Why the practice of medicine needs a Trust-Buster....

As a long-time fan of RedState, I would much rather be writing about the Tea Party insurgency, the debt or social issues.  But as a physician, and a new diarist, I figured I would share my perspective on my job.  I’d like to talk about the state of medicine for a bit, from the point of view of a private practice physician.  Most people understand that there is chaos and uncertainty in the system today, but very few people have a handle on the big picture (Those who do would include writers such as Megan McArdle or Sally Pipes).  There has been quite a bit written on the roiling changes that are occurring in the insurance industry as a result of the Affordable Care Act.  For the time, I’d like to shift discussion to how the changes in health care over the past decade are impacting physicians and what this means for patients.  My contention is that there are currently very limited long-term pathways forward for private medical practices in the United States, and that barring significant changes in the marketplace, the trends toward physician employment will continue to increase, with, as always occurs with market consolidation, significant cost increases in the delivery of healthcare.  Although I do not consider myself an expert in the field of healthcare economics and public policy, I have served on the board of directors, and as national policy chair for our medical specialty academy, and also sit on the health and science policy committee for the American College of Sports Medicine.  In addition, my father just competed in the Republican Primary for Nebraska Governor last year, giving me the opportunity to view healthcare policy through a political lens.  Hands down, however, my greatest experience has been in running a business for the last eight years.  Believe me when I tell you that even physicians have a hard time synthesizing all of the changes that are occurring in the system right now.  It is ludicrous to expect patients to understand any of this and act as rational healthcare consumers.

Physicians, not unlike anyone else, are hesitant to discuss personal financial matters.  However, my experience is instructive, and probably more common than is generally realized.  My specialty is Sports Medicine, and at various times I have served as a team physician at Ball State University and the University of Illinois.  In 2006, I moved my family to the Des Moines, Iowa area, and opened a small practice in a medical office building shared by many other physicians – some independent, some employed by large health systems.  The capital costs to start this practice were funded in-part through personal savings and in-part through bank financing which I obtained on the basis of a typical business plan.  From the day that we opened, we offered physical therapy services as well, in order to provide patients with an option where they could work one-on-one with the same therapist, avoid the use of aides or assistants and maintain continuity with their treating physician.  We also developed strong relationships with other area therapists as we established a referral network outside our own practice.

Since we opened our doors, the average annual increase in the costs of doing business has been around 4-5% — usually closer to 5%.  This has remained remarkably consistent, with the lion’s share of the increases occurring in staffing costs.  Private practices must compete with hospital-based employers, who often, because of subsidized payments, are able to pay a premium to health care workers to work for them.  This anti-competitive effect drives up the staffing costs for private groups – both for physician and non-physician employees.

We thought when we opened that we had a significant buffer in our profitability margin to account for these high business costs, but at the time, we did not comprehend the degree to which physician payments would fail to keep pace with the rate of medical inflation.  It is important to point out that these trends were occurring far before the Affordable Care Act was passed, but the ACA has undoubtedly accelerated them.

Every service in a physician’s office is assigned a code, termed a CPT code.   Each of these codes is assigned a reimbursement rate by a given insurance carrier.  When we talk about cuts or flat payments, we are talking about the trends in the rates assigned to these codes.  To wit, in 1998, when a new resource-based valuation of services (RVU) was implemented, physicians entered into a six year period ending in 2004 where real cuts averaged 7% per year.  However any thought that this downward pressure on physician pay would lessen has been proven false, since the total (cumulative) increase in payment rates to physicians by Medicare for the years spanning 2004-2014 is 4%, or one-third of one percent per year.

Increases in commercial insurance payments have been better, but still lag inflation significantly.  Physical therapy reimbursement has been slashed as well.  Reimbursements across the board were cut between 14-20% around 2010, and the fee schedules have remained stagnant since then (though as I’ll indicate in a moment, actual reimbursements have continued to decline).

One common misconception is that physicians in private practice have any significant leverage with insurance companies when it comes to what we are paid.  Charges bear no relation to payment, which is determined by a fee schedule supplied by the carrier, with little to no transparency as to how the new numbers are arrived at.  And unlike other businesses, when our payments are cut, we cannot balance bill the patient, leaving us no way to recoup losses.  We aren’t even allowed to bill a no-show fee to Medicaid or Medicare patients who don’t bother to show up for their appointment.

