recounts the tale of a health plan that worked two years trying to sign up physicians one at a time. It managed to attract only 63. Then it contracted with Lane’s IPA, and within three months, “They had a full, geographically correct network of hundreds, and the critical mass of patients to be successful. We put them on the map. Because our physicians do not participate in other networks, the rival HMOs were suddenly way behind in the race.”

The Best IPAs… improve medical management. Controlling physician fees isn’t all there is. Controlling direct physician expenses isn’t even most of what there is. “About 83 percent of charges created by an orthopedic surgeon are not his fees — they’re hospital, X-ray, physical therapy,” Lane points out. Physicians are “the captain of the ship” for a lot more medical expense than they earn for their own services, so getting a handle on practice behavior is even more critical than getting a handle on physician compensation.

Yet, Wald says, “Health plans, which tend to have more resources, because they are distanced from physicians and patients, have had limited effectiveness in really changing physician behavior.”

On top of that, as Peter Kongstvedt, M.D., a nationally recognized managed care expert and partner in Ernst & Young, notes, “What you do has to be tailored to where you are. So you can’t just say, ‘Do this, do that and do the other’ and it will work. Some markets, you may not need a primary care gatekeeper model at all. Other markets you need it. There is no one-size-fits-all.” The best IPAs are deliberately crafted to come in the local size.

Further, IPAs can use leverage in situations that heath plans can’t. As an example, Lane described a problem that his IPA had with physicians who were ordering “obviously inappropriate” MRIs. So the IPA set up educational meetings with a radiologist.

“It sometimes got to the point where one of the IPA physician officers would call and say ‘Don’t order another MRI until you talk directly to the radiologist about what you’re trying to accomplish,'” Lane says. That may sound heavy handed, but it was face-saving for the physician because the physician didn’t have to argue with the medical director. If the medical director wins, the physician feels he loses. Talking to the IPA’s radiologist is talking to a colleague about what is good for the patient. “We’re not trying to eliminate what was needed,” says Lane. “We’re trying to make sure they understand what to do to get what you need. After they talk a couple of times, they learn what to do.”

The Best IPAs… improve compliance with health plan programs and initiatives. As Kovaleski explains, when a health plan mails announcements to physicians, they often get thrown out or sit in a pile because they look like mass mailings.

Because of the relationship the IPA has built with its physicians, when the IPA sends out communications, the physicians actually read them, he says. “We get a much higher level of cooperation.”

The Best IPAs… can make a significant contribution to provider relations. What is the frequent refrain when physicians are told that their expenses run higher than their peers? “My patients are sicker.” It’s one thing to tell that to the health plan, but, as Lane notes, “You don’t tell your friend across the street that your patients are sicker, particularly when he’s got the breakdown of all the family physicians in the community.”

The Best IPAs… can help the health plan run better. As Kovaleski explains, HMOs don’t always communicate well, even within themselves — what’s good for member services may be bad for provider relations. “So what I try to do is get all the right people in the room to figure out what makes sense for the most number of interested parties and provides the fewest problems for physicians. Some of it seems pretty easy, but again it’s amazing how some decisions are made in a vacuum.”

The Best IPAs... can take risk. Because they are often bigger than group practices, they can take a bigger slice of risk.

Here’s the next irony: A strong IPA is actually good for purchasers. The example here comes from Steve McDermott, executive director of Hill Physicians Medical Group, one of the largest IPAs in the country. In 1981 and 1982, as he was approaching hospitals for capital to start Hill Physicians, “One CEO literally said to me, ‘Steve, you’re crazy. I don’t want one strong physician organization. I want three or four weak physician organizations that I can play off one against the other.'” So Hill Physicians started independent of that — or any other — hospital. “We ended up competing with subsequent physician organizations that he helped fund,” says McDermott.

The hospital subsidized three physician organizations, all of which went bankrupt. That led the same CEO to admit, “You know, I got exactly what I asked for, and it was a mistake.”

Is this true for health plans? You bet. Lane’s IPA said no to pharmacy risk; other IPAs didn’t, and they went under. Part of becoming the best IPA is being able to say no. It’s not fun when you’re negotiating with them, but the payoff comes when they’re still around, still making your enrollees happy.

