WHAT IS AN IPA?

An Independent Practice Association, or IPA, is a group of separate medical practices, individual physicians or healthcare providers who have organized an entity through which they can offer their services to managed care companies under one contract. IPA participants do not merge their respective medical practices into one entity; rather, their medical practices remain separate, but they are bound contractually to provide medical services through the IPA. IPA physicians continue to see their non-HMO patients and maintain their own offices, medical records and support staff. Initially, the IPA must decide on what legal structure they wish to use which could be a professional corporation, a limited liability company, or a nonprofit corporation, depending on relevant state laws and regulations and personal preferences of the parties. In the case of RIPA, it was decided when it was formed in 1977 to structure itself as a not-for-profit corporation.

Nonprofit corporations are generally organized much like general business corporations, but they are usually restricted under NYS law from distributing profits to owners. The organizers of nonprofit corporations are referred to as members rather than shareholders, since the organizers cannot receive profits in the form of dividends. A nonprofit corporation operates much the same as a general business corporation, with a board of directors and with bylaws setting forth the governance provisions of the organization.

In the early days, an HMO usually contracted with an IPA that has been independently established by community physicians. RIPA was formed for Preferred Care business in 1977. The HMO's contract with these types of IPAs is usually on an exclusive basis. In fact when RIPA was established, NYS law required that an IPA could only contract with one HMO. RIPA, during its nineteen-year contract with Preferred Care, was exclusive to that HMO; and since the start of a five-year contract with BCBSRA, it is exclusive to that HMO.

Generally, IPAs attempt to recruit physicians from all specialties to participate in their plans. Broad participation of physicians allows the IPA to provide all necessary physician services through participating physicians and minimizes the need for IPA physicians to refer HMO members to nonparticipating physicians to obtain services. In addition, broad physician participation can help make the IPA model HMO more attractive to potential HMO members.

IPAs, such as RIPA, offer physicians an opportunity to participate in the IPA by sending an application packet to those interested. In the case of RIPA, the Board of Directors have chosen a community-wide panel concept which tends to include all qualified providers who choose to join.

The IPA requires that the interested provider sign a network participation agreement and a completed credentials application. Once the IPA organization is completed and a panel has been established, the IPA can begin negotiating managed care contracts on behalf of its members while adhering to antitrust regulations.

The physicians and other providers participating in an IPA commit to provide medical services under contracts negotiated by the IPA. This commitment, in the form of the network participation agreement, is the agreement between the IPA and the provider by which each participating physician or provider agrees to provide his or her services pursuant to the terms of a contract negotiated by the IPA.  The strength of an IPA lies in its ability to promise a certain number of physicians to provide services to enrollees in a payer's health plan. The IPA, therefore, will be more attractive to payers if the network participation agreement requires all physicians and providers to render their services under payer contracts negotiated by the IPA, rather than allowing physicians to opt-in or opt-out of particular payer agreements on a case-by-case basis. Payers will be much less interested in negotiating with an IPA if they cannot determine at the time they sign the contract with the IPA which network physicians will be bound by the contract.

Most HMOs compensate their IPAs on an all-inclusive physician capitation per member per month basis to provide services to the HMO's members. The IPA then compensates its participating physicians on a fee-for-service basis according to a fee schedule or a usual customary or reasonable (UCR) charge approach and withhold a portion of each payment for incentive and risk-sharing purposes. RIPA operates on a fee-for-service basis but has recently changed the withhold process to a Value of Care bonus pool.

There are major advantages of IPA model HMOs from the physician's perspective. The development of an IPA creates an organized forum for physicians to negotiate as a group with the HMO. The organized forum of an IPA can help its physician members achieve some of the negotiating benefits of belonging to a group practice. Unlike the situation with a group practice, however, individual members of an IPA retain their ability to negotiate and contract directly with managed care plans. Because of their acceptance of combined risk through capitation payments, IPAs are generally immune from antitrust restrictions on group activities by physicians as long as they do not prevent or prohibit their member physicians from participating directly with an HMO.

The IPA and its member physicians are at risk for at least some portion of medical costs, in that if the capitation payment is lower than required reimbursement to the physicians, the member physicians must accept lower income or loss of withheld fees. It is the presence of this risk sharing that distinguishes the IPA from a negotiating vehicle that does not bear risk.

The IPA may operate simply as a negotiating organization, with the HMO providing all administrative support, or it may take on some of the duties of the HMO, such as utilization management, network development, and so forth. The IPA generally has stop loss reinsurance, or the HMO provides stop loss coverage, in order to prevent the IPA from going bankrupt. The success of IPAs in the early years of HMOs was variable, and a number of IPAs did indeed go out of business. The hospital usually has no role in a traditional IPA, although some hospitals did sponsor IPA development as an alternative to a physician hospital organization (PHO) structure.

There is a current resurgence of interest in IPAs as a vehicle for private physicians to contract with managed care plans. It stops well short of full integration, but has more ability to share risk and obtain HMO contracts than many PHOs. It is a model more easily understood and accepted by managed care executives who may cast a wary eye on less traditional models. Many IPAs have achieved impressive results.

However, the IPA is inherently unwieldy since it is usually composed of a large number of independent physicians whose only business commonality is the contracting vehicle of the IPA. The virtue of the IPA's ability to preserve the private practice is accompanied by its inability to leverage resources, achieve economies of scale, or change behavior to the greatest degree possible. Finally, many IPAs contain a surplus of specialists, resulting in upward pressure on characteristic resource consumption.

In a tightly managed plan, such as an HMO, capitation will be more consistent with the overall goal of controlling costs. Although capitation is initially harder to calculate, and although it is harder to gain acceptance for it from physicians, this system has less likelihood of leading to over utilization than fee-for-service. Problems of inappropriate underutilization must be guarded against with effective monitoring and an effective quality assurance system.

However using fee-for-service by an IPA requires a different set of management skills. It is easier to install and is more acceptable to physicians but can quickly get out of control unless it is watched carefully. New products such as POS (Point of Service) require new approaches to reimbursement because classic approaches are not ideally suited. As managed care evolves or as federal legislation occurs, reimbursement may be expected to evolve further. The question that providers are forced with when deciding to enroll in an IPA is whether their negotiating position for services reimbursement for the HMO is greater as a group or as an individual. The future of the IPA depends on what value it adds to the process.

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