Physician-Sponsored Networks


A physician-sponsored network (PSN) is a business entity organized and owned by a network of independent physician practices for the purpose of pursuing business ventures such as contracts with managed care organizations. There may be substantial opportunity for innovation in delivery system modeling and benefit design in the creation of physician networks. Specifically, creation of practice networks involving Patient Centered Medical Home practices may accelerate important and necessary changes in health care delivery.


The core business of family physicians is managing the care of patients. Patients value their relationship with their personal physician above any other in the system. This relationship makes physicians an indispensable resource in the health care system and provides them in the marketplace. Physicians are exercising their market leverage through a variety of contracting and affiliation strategies which allow a group of physicians to speak with one voice. Such strategies also enhance physicians' access to the capital and management resources necessary to pursue cooperative business ventures such as managed care contracts and direct health care services contracts with employers.

Purchasers of health care services are more likely to sign contracts with larger groups of physicians who can provide comprehensive services within a specialty or in a specific geographic area and demonstrate high quality outcomes, assume risk and can provide unique, innovative or collaborative health care services. These services include comprehensive care of chronic medical conditions that benefit from collaboration among multiple entities such as specialty practices, imagining centers, home health agencies, and hospital systems. Such networks have and will likely continue to develop with different presence in different markets. Those PSNs capable of controlling medical expense for large numbers of patients and assuming full risk capitation can exercise maximal control in the current environment. Partial risk sharing, however, is more likely to be available to many PSNs. Optimally functioning PSNs can offer many potential benefits, including:

  • Appropriate alignment of physicians' financial incentives
  • Efficiencies in practice administration and management
  • Political influence within the medical and wider provider community
  • Peer support
  • Optimized facilities
  • Enhanced ability to negotiate favorable contracts with other entities such as managed care organizations and hospital systems
  • Autonomy and local financial and care management control in managed care
  • Improved services, including, expanded hours, urgent care, outreach services for prevention, telephone triage, and follow-up expertise.

Physicians considering the development of, or participation in, a PSN should be aware of the potential risks. This is especially true when the PSN accepts significant risk for healthcare expenditures. These risks include:

  • Underfunded capitation revenue, with risk of significant losses and/or bankruptcy.
  • Physicians should exercise caution and guard against the trend of payers to decrease their payments to the IPA.
  • The potential for a conflict of interest for the physician between financial gain and optimal care for the patient.
  • Potential restrictions on collective bargaining by physicians from the Federal Trade Commission and Department of Justice
  • The potential for significant alienation between primary care physicians and contracted limited specialists.

The American Academy of Family Physicians believes that physicians contemplating the development of, or participation in, a PSN should consider the following guiding principles:

Guiding Principles

  1. Physician-sponsored networks (PSNs) should organize a health care delivery system which produces optimal health outcomes for patients.
  2. Physician-sponsored networks should be to promote efficiency and effectiveness in the delivery of health care to patients that produce incremental "value" from organizing the PSN. The financial benefits that result from this improved care efficiency and effectiveness should go to those who provided the improved care.
  3. Family physicians should utilize their unique skills and expertise in care management, in management of the interface between specialists and hospitals, and in their focus on preventive health to create "value."
  4. Effective management of relationships between primary care physicians, limited specialists, and hospitals is critical to the optimal care of patients, to the success of PSNs and to the satisfaction of physician participants.
  5. PSNs must be able to demonstrate their incremental "value" in order to obtain contracts with health plans and other payers for covered lives.
  6. Network physicians must have clinical autonomy and assume clinical accountability to optimize PSN "value."
  7. The unique partnership embodied in the doctor/patient relationship must be preserved.
  8. Physician equity in PSNs is a critical issue for maintenance of desired degrees of control and autonomy and must be carefully considered by PSN physician participants. These principles may be valuable for physician education and for incorporation into PSN vision and mission statements.

(1998) (2010 COD)