Management Contract ‘Frees MDs From Business Worries’

WASHINGTON—About 3½ years ago, in an effort to come to terms with managed care, Dean H. Gesme, Jr., MD, and his partners in a Cedar Rapids, Iowa, oncology practice named Iowa Cancer Care (ICC), entered into a Management Service Organization (MSO) agreement with Physicians Reliance Network, Inc. (PRN), a Texas company. In making this move, they “gave up some autonomy,” in exchange for freedom from dealing with business matters, Dr. Gesme said at a symposium on negotiating contracts in oncology.

“Hallelujah!” he said to describe the reaction of the six medical oncologists and three radiation oncologists when they signed the contract ridding themselves of many “onerous” business and administrative responsibilities. The medical group sold the practice’s assets and goodwill to PRN, then contracted to provide medical services to a cancer facility owned and operated by PRN. These changes, however, remained invisible to ICC’s patients.

PRN assumed responsibility for the office lease, all equipment, the practice’s accounts receivable, payroll, staff recruitment, accounting, and other managerial details, and also became the employer of all the practice’s employees. Patient care continued as before, however, with the physicians also becoming stockholders in publicly traded PRN. The Stark law permits a “safe harbor” for physician ownership of stock in publicly traded companies worth over $75 million, he noted.

The two entities, ICC and PRN, are completely independent: ICC’s activities are limited to the practice of medicine, and PRN’s activities are limited to “the business of practice management and support,” Dr. Gesme said. According to the service agreement, ICC provides medical services and PRN provides management services. Physicians, therefore, are relieved of virtually all tasks involving the business of their practice.

PRN, for example, has hired three physicians since the arrangement began, with the members of ICC selecting the individuals who would join their practice from a “short list” of qualified candidates. PRN then handled all details of paperwork, moving, benefits administration, and the like.

Dr. Gesme said that ICC was the first oncology practice in the nation to enter into an MSO agreement. It became one of a number of practices in various states affiliated with PRN. Each medical group relates to the MSO separately, and they are not affiliated with each other.

Retail Pharmacy on Site

The arrangement brought ICC a variety of “enhancements,” Dr. Gesme said, chief among them a retail pharmacy located within the ICC office suite that sells patients their prescriptions at reasonable cost. Physicians cannot legally run a pharmacy, but this one belongs to PRN rather than to Dr. Gesme and his partners.

The full-time registered pharmacist employed by PRN helps both the patients and physicians by mixing all the chemotherapy drugs administered in the office, educating patients about their prescriptions and treatments, and stocking outpatient cancer medications not readily available in the community pharmacies convenient to the patients, many of whom live in rural areas, Dr. Gesme said.

Through bulk buying of pharmaceuticals and other supplies, he added, PRN can get better prices than ICC could get on its own. In addition, PRN brings expertise in dealing with managed care companies and in handling insurance, liability, and many other issues.

Need for Flexibility and Trust

Joining in a service agreement with an MSO, however, also presented the physicians with significant challenges, Dr. Gesme said. Most important, he noted, was the need to bring flexibility and trust to the relationship with the MSO, both attitudes he called “counter-intuitive to physicians’ training.”

Throughout his medical training, he recalled, “I was trained to think that I’m a smart guy, certainly smarter than business managers.” In addition, physicians learn that there is “one best way of doing things.” But for this kind of arrangement to succeed, these attitudes must be “explicitly confronted,” he said.

A successful MSO arrangement must also be carefully structured to assure that the incentives are aligned to produce improved clinical outcomes. In ICC’s agreement with PRN, for example, chemotherapy administration has no effect on a physician’s earnings, a situation that Dr. Gesme says he likes very much.

Both governance and dispute resolution are also important issues in any MSO agreement, he said. A four-person operating board, for example, oversees the ICC-PRN relationship. Two members represent the practice and two represent the corporation, one of whom is always an oncologist, to assure that the issues specific to oncology always have a prominent role in the discussions.

In addition, a national advisory board, consisting of one physician from each of the practices with which PRN has contracted, meets four times a year to discuss issues of mutual importance and to advise the corporate board. Furthermore, ICC and PRN agreed at the time of their initial contract to settle through arbitration any dispute that they cannot resolve by negotiation.

A successful MSO practice, Dr. Gesme emphasized, is “patient focused, patient focused, patient focused.” But it also must be responsive to payer needs and be “physician friendly.” After more than 3 years in this arrangement, he reports that he and his partners believe that they have made a choice that enhances both their ability to practice medicine and their patients’ access to high-quality care.