Of course, there are ways to cut payment for services other than cutting the reimbursement schedule, and since we opened, we have had to cope with many of them.  When I started practice, specialty physicians could bill consultation codes, which reimbursed for outpatient services at a slightly higher rate than the standard codes.  This was paid when one physician sent their patient to a specialist for further evaluation, representing a value premium for the additional years of training that specialty practice required.  In 2010, Medicare announced that they would no longer reimburse for consultation codes, and as so often occurs, most commercial payers quickly followed suit.

Medicare, Medicaid and commercial payers often routinely “bundle” charges, discounting reimbursement from the rate in the contracted fee schedule when multiple services are performed on the same day.  Thus, if a patient of mine comes in for a hip joint injection and requests that their shoulder be injected as well, I will earn less money for the second injection than the fee schedule in my contract reflects.  This bundling has occurred in my physician practice over the years, and has now started impacting physical therapy as well, requiring physical therapy practices to reduce the amount of time each therapist spends with their patient during a given encounter.

As reimbursements have declined, the documentation requirements that are imposed on practices have increased dramatically.  This ranges from new outcome reporting systems to electronic record documentation requirements to quality reporting requirements that usually have little relevance to our patients.  Failure to participate in any of these “voluntary programs” results in further reimbursement cuts.

Red tape around formerly routine office procedures has increased as well, with more staff time required to pre-authorize imaging procedures such as MRI’s or CT’s.  This past week, a patient with painful knee arthritis presented to the office requesting injection of her knee, and her insurance company required pre-authorization before the procedure – something I’ve never encountered before.  This ended up taking about 20 minutes of staff time while the patient waited in discomfort.  Were this to become routine, it would require another staff person just for authorizations.

The net result of all this is that when you look at the actual loss in revenue for even our small practice, analyzing the difference between where reimbursement rates were in 2009 and where they would be today had payment simply kept up with inflation, it represents about $220,000/year in lost revenue, with that number growing every year that reimbursement rates don’t keep pace with costs.  This figure does not even include the bundling “cuts” in physical therapy this year, which have resulted in a decrease in average reimbursement per physical therapy visit from $101 to $90 from 2013 to 2014 alone.

To add insult to injury, reimbursement for imaging guidance for some of the procedures I do were slashed 65% this year, representing another loss of about $80,000 in revenue/year.   These cuts forced us to re-evaluate our physical therapy model, which had been subsidized by physician reimbursements for years.

The physical therapy lobby fights against physician employment of physical therapists, which they (erroneously) claim leads to over-utilization of services.  However in our case, we have always tried to keep patients on directed home exercise programs first, relegating therapy supervision to either resistant cases, or upon patient request.  Patients who choose to obtain their therapy in our office have always known that they will see the same clinician for the duration of their treatment course and that 100% of their time will be in direct contact with their physical therapist – the most highly trained clinician for the job.  No more.  With the $80,000 in cuts imposed this year on my half of the practice, as well as the bundling cuts imposed on therapy, we are now forced to bring in assistants so that our therapists can overlap patients and see more patients per day.  We are also now forced to consider whether to restrict patients with lower-reimbursing insurance from therapy in our office – an absolutely dreadful topic to have to discuss with longstanding patients of ours who do not understand why they may no longer be able to be seen here.  Making these changes will increase our profit margin somewhat and give us some breathing room.  But if current trends continue, the respite is temporary.  In this case, the highest quality standard of care just isn’t economically possible anymore.

