The Evolution of Medical Groups and Capitation in California

This is archived content; for historical reference only.

Capitated physician groups are a new type of organization with new capabilities. Debates over managed care and capitation often miss this fundamental fact. These groups can be understood as a new tool, one which has the potential for beneficial or harmful effects on patients’ health, depending on how it is used. How have the groups grown and taken control of utilization management? Who has owned them, and how have they been governed? And why have these successful organizations been selling their practices to extremely large physician practice management companies such as MedPartners?

In order to provide the data to answer these questions, the authors sketched the rise of five large and well-known California medical groups — Bristol Park, Friendly Hills, HealthCare Partners, Mullikin, and Palo Alto — between 1975 and 1996. This study tracked changes in the groups’ growth; governance; relationships with each other, with HMOs, and with hospitals; methods of physician payment; and, most of all, management of care. It also examined the increasing pressures from the evolving California managed care market.

This report, originally commissioned by the Henry J. Kaiser Family Foundation, is based on 75 interviews conducted in California during 1996 and early 1997, and on documents obtained from the groups and from a variety of other sources. The authors also drew on nearly 200 interviews conducted during 1994 and 1995 with managed care leaders throughout the state (made possible by a grant from the Robert Wood Johnson Foundation), and on extensive review of the trade literature. The models outlined in this report give a better understanding of how some medical groups assume financial risk for medical care as well as take on a greater responsibility for managing care.

The complete report is available under Document Downloads below.