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Transformation with Independent Physician: Back to the Future?

By: | Tags: | Comments: 0 | August 5th, 2016

Once again, something crossed my computer screen yesterday that made me change my focus as the basis for the next PWeR News blog.

The contributor to our distraction was a report from The Commonwealth Fund – I find their research amazing and always of great value. The report stated: “The mission of The Commonwealth Fund is to promote a high-performing health care system that achieves better access, improved quality, and greater efficiency, particularly for society’s most vulnerable, including low-income people, the uninsured, minority Americans, young children, and elderly adults.” 

Who doesn’t like that mission?

The title of this paper was, “Where the Money Goes: The Evolving Expenses of the U.S. Health Care System.” The report to me is fascinating for many reasons, and we believe it will relate in this blog, and a few more blogs to come. For one, we believe that the tipping point of increasing personnel cost, government mandates from quality measures, MACRA (which we have talked about before), ever increasing technology drives (a good idea, however doctors are ill equipped) and the pressure to do more with less, is near; we can see the challenges on the practitioners of care. This pressure to do more with less is not only in the U.S., but also likely in many other countries, both developed and developing as discussed in our recent blog. We believe that only a total end-to-end use of technology can give the small practice a shot at survival, allow them to continue to be independent, and provide the personalized care their patients expect.

The report goes on to say:

“There’s a lot to absorb in the proposed rule for implementing MACRA—the sprawling, bipartisan law passed in 2015 aimed at moving Medicare physician payment from rewarding volume to rewarding value. One question attracting scrutiny is whether the reforms will favor larger practices at the expense of smaller ones. This debate was partly prompted by the Centers for Medicare and Medicaid Service’s own projections that the law would reduce payments for most solo practices.

The controversy over MACRA (the Medicare Access and CHIP Reauthorization Act) raises broader questions. How has physician practice size evolved in recent decades, and what has been driving these changes? And, more generally, would it be a problem if the number of solo and small practices dramatically diminished, or even if they mostly disappeared?”

Some of the highlighted key components of MACRA included the legislation allowing for an increase in physician payments starting in 2015 with 1/2 of 1% (0.005) per year to 2019. Starting in 2019, the entire physician component of Medicare would be capped at ZERO though 2024. This is on top of what has been an extremely difficult 15 years for physicians. We estimate that the adjusted inflation for physician’s effective salaries, or take-home pay, has been declining after adjustment for inflation, and the ever-increasing cost of facilities, facilities management, insurance, and personnel benefits. It is no wonder why physicians are under an extraordinary amount of stress. The reality is, with the exception of some industries that have been highly automated, we can’t think of another industry that has that built-in cost control. This is not to say that healthcare costs overall have not been increasing dramatically in the same 15 years, when you aggregate total healthcare spending in the United States today, as the trend began back in 1965. Research shows that between 1983 and 2014, the percentage of sole practitioners fell from 41% to 17%. The same research also tells us that a percentage of physician practices with 25 or more doctors have grown fourfold (400%).

We know from experience that part of the drive is income security, taking care of their patients off hours and weekends, higher intensity of billing competency, and use of technology. However, it is possible that we are also underestimating the economic and management responsibilities of physicians. It is important to note that not only do they have to practice medicine, stay informed on the latest in medical advancement, they also have to negotiate with insurance companies, handle personnel issues (that as an employer we experience ever increasingly), and manage the economics of the medical practice. We have been in healthcare management for over 25 years and have acquired nearly every segment of medical and healthcare operations, from primary care to neurology and everything in between. We have operated primary care centers, urgent care centers, industrial medicine, radiology, nuclear, as well as various medical billing and management companies. We have personally witnessed and underwent a nearly impossible task that independent physicians have faced over the last 25 years.

I am reminded of a quote from the United State’s 40th president, Ronald Wilson Reagan, which is appropriate for the following conversation, “While I take inspiration from the past, like most Americans, I live for the future.” So, let’s go a little bit into the past, and maybe we will see the future.

At that time, we were a part of what was was a revolution in the acquisition and management of physician practices starting in 1990, and for the most part ending in 2000. Billion-dollar companies were created, and soon enough most of them collapsed when the economic modeling, productivity, and cost saving did not materialize. We participated in so many acquisitions that frankly, we lost count. Though the physician practice management industry ended effectively in the new millennium, we were part of the lucky ones that transitioned from practice management to full risk managed care. I can recall a presentation that we made to a group of physicians in Fort Lauderdale, Florida entitled, “Physicians’, control your destiny, or someone else will” that lead to a group of physicians approaching us to help them organize in a multi-specialty medical group. We have never seen a better opportunity than that today to create a solution for physicians and helping them control their own destiny.

In light of the conditions we have discussed above, many physicians today have decided that it is better to be acquired by a hospital than continue fighting the master trend by themselves. This has created a very interesting dynamic and competition, and some have labeled it an arms race between hospitals and medical groups in nearly every community, especially in metropolitan areas and even the suburbs. Those trends seem to have slowed down in the last 12 months. Maybe the only reason there appears to be a hiatus is in fact because of the mandates of MACRA, and for the most part, we have not seen many hospitals, especially nonprofits, adapt very well to a capitated payments or value-based reimbursement. Though they could change and adapt, we have witnessed them struggle in trying to prevent or reduce readmissions, which can be penalized by Medicare.

Furthermore, that part of the trend to create larger group practices, both at a state and federal level, is the desire to bring additional referrals, aggregation of facilities, sharing of diagnostic equipment, laboratories that are generally exempt from self-referral prohibition and/or regulations. This model could work very well in a value-based reimbursement; we have certainly experienced that in a capitated managed care environment and made it work. The question now is will those groups form an episodic procedures-based reimbursement to some kind of global capitation or shared economic benefit model?

We also take note that younger physicians do not have the same desire to be the practitioners as those positions they are replacing. By some account, they are looking for more predictable income, as well as a better work-life balance and may not be interested in the responsibilities of running a small business that is demanded when practicing as a sole practitioner.

Instead of a fork in the road, we are starting to see something of a binary outcome, or maybe a “T” in the road. That “T” leads to those that concentrate ever more power into the shrinking fee-for-service side, or those that realize that managed care, in one form or another is the future of healthcare management. We believe, one of the key opportunities ahead is to provide physicians with better technology that not only documents the care they give, but also really-really-really helps them reduce operating costs, and increase the quality of care to their patients. We have no doubt, that that opportunity is material and will benefit the quality of care in the United States.

The other opportunity that incorporates the latter is for the creation of regional medical practices, that incorporate the best of what the practice management industry had in the 90s, the best of managed care in the 2000s, the best of technology post-2009, and complements an even more connected consumer. From our perspective that “T” in the road has one better outcome that looks, as President Reagan did, to a very positive future.

We leave you with one of the graphs from the report that I mentioned at the beginning of this blog, and you will notice three things. First, those administrative personnel have been growing extraordinarily low from the period of 1997 to 2012. Second, that other technical and support personnel have increased disproportionally. Finally, what really stands out is technology or IT. We strongly believe that trend will accelerate in the next decade!

– Noel J. Guillama, President

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