Local doctors group declares bankruptcy; MPPI ran into difficulty over flat-fee contracts that proved expensive; Health care


Maryland Personal Physicians Inc. (MPPI), a company that owns the practices of about 85 doctors and nurse practitioners, filed for bankruptcy reorganization yesterday.

That is another setback for the large doctor groups that were formed a few years ago in an attempt to bargain better deals with managed-care insurers. Locally and nationally, several physician groups have filed for bankruptcy or disbanded in the past year.

Robert A. Edwards, president of MPPI, said his group will reorganize and try to "emerge from this process a stronger and more focused organization."

Edwards said the bankruptcy will have no impact on patients of MPPI physicians. The doctors and nurse practitioners will continue their practices and will honor the same insurance plans as before.

He also said he expects little or no change for the company's 300 employees, most of whom work in doctors' offices.

What will change is how the insurers pay MPPI. Edwards said most of MPPI's losses came in "full-risk" contracts with two large insurers, CareFirst BlueCross BlueShield and United Healthcare of the Mid-Atlantic.

In the full-risk contracts, the insurer paid MPPI a flat fee or percentage of insurance premium for each patient. MPPI had to pay all costs of care, including hospitalization. Now, Edwards said, MPPI doctors will work on fee-for-service payments or flat-fee contracts under which it is responsible only for services provided by primary-care doctors.

MPPI and similar groups were formed in the mid-1990s. They bought doctor practices for cash, stock in the companies or both. In most cases, the doctors continued to practice in their own offices, and the company assumed administrative functions such as billing and contracting.

The plan was to bring more management skill to running the practices while contracting with managed-care insurers.

In the past year, the largest of the local groups, Doctors Health, filed for bankruptcy, Flagship Health and Premier Medical Associates dissolved, Pioneer EyeCare sold the doctor practices it had purchased, and Sinai Hospital and Northwest Medical Center turned practices they had bought back over to the doctors.

Dr. Richard K. Tompkins, a Baltimore consultant who has advised on the creation of doctor groups, said that "the big issues that really got these folks into trouble" were management of risk (something insurance companies are used to but doctors are not) and structuring of incentives.

Once companies or hospitals bought practices and put the doctors on salary, a group physician had no incentive to be productive, he said.

Also, he said, the companies added administrative overhead costs without improving the efficiency of the practices.

MPPI was launched in 1995 with a $14 million investment from Mercy Medical Center. St. Joseph Medical Center invested $10 million in 1997.

For the year that ended June 30, MPPI reported operating losses of $13 million on revenue of $75 million, Edwards said.

Of those losses, Edwards said, about $10 million came from full-risk contracts, including $7 million in Medicare and Medicaid contracts. Government reimbursements in those programs have been too low, he said, producing not only losses for doctor groups, but also decisions by insurers to pull out of government contracts.

In its Chapter 11 filing, MPPI and a subsidiary, Maryland Personal Physicians LLC, reported a combined $16.7 million in assets and $16.5 million in liabilities.

Edwards thinks the company can turn itself around by avoiding full-risk contracts, by making its administration more efficient and by continuing to build on its "high-quality, excellent physicians."

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