Psychiatric Provider Practice Management Companies: Adding Value to Behavioral Health Care?

Psychiatrists and other mental health providers are facing reduced fee structures and declining income as a result of managed care (1). Although most mental health practitioners have experienced this trend, psychiatrists have lost the most ground. Their practice income decreased 16.7 percent in just one year, between 1996 and 1997. Simultaneously, many providers have experienced a significant loss of autonomy as managed care plans have sought to contain costs through direct constraints on reimbursable treatment choices. Most recently, managed care plans have introduced risk-sharing contracts as an alternative way to manage utilization and costs. The tendency of managed care plans to delegate financial risk along with clinical responsibility threatens the financial viability of solo, office-based practice. Behavioral health providers are effectively being pushed to make a choice between treating only private-pay patients or organizing to form managed care delivery systems. The latter choice involves consolidation and development of the capability to manage risk contracts, allowing clinicians to reclaim clinical control. To meet this challenge, a new class of behavioral health care organizations has emerged: the psychiatric provider practice management company. Like the physician practice management companies on which they are modeled, psychiatric provider practice management companies are adopting a wide range of strategies to allow behavioral health clinicians to control a larger share of the premium dollar. To understand psychiatric provider practice management companies, it is necessary to see them in the context of the larger physician practice management industry. Physician practice management companies initially had broad appeal in markets with high levels of managed care penetration, where physicians recognized the need to develop a new set of capabilities. Practice management companies offer two resources that physician groups traditionally lack: access to investment capital and management expertise (2). Although contractual relations other than ownership are theoretically possible, physician practice management companies have generally built their networks through purchasing the assets—both with cash and equity—of physician groups. Having effectively ceded control of their practices, some physician groups are now wondering whether the decision to integrate through a practice management company was a wise one. In particular, both physicians and Wall Street remain skeptical about the value added by such companies. This lack of performance and the ensuing erosion of investor confidence have placed physician practice management companies and the physicians they bring together in a precarious financial position. As these companies look for ways to survive and regain profitability, some observers have suggested that more focused "specialty" physician practice management companies are the answer. In this column we describe the conditions that may have fostered the emergence of the psychiatric provider practice management (PPPM) industry, the types of organizations that are presently in the market, and the different approaches they take to managing behavioral health practices. We conclude with a discussion of economic and policy issues that are likely to be important determinants of whether PPPM companies have a long-term role in behavioral health care delivery. (August 1999)