The political correctness of a physician hospital organization may precipitate its demise in a community hospital.

Health maintenance organizations are placing an increased pressure on physicians and hospitals to assume the risk of providing health care services under capitated agreements. They believe that if the providers' profits are based upon their cost-efficient provision of medical services, they will control their use of medical resources and reduce health care spending. Managing the risks of a capitated contract necessitates the integration of the hospital's and the physician's incentives. However, is the most appropriate legal structure that will enable physicians and hospitals to form risk-sharing contracts with managed care entities and manage these contracts profitably a physician-hospital organization? It is estimated that over 50 percent of the physician-hospital organizations that are created each year fail within the first two years of their operation because of political and financial reasons. A multispecialty group composed of select physicians, who are willing to integrate their practices and who have a low length of stay in the hospital, may be in a better position to manage the risks imposed by capitated contracts.