In 1994, when Dr. Louis McIntyre joined Westchester Orthopedic Associates in Westchester County, N.Y., the3,000-square-foot office had nine employees, including four orthopedic surgeons.
The following year, the practice spent $500,000 to move into an office that was twice as big, to accommodate workers newly hired to handle the clerical demands of managed-care insurance plans, such as insurance verification and pre-authorizations.
In 1995, the practice needed only one employee to verify and authorize treatment. It quickly grew to one employee for every doctor to complete those tasks. The annual cost of malpractice insurance for each doctor rose from$40,000 in 1994 to $110,000 in 2010.
The practice unsuccessfully tried to negotiate increased insurance reimbursement rates to offset the rising costs. It formed a network of orthopedic surgeons to attempt to improve the economic power of private practices, but was stymied by antitrust laws.
Westchester Orthopedic decided to meet these challenges head-on with aggressive expansion. It added more physicians and ancillary services to boost revenue. It bought a Magnetic Resonance Imaging (MRI) machine. It spent $500,000 for an electronic medical records (EMR) system. It spent $5 million to build an ambulatory surgery center adjacent to its office.
All told, Westchester Orthopedic spent $6.5 million. It grew revenue from $2 million in 1994 to $5.4 million in 2007, and employed nearly 50 people by that year. The surgeons did this despite the fact that reimbursement rates were falling. The American Academy of Orthopaedic Surgeons (AAOS) estimated that orthopedic surgeons’ Medicare reimbursement decreased 28 percent from 1992 to 2007.
Commercial insurance reimbursement fell similarly. Then came the American Recovery and Reinvestment Act of 2009, which required an EMR upgrade to satisfy “meaningful use” criteria. The following year brought the Affordable Care Act (ACA), with its quality-reporting requirements and risk-based reimbursement.
In 2012, Westchester Orthopedic threw in the towel and sold its practice to White Plains Hospital. According to the AAOS, hospital employment of orthopedic surgeons tripled from 2004 to 2010.
A study by the Medical Society for the State of New York in 2009 showed that the private practice of medicine was the fifth-largest employer in Westchester County, second among business establishments, third in paying personal income tax, and seventh in paying corporate sales taxes. With the acquisition by a nonprofit hospital, the federal and state corporate and sales taxes paid by Westchester Orthopedic vanished.
“The combination of decreased reimbursement, increased reporting requirements, the need for huge outlays for technology improvements and uncertainty about future earning potential is driving private-practice physicians to seek employed positions,” McIntyre said.
Dallas family physician Darrel Jordan, who closed his practice in July 2012, wrote a letter to his patients saying, “… the changes by the Affordable Care Act (i.e. Obamacare) are designed to add additional stressors and expenses to small doctor practices. This will make small physician offices unlikely to remain open past 2015.”
Jordan said the economics of a solo physician practice simply do not work anymore. He said his reimbursement had declined 30 to 40 percent from 3 to 5 years ago as practice expenses continued to rise. He said two physicians in neighboring offices were quitting their practices as well.
“I am on the cutting edge of change for all of us (solo physicians),” he said. “We are in one of three stages: those of us who are changing our careers now, those planning to change their careers, or those who are in denial.”
‘Death by a thousand pinpricks’
Travis Singleton, senior vice president at physician recruiting firm Merritt Hawkins, said it is hard to finger one or two culprits for the declining number of physician practices.
“It’s death by a thousand pinpricks. It’s the movement to Accountable Care Organizations and patient-centered medical homes. It’s the changes in the delivery of care. It’s compliance pressures. You have to hire consultants for electronic medical records (implementation). That costs money,” he said.
Singleton said the pressures and difficult economics of solo physician practices foreclose that option for medical students, most of whom face large student-loan debts when they are looking for jobs.
“It’s easy to say they (medical students) don’t want to be a solo practitioner. That’s not reality. They may like the autonomy and generational medicine. But they will never have the chance to do it. There are so many challenges facing that delivery model. And that’s a shame,” he said.
