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The Rough Road to Health Care Reform : Physicians: Many California doctors afraid of being squeezed out by HMOs under Clinton's health plan are selling their practices to investor-owned 'super-groups.'


Concerned about being also-rans in the race toward health care reform, doctors across California are selling their practices to large investor-owned companies that are piecing together giant regional physician networks.

These companies offer worried doctors a sense of security and greater access to the three out of four Californians who are insured by managed-care health plans. Many of the doctors who join these networks have watched their practices shrink as more employers push their patients into penny-pinching health maintenance organizations.

These moves are part of a broader effort by hospitals, insurers and physicians to forge alliances to respond to rapid change in California's health care system and to prepare for the reform promised by the Clinton Administration. Although doctors are also forging alliances with hospitals and other medical groups, many physicians are opting for the more corporate-like atmosphere of for-profit companies.

The largest of these new physician "super-groups" is Artesia-based Mullikin Medical Centers, an aggressive acquirer of physician practices that now employs 400 salaried doctors throughout Southern California. Other large for-profit physician groups include Pacific Physician Services of Redlands and Healthcare Partners of Los Angeles.

For the Record
Los Angeles Times Tuesday September 28, 1993 Home Edition Business Part D Page 2 Column 6 Financial Desk 2 inches; 38 words Type of Material: Correction
Family Practices Associates--Family Practices Associates of Torrance has no relationship with Artesia-based Mullikin Medical Centers. A story in Monday's editions incorrectly identified Family Practices as among the medical groups affiliated with Mullikin.

For doctors, the large physician groups offer job security and the promise of new patients, primarily those enrolled in managed-care programs. Other advantages often include help with administrative tasks, cheaper rates on malpractice insurance and paid vacations and other benefits. Additionally, these groups usually allow doctors to buy ownership stakes in the company, which can prove lucrative if the firm eventually goes public.

But the decision can be an extraordinarily difficult one for doctors, who may be selling practices they spent decades to build. Used to managing their own destinies, doctors become employees of a large corporation more interested in bottom-line considerations.

Additionally, the acquirers often require doctors to sign long-term employment contracts that can make it difficult for them to quit and set up a practice nearby. The purchaser also collects a management fee--usually between 5% and 10% of revenue--plus a percentage share of any profits the physician group makes.

"The gut-wrenching trade-off for private-practice physicians is they like independence and autonomy," said Jim Barber, executive vice president of the Hospital Council of Southern California and a former hospital administrator. Critics of large medical groups say they discourage doctors from providing the personalized care that many patients value. But doctors who belong to these groups say they actually spend more time with patients because they have fewer administrative chores.

Whatever the case, doctors say their decision to sell their practices to join a big medical group is often a matter of survival.

Doctors at Family Practice Associates in Torrance began searching for a deep-pocketed partner after TRW Inc., a major South Bay employer, began moving thousands of its workers into Prucare, the managed-care unit of Prudential Insurance Co. of America. The Torrance clinic didn't have a contract to provide services for Prucare members.

"Some of us for the first time saw a big drop in patients," said Terence M. Hammer, one of 30 primary-care physicians at the clinic who decided to link up with Mullikin "as a defense mechanism."

Mullikin acts as a "super-agent" for Family Practice Associates, helping to funnel HMO patients to the Torrance clinic. "We saw Mullikin as being a very sophisticated and strong player that was going to be a survivor in the health care system of the future," Hammer said.

Mullikin was founded in 1955 as Artesia Medical Clinic by Walter Mullikin, a doctor who believed that physicians working in a team provided better patient care than those in a solo practice. During the 1980s the company steadily acquired medical groups, expanding at a ferocious pace the past three years. Among its prizes: Moore-White Medical Group in Los Angeles, Hawthorne Community Medical Group and Arcadia Medical Clinic. The company also operates the 90-bed Pioneer Hospital in Artesia.

Mullikin, with 400 salaried physicians and nearly 300,000 HMO enrollees, now claims to be the second-largest medical group in California, after nonprofit Kaiser-Permanente, which has 3,200 salaried doctors and more than 2 million members. But other for-profit medical groups are nipping at Mullikin's heels.

Los Angeles-based Healthcare Partners is completing an acquisition of Bayshore Medical Group, a large South Bay group. The deal would give Healthcare about 250,000 HMO patients in Los Angeles County, many of them Medicare recipients. Healthcare was formed in April, 1992, through the merger of California Primary Physicians and the Huntington Medical Group.

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