Suppose employers decide health care costs too much, but don’t want to give up benefits because they attract good employees. It may not take much to go from “defined benefits” to “defined contribution,” the way employers did with retirement benefits. In a defined contribution environment, the “second sale” may become the only sale.

So be good to your IPAs. The best ones are good at being good to you.

Damn conventional wisdom – full speed ahead!

Hill Physicians Medical Group of San Ramon, Calif., is a successful IPA on just about any measure.

Size? Hill Physicians has more than 2,500 participating doctors and serves over 370,000 patients.

Money? Hill Physicians reported over $200 million in revenue in its most recent annual report. Further, Hill Physicians ended its latest fiscal year in the black.

Quality? In 1999, Hill Physicians proved better than the Northern California average on the majority of HEDIS measures.

Efficiency? Hill Physicians spends about 11 percent on administration, notably below the industry average of 15 percent.

Recognition? Hill Physicians rakes in awards, from employers (the Pacific Business Group on Health), health plans (Health Net, PacifiCare, Blue Cross) and even from companies that make it their business to know good management when they see it (Arthur Andersen). At a time when folks are starting to wonder whether IPAs can make it, not only is Hill Physicians solidly successful, but it has become successful by breaking a number of the rules. Consider these “tenets” of IPA success:

Only a physician can start a successful IPA.

Steve McDermott and Darryl Cardoza, the founders of Hill Physicians, are not physicians, but management visionaries. Although they had an uphill climb to gain physicians’ trust, Richard L. Messman, who heads Arthur Andersen’s health care practice in Northern California, suggests that it was an advantage to have nonphysicians at the helm because they were not tied to old ways of doing things, and because they could make difficult decisions objectively because they did not have medical practices that would be affected.

Instead of running off with the physicians’ business, McDermott and Cardoza are trying to give it back. As Messman explains, “The long-term plan is that ultimately, it would be a physician-led organization. Physician leadership systematically has become more involved in key aspects of the business.”

IPAs have to include many physicians.

The pressure to include a lot of physicians comes from a sense that more is merrier when it comes to bargaining muscle with health plans, and that plans want bigger networks. Both have some truth. Hill Physicians has kept its network comparatively tight, cutting 200 specialists at one point when cutting IPA networks was unheard of. The IPA did it to gain a larger share of each participating physician’s practice. If the IPA constitutes only 5 percent of the physician’s practice, the physician is not likely to be passionate about the organization. Hill has worked at becoming a bigger part of physicians’ income stream.

IPAs too often overpay physicians.

Messman reports that IPAs are not known for being wasteful, but they are known for paying their physicians too much. If an IPA is trying to woo physicians, especially when competing with other IPAs, it’s easy to see how paying too much can happen. Holding the line is made even harder when capitation money comes in up front and the bills don’t come in until much later. Hill Physicians has been careful to keep its eye on total expenses — including the ones that haven’t come in, yet — which has given this organization the discipline to match physician compensation to solvency demands.

You have to capitate primary care physicians.

“We always paid our primary care physicians fee-for-service,” says McDermott. “We didn’t capitate them because we really thought primary care is what you want most of the people to get most of the time” and capitation discourages doctors from seeing patients. That’s not to say that Hill Physicians thinks this is the ultimate answer. “We are, for the first time in our 15 years, going to change that to a modified fee-for-service capitation — sort of a dual form of compensation.” Not because Hill Physicians thinks the old approach was wrong, but because it thinks the environment has changed. So the payment structure is changing, too, to help physicians take advantage of tools that weren’t available before, like disease management and group appointments for patients with chronic diseases.

Bigger is worse, when it comes to organizational size.

We’ve seen this with purchasers; physicians often think that way, too. “I have doctors feeling pretty strongly that it is the organizational structure and culture that we have created that is making their practice run better,” McDermott notes.

It’s difficult to find good medical management.

