The Evolution of Medical Groups and Capitation in California

County, most will discount their rates in order to obtain a higher volume of patients.5. Cohesive governance: Primary care physician ownership has meant that Bristol Park hasavoided the power struggles between primary care physicians and specialists often found in multispecialtygroups, in which PCPs may be treated like second class citizens, and in which they haveto plead with specialists for a larger share of the group’s income. The lack of specialists at BristolPark’s Patient Care Committee meetings is a drawback, however, since it limits the range of expertiseavailable in discussing patients’ cases.During the 1990s, Bristol Park’s strategy had three core elements: continued growth inOrange County (“depth rather than geographic breadth,” as Patrick Kapsner described it), physicianownership, and primary care physicians as the integrators of care.“If PCPs have the knowledge to manage and coordinate care, then they, not a third party, shouldhavethe risk and reward of managing a significant share of the capitation dollar. As owners of the group,they have the incentive to do that job and do it well.”—Patrick Kapsner, Health System Leader, May 1994Though Bristol Park’s physicians and executives valued their independence, during the1990s they, like other groups, felt an increasing pressure to obtain capital to develop better datasystems in order to manage care and demonstrate quality. They also felt a strain on their incomesdue to the virtual halt in the growth of HMO premiums and patients in their area. The group had toconsider whether it was likely that it would remain independent forever. If not, when would be thebest time to sell? Most felt that the time was now. Bristol Park had many suitors, but it chose thenonprofit, hospital-based St. Joseph Health System. In mid-1996, the Heritage Foundation, createdby St. Joseph, purchased the assets of Bristol Park. The medical group now contracts with theFoundation to provide medical services.Palo Alto Medical ClinicThe Palo Alto Medical Clinic (PAMC) differs from the other groups profiled in this report inthat t was very large at the time it began contracting with HMOs (126 physicians in 1979), it had anestablished reputation for specialist care, it had a relatively exclusive relationship with a universityhospital (Stanford Hospital), and it had experienced comparatively slow growth in the numbers ofphysicians and capitated patients it had added during the previous two decades. In 1996, thePAMC had 162 physicians, 57,000 capitated patients, and $91 million in revenues, of which 45%came from HMOs.PAMC was created in the 1920s; during the following decades the group aimed to become aMayo Clinic of the west. As described in Chapter 1, the group had been giving prepaid care toStanford University students and employees for two decades before it worked with Blue Cross andother medical groups to create TakeCare. PAMC maintained a virtually exclusive contracting relationshipwith TakeCare until 1990, at which point the group began to seek contracts with other22