Hospital-based group practice and HMOs: a case study

In its seven years of operation, Family Health Associates (FHA), established in 1977 by St. Mary's Hospital, Rochester, NY, has grown steadily, proving that hospital-based group practices can provide a solution to the need for reasonably priced high-quality care. An extension of the hospital's outpatient department, FHA combines features of the private-practice and hospital settings. Its physicians, who are hospital employees, may join HMOs and contract with third parties. All revenue, however, accrues to the hospital. The practice incorporates a complex sharing of decision-making authority to allow physicians to feel involved as well as to support the hospital administration's authority. Physicians may structure their schedules within the required total office time and refer patients to any hospital or specialist in the area. They are encouraged to participate in the hiring of nurses and secretaries and as a group may approve or disapprove facility schedules, plans for expansion and physician recruitment, revision of charges, and budget requests. They do not have final authority over budgets or staff terminations. Because of a shortage of physicians and diminishing referrals to the hospital's consultant staff, no appreciable opposition to FHA resulted in the beginning. Midway through the program's history, however, a conflict arose over FHA physicians referrals to the hospital's surgical specialists. Although surgeons believed that referrals should be shared equally, the medical staff's governing body supported FHA's objective of freedom of referral. Patient volume would increase more quickly, the medical staff believed, if FHA physicians were perceived as competitive in the public's eyes. Relationships with the medical staff gradually have improved as FHA physicians involve themselves in hospital committees and admit an increasing share of inpatients.