Competition through physician managed care: the case for capitated multispecialty group practices

The dominant managed care model in the USA is the individual practice association (IPA), in which physicians in separate practices contract with a health plan. One alternative model, the capitated multispecialty group practice (CMGP), has some distinct advantages: (i) the best randomized trial comparing a health management organization (HMO) with indemnity insurance showed equivalent health outcomes for a prepaid group-practice model HMO, with about a 40% saving in cost, mostly from lower hospital utilization. There is no comparable evidence for IEA-style HMO's; (ii) most managed care plans control costs through 'gatekeeper' primary care physicians or capitated payment. Strong financial disincentives to care, applied to small practices, lead to a significant risk of withholding needed care. Large capitated groups diffuse the risk among hundreds or thousands of physicians; (iii) small practices also lack the financial resources and expertise to develop information systems, continuous quality improvement programs, and other means of improving efficiency. Larger groups can integrate specialty and primary care, laboratory, pharmacy, information technology and other services, to improve quality and cost-effectiveness, while maintaining physician control of the process; (iv) in urban California, HMO enrollment in six large capitated groups increased by 91% from 1990 to 1994. Hospital utilization for these groups was less than half the USA average; (v) because it is self-insured, the CMGP could contract directly with purchasers, eliminating the need for the insurance intermediary. The CGMP offers an ethical, effective alternative that maintains the primacy of the physician in health care: physician-managed care.