The solution for these annually worsening financial pressures seems to always be to make up the difference in volume.  This is problematic for several reasons.  First, and most obviously, there is a direct linkage between quality of care and volume, so that if daily patient volume is increased past a certain point, quality of care will always suffer.  Second, it reduces physician job satisfaction, since we have less time to spend with our patients than we did previously, and since documentation time is not reducing along with the reduction in fees.  The net effect of this is more patient dissatisfaction, more time at the office and less time with our own families.  Finally however, and this is important to grasp – there is no guarantee that a private medical practice can make up the difference by increasing volume.  These cuts presuppose an expanding pool of patients available who are able to access your practice, and as I’ll expand on in a later post, this is a misconception.  Health care today is becoming monopolized by organizations of large economy, which now employ physicians who enter into competition with their peers in private practice.  More importantly, these healthcare systems also employ the primary physicians that constitute the referral network which is so vital to the long-term health of a practice.   These primary physicians are incentivized to utilize a system’s internal specialists, and penalized when they send patients out of the enclosed system that has been created.  Over the last 18 months we have watched our formerly robust outside referral network deteriorate by about 85%, as my in-network colleagues apologetically explain that they cannot support our practice in the way that they used to do (This has occurred the same year that we were voted Best Sports Medicine Practice in Des Moines in one public survey).  In essence, the antitrust issues in medicine right now have to do with hospital and other large health care systems shutting out private groups from competition.  This market consolidation is currently being allowed because of a desire on the part of government healthcare agencies to aggregate care in order to try to achieve cost savings system-wide.  This is complex, and the courts have not yet figured out where the competitive balance in all of this is, but as we will see later, the cost-savings that is the purported goal of this consolidation is mostly fantasy.

These changes have jeopardized our ability to continue in operation.  There is a misconception that the effect of the cuts we have experienced is to decrease physician income from stratospheric to exorbitant.  However just to break even each month in our practice, we have to bill in the neighborhood of $90,000.  Although this includes my salary, my salary is set below the median starting salary for a sports medicine doctor entering into an employed setting.  So the effect of everything we’ve discussed is that rather than earn a premium for all the risk that we have taken, rather than even coming close to the targets we laid out in our initial business plan, we have instead struggled to keep our heads above water.  Although we have never missed a payroll or failed to pay a bill, in the eight years since we opened, we have not been able to save anything for our three children’s college educations, have not saved any money for retirement and have not yet been able to eliminate the line of credit that our bank extended to us when we opened in 2006.  Meanwhile, one of the local hospital systems whose threatened penalties against the physicians who have traditionally referred to us has significantly decreased our out-of-network patient volume is advertising on the Super Bowl (!) as I write this, touting the benefits of their “consolidated care.”

Understand that none of this is occurring in a vacuum.  The reason that reimbursements to providers are being cut is that the population is aging, and overall health care spending continues to rise while the pool of funds available for physician services relative to each beneficiary is contracting.  We as physicians understand this.  It is part of the same demographic time bomb that makes social security a non-viable program in the long-term.  But most healthcare spending is occurring in spite of, not because of your doctor.  Spending on things like medical devices and healthcare administration are at all-time highs.  According to CMS’ own statistics, about 20% of all Medicare spending goes to physicians.  Most goes to hospitals.  As an example, in California, about 8% of total Medicare payments for a hip replacement go to the surgeon who does the procedure.  ($1400 against $16,600 for the hospital).  And, while in 2013 the average salary of a family physician is about $186,000, the average salary of a hospital CEO (whose training entails only a fraction of the opportunity cost of the family physician) is about $386,000.

We physicians get the economic arguments.  We don’t claim to have all the answers.  But in the midst of the dialogue surrounding these arguments, the actual viability of the medical practice model needs to be at least considered.  So, why don’t I just bail out and go take an employed job like more than 50% of my colleagues?  For one thing, we are already into this little experiment for about a third of a million dollars, so I’m hesitant to just walk away from the investment.  For another, with direct-to-public advertising, we have been able to hold our revenues relatively consistent, and you never know when the pendulum will swing back to favor private practice again.  Those who have left private practice however, face a huge cost barrier in starting up again – in some cases insurmountable.  So, we ride out the storm, try to take care of our patients as best as we can, and hope that we don’t end up a society where a four year post-graduate degree and five additional years of training leaves one with a skill that isn’t commercially viable.  In a future post, we’ll delve into how market forces have been and continue to be deformed in the health care economy, and what that looks like for you as a patient trying to obtain care.  Stay tuned.


Chad Carlson, MD

Stadia Sports Medicine

West Des Moines, IA