This is the “herding cats” theory often used in connection with independent-minded physicians. Not only has Hill’s experience shown it can be done, McDermott doesn’t even believe in the analogy. “I don’t see it as herding cats. I think ‘cats’ is absolutely the wrong description for doctors. These people are highly energized, highly motivated, very, very bright people. And so for an organizational management person like me, what a wonderful opportunity to get involved in building an organization with people like that.”

IPAs focus on plans and doctors, but not members.

On the contrary, Hill Physicians is “constantly measuring patient satisfaction,” Messman reports. “They are single-minded in wanting patients to have a positive experience when they deal with the IPA, so it doesn’t cloud decisions about enrollment choices. Eventually, that benefits the physician.”

You always have to say “yes” to opportunities for capital.

What’s unusual about Hill Physicians, Messman finds, “is that it never has been capitalized by any outside organization, nor has it borrowed any money. All the premium dollars it receives cover all operating costs.” Even more impressive, back in the glory days of PPMs, when McDermott and Cardoza could have become very rich, they turned down offers because they felt PPMs were not a viable long-term strategy.

Good management always focuses on increasing profits.

You could talk to McDermott for an hour and profits might not come up once. Instead, he talks enthusiastically about getting to the bottom of why the area has one of the highest rates of breast cancer in the country, or how to design a system so physicians can really enjoy practice, spending “a fair amount of quality time, maybe a half-hour to an hour” with each patient. McDermott is focussed, as Messman says, on figuring out better ways to deliver care, not how to get paid more for the same thing.

Not that Hill Physicians is contrarian. It’s just that a certain skepticism can be healthy. As McDermott says, “I would argue that everything’s up for grabs and everything should be questioned and challenged as to whether or not it’s the best way.”

Antitrust law, the great shaper of IPAs

IPAs might have stayed in their original state — devices for resisting managed care — if it hadn’t been for a kick in the pants they got from the Supreme Court in 1982. That was when the Supreme Court held that antitrust laws applied to physicians (up to that point, nobody was sure; medicine, after all, was a profession). The court held that solo practitioners — who were seen as competitors for patients in the market — could not collectively set prices they would charge insurance companies and health plans.

The setting for this decision really drove the point home. The Maricopa Foundation for Medicare Care performed three functions for its member physicians: It established (by majority vote) the maximum fees its members could charge to specified health plans, it reviewed medical necessity for the plans, and it drew checks on the insurers’ accounts to pay physicians.

Medical necessity review and claims payment were not problematic. Setting fees — even though they were maximums designed, the defendants said, to hold prices down — was the illegal part. The court went on to explain that it wasn’t necessary for the courts to allow doctors to set the fees because insurers “are capable not only of fixing maximum reimbursable prices but also of obtaining binding agreements with providers guaranteeing” them.

The only hole the court opened in this otherwise solid wall was that “joint arrangements in which persons who would otherwise be competitors pool their capital and share the risks of loss as well as the opportunities for profit” could set prices.

For example, “If a clinic offered complete medical coverage for a flat fee, the cooperating doctors would have the type of partnership arrangement in which a price-fixing agreement would be perfectly proper.”

Now, IPAs have as much instinct to survive as the next human enterprise. If you’re going to persuade people to sign as members, you have to do things for them that they value. They have to get something out of being a member. This is true when physicians are deciding whether to join an IPA at all, and all the more true if physicians are deciding among competing IPAs.

So IPAs had a reason to find things to do for the membership. When the survival instinct gets humming, people get creative, and IPAs have been known to do all kinds of things for their members, including the medical necessity review and the claims payment that the Maricopa Foundation did and many more.

Price continued to be a sticking point, however. At first, there was an attempt to make do with the “messenger approach,” where the IPA carried the health plan’s price offer to its member physicians for their own, individual decisions, and then reported the sum of the individual decisions to the health plan. It was, frankly, a pain. How hard could the IPA negotiate when on the most critical point — price — the IPA had to say, “I’ll get back to you in several weeks?” There were other anti-antitrust strategies, too, none wholly satisfactory. That hole left in the brick wall by the Supreme Court started to look more and more attractive: Pool capital and share risks, to name a couple of strategies.

And taking on risk has made all the difference.