Financial Capital And Intellectual Capital In Physician Practice Management

PROLOGUE: Managed care began as a reform in health care finance but is producing a revolution in health care organization, with ever new forms of ownership, governance, employment, contracting, and oversight. One newly emerging organizational entity is the physician practice management (PPM) firm. This for-profit organization links physician groups in multiple markets and provides physicians with needed capital and resources at a time of great change in the health care system. The questions that arise include: Will the creation of these new organizations consolidate the once fiercely independent cottage industry of physician practice? And are PPM firms the vehicle to put doctors back in the driver's seat of the health care delivery system? In this paper Jamie Robinson undertakes the challenge of analyzing the role of this new economic entity in the rapidly evolving health care marketplace. Robinson, a professor of economics at the University of California, Berkeley, who received his doctorate from the same university, has devoted his research to the study of economic and market change in the organization of health care. This paper was supported by the California HealthCare Foundation and was presented at a 15 January 1998 roundtable cosponsored by the foundation and Health Affairs . It represents the first in a series of papers on organizational innovation in health care that will appear in future issues of Health Affairs , with support from the California HealthCare Foundation. Robinson last wrote in Health Affairs on the use and abuse of the medical loss ratio (July/August 1997). ABSTRACT: Medical groups need financial resources, yet most retain no earnings and have no reserves. Physician practice management (PPM) companies have recognized the need for investment and the scarcity of indigenous capital in the physician sector and are rushing to fill the void. Resources are being contributed by venture capitalists, bond underwriters, private investors, pharmaceutical manufacturers, health plans, hospital systems, and public equity markets. The potential contribution of PPM firms is to nurture the intellectual capital of leading physician organizations and diffuse it throughout the health care system. The risk is that short-term financial imperatives will impede necessary long-term investments.