- The percentage of U.S. physicians who practice outside a hospital, clinic or large group fell to 39 percent in 2012, down from 57 percent in 2000. Of those who abandoned their independent practice, 87 percent cited the cost of doing business, 61 percent blamed managed care and more than half mentioned electronic health records. Of those who expect to remain independent, 1 out of 3 said they plan to turn to a subscription-based care model, such as concierge and direct-pay practices. Accenture, which conducted the survey, predicted that subscription-based models would double annually for the next three years.
- According to a poll by Sermo, a website for physicians, more than 1 out of 4 physicians admitted they had been forced to close, or were considering closing, their solo practices. They cited high overhead costs, high malpractice-insurance costs and low reimbursement rates.
- According to QuantiaMD, another website for physicians, more than 1 out of 4 primary-care physicians reported poor financial health. Among those feeling financial pressure, 81 percent saw profits fall in 2011 and nearly half had trouble covering costs. Like Jordan, most cited falling reimbursement and the rising costs of practice.
- One out of 3 physicians say they plan to quit their practice in the next decade, according to a survey by Atlanta-based physician recruiter Jackson Healthcare. Of those who said they plan to quit, a majority cited economic factors and health reform as major reasons.
- More than 75 percent of newly hired physicians will be hospital employees within two years, compared with 11 percent eight years ago, according to Merritt Hawkins. Of its 2,700 searches in 2011 and early 2012, only 2 percent were to fill positions in solo practices, compared with 42 percent in 2004.
- The share of physicians who own their firms dropped from 57 percent in 2000 to 43 percent in 2009, and was expected to fall to 33 percent by 2013, according to Accenture.
Only 1 out of 4 physicians say they plan to continue practicing as they are, while half said they plan to exit the traditional full-time independent private-practice model. One of the demographic imperatives driving this is the fact that 1 out of 4 U.S. physicians are 60 or older.
However, more than half of physicians said they changed their retirement plans since the 2007-09 recession. About 7 out of 10 of that group said they planned to work longer than they had anticipated because of decimated personal savings. Conversely, some said they were leaving full-time practice for other reasons: the uncertainty of health reform, the rising cost of doing business or that they simply no longer enjoyed their life’s work.
The percentage of physicians in independent practice has been declining by 2 percentage points annually, a reduction that was expected to accelerate to 5 percentage points annually by 2013, according to the AMA. In a 2011 survey of healthcare organization executives, 2 out of 3 said they were receiving more employment requests from physicians and they planned to increase their physician hiring over the next three years.
Moreover, third-year medical residents increasingly are bypassing independent physician practices to work as salaried employees in hospitals and larger medical organizations. About half said they were ill prepared to handle the business side of medicine because they received no formal instruction in medical school on how to negotiate contracts or manage reimbursement. It is especially disheartening that 3 out of 10 third-year medical residents said they would choose another career if they had the opportunity – compared with about 1 out of 10 in 2008.
Insurance reimbursements are inadequate to cover rising practice expenses. According to the Medical Group Management Association (MGMA), practice expenses per physician have risen more than 50 percent in the past decade, compared with a 28 percent rise in the Consumer Price Index and a 3 percent increase in Medicare reimbursement.
Physicians’ search for safe harbor is not the only factor driving consolidation in health care. A weak U.S. economy, capital investment needs and the desire for more market power fueled and acquisitions (M&A).
There were more than 1,000 M&A deals in healthcare in 2012. That year was one of the most active in the past decade. On the other hand,the aggregate dollar value of those transactions was nearly the lowest in a decade, suggesting that smaller organizations were likelier acquisition targets.
Physician practices were among those with the largest growth in mergersfrom 2011 to 2012, with transactions valued at $4.4 billion in 2012.
The above is an excerpt from his new book So Long, Marcus Welby, M.D.: How Today’s Health Care Is Suffocating Independent Physicians—and How Some Changed to Thrive. D Healthcare Daily founding editor Steve Jacob draws on dozens of interviews and more than 500 published sources to cover these issues and describe how the landscape is changing for doctors