By: Jeff Cohen
Throughout my 40 years of experience as a healthcare attorney and advisor, I have witnessed significant transformations in the business of medicine. Perhaps one of the most telling examples is the rise, fall, and evolution of Independent Practice Associations (IPAs), network models, and Management Services Organizations (MSOs). These structures embody how physicians and entrepreneurs have adapted to the complex and, at times, unforgiving healthcare landscape. Their development underscores a single truth I’ve consistently observed—success in the business of healthcare is not just about vision but about execution.
The Birth of IPAs and Early Ambitions
In the 1990s, IPAs emerged as a solution for independent physicians at risk of losing their seat at the table with payers. At the time, IPAs were owned and organized by panels of respected physicians. These physician-led associations presented themselves as a “one-stop” contracting solution for insurance companies. From a payer’s perspective, the value was apparent—contracting with one entity instead of managing contracts with hundreds of providers was far more efficient.
Yet, behind the curtain, the realities of managing such organizations exposed the limitations of their founders. Understanding concepts such as claims adjudication, medical loss ratio, third-party administration, or stop-loss insurance was, for many physicians, uncharted territory. While these knowledge gaps were of little consequence then, as many IPA panels were single-specialty and compensated primarily on a fee-for-service basis, the tides quickly began to shift. Capitated arrangements, which initially targeted lower-expense practices like chiropractic and podiatry, started to expand into broader specialties.
The Rise of Entrepreneurial Physicians
Unsatisfied with the status quo, entrepreneurial physicians began reimagining the structure and purpose of IPAs. They saw an opportunity not just in patient care but in carving a role for themselves in the “business side” of medicine. These visionaries began to lead network model IPAs, overseeing groups of physicians and charging administrative fees, typically 10-15%, off the top of managed contracts.
Utilizing third-party administrators (TPAs), and in many cases transitioning into TPAs themselves, network IPAs flourished during the ’90s. These were no longer groups of doctors bound by their clinical expertise—they were enterprises driven by efficiency, profitability, and scalability. For certain physicians, healthcare was no longer just a calling—it was a business model.
Enter Private Equity and Wall Street
With entrepreneurial physicians paving the way, it wasn’t long before private equity and Wall Street took notice. The business of medicine—and more specifically, its administrative side—had become a desirable investment. Concerns about physician autonomy and stable income streams were met with enticing offers backed by large private equity funds. Private practices were courted with promises of stability, cash infusions, and stock options.
The market recognized the potential early. MedPartners and similar entities flourished under this model, using public markets to rapidly acquire practices and infrastructure. NASDAQ amplified their success through quick amortization of acquisition costs, temporarily inflating financials and driving stock prices higher and higher. But as I’ve observed time and again, unchecked financial strategies often face regulatory reckoning. With the Financial Accounting Standards Board (FASB) mandating longer amortization periods, these companies faced financial strain, declining stock prices, and dried-up capital for acquisitions. For many entities, the collapse was inevitable.
The Emergence of the MSO
Among the fallout emerged a resilient structure—the Management Services Organization (MSO). Born out of necessity and survival, the MSO has become the dominant aggregation platform in healthcare today. While initially designed to ensure compliance with prohibitions against corporate practice, the MSO has grown into much more.
When executed well, MSOs represent a sophisticated administrative management model capable of delivering measurable efficiencies. However, not all MSOs are created equal. Many overpromise and underdeliver, leaving their clients frustrated and disillusioned. The reality is that the success of any MSO, or any physician-led organization for that matter, rests largely on the most challenging component of any business—execution.
Lessons on Execution and Sustainability
The dream of marrying financial success with the business of medicine persists because of its undeniable allure. But as history has shown us, sustainability in this space requires careful planning, a deep understanding of market forces, and operational excellence.
Managing physician-led organizations, whether they take the form of IPAs, network models, or MSOs, requires more than a good idea. It demands a well-structured strategy, a commitment to transparency, and actionable insights into the delicate interplay of clinical care and administrative management. Over the decades, I’ve seen promising ventures derailed not by a lack of vision, but by an inability to execute the finer details—the very aspects that define sustained success.
Moving Forward—Practical Guidance from an Industry Veteran
For healthcare professionals and medical entrepreneurs seeking to establish or grow their service models, my advice is simple yet uncompromising—prioritize execution over ambition. Ensure compliance frameworks are robust, stakeholder communication is transparent, and every decision is firmly rooted in long-term sustainability and value creation.
Organizations that recognize the importance of operational excellence and align their vision with prudent execution are the ones that stand the test of time. From my vantage point as a trusted legal and strategic partner, I have found that achieving this balance often requires more than legal expertise—it calls for an understanding of the practical, the aspirational, and the inevitable complexities of modern healthcare.
