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The business of medicine

The model is changing with more doctors leaving private practice for hospital employment

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by Marjolijn Bijlefeld and Robert Burke


Dr. D. Christopher Wells had been part of a Roanoke-based private practice of cardiovascular surgeons for more than 18 years when the going got tough. After one member retired and another became ill, the seven-member group was down to five doctors.

“There’s no way five doctors can provide coverage for two hospitals. We needed another doctor, but we couldn’t afford to hire one,” recalls Wells.
So in April 2006, Wells and his partners decided to take down their entrepreneurial shingle. They went to work for Roanoke-based Carilion Clinic, a physician-owned health-care system with eight hospitals. As employed, salaried doctors, their income is no longer subject to the whims of market forces. And they’ve been able to recruit a sixth member to the cardiac-thoracic team — something Wells believes they couldn’t have done on their own.

As the business of medicine becomes more complex, more physicians are choosing to affiliate with a health system or large corporate group rather than go it alone. The trend is most acute among solo and two-physician practices. From 1996 to 2005, the percentage of physicians in these practices dropped from 40.7 percent to 32.5 percent, according to a report by the Washington-based Center for Studying Health System Change. It also noted a decline in the number of physicians with an ownership stake in their practice, from 61.6 percent to 54.4 percent.

Financial pressures and the desire for a healthier work/life balance were among reasons cited by the center for the shift. Leaving private practice frees doctors from many administrative headaches, including personnel management, convoluted rules for insurance reimbursement and the need to update technology. Plus, doctors have more alternatives these days as hospitals and health systems respond to patient demand for more convenient access with alternatives to the traditional office visit.

In fact, the business model for medicine is being stretched from end to end. There’s everything from boutique medicine for the wealthy to retail clinics in Wal-Mart where patients can get speedy treatment for minor ailments. Large health-care organizations like Carilion Clinic tend to fit in the middle. They appeal to doctors like Wells — who trained at the renowned Mayo Clinic, after which Carilion Clinic is patterned — because of the team-based approach in a clinic setting.

The trend toward employing physicians has been evolving for the past two decades, says Dr. Barry Gross, chief medical officer for Riverside Health System in Newport News. That’s when primary-care physicians began to feel a financial squeeze as government Medicare and Medicaid reimbursements were cut and insurance companies ratcheted down negotiated rates for services. To keep these essential doctors from leaving communities, health systems began hiring them. “Then as the reimbursement issues began to hit specialists, we wanted to stabilize that community of providers. But we never divested of the first group,” he says.

Shrinking salaries may have given some doctors an incentive for change. Primary-care physicians saw their incomes drop 10 percent, and surgical specialists saw an 8 percent decrease between 1995 and 2003, according to another report from the Center for Health System Change.

But leaving a practice is not all gain and no pain. Wells’ group, which had been providing care at Carilion’s Roanoke hospitals and HCA-owned Lewis-Gale Medical Center in Salem, had to cut its affiliation with the latter. “It’s hard to give up your independence,” says Wells. “I was 18 and a half years down the road as my own boss.”

One of the major drivers behind the changing model is the increasing use of outpatient facilities during the past 10 to 15 years. “When you started seeing certain types of invasive and noninvasive procedures moving to [outpatient centers], that was a precursor to what’s happening today,” says Michael Jurgensen, senior vice president of policy and planning for the Medical Society of Virginia. Moving procedures out of hospitals changed the way doctors practiced. More solo or group practices formed, and different pay mechanisms were developed that bypassed the hospital completely.

But the pendulum is swinging back as an increasing number of physicians grow weary of the demands of running a practice. “The first blush was hospitals hiring hospitalists,” says Jurgensen. Hospitalists attend to patients during their entire stay in the hospital — freeing up the primary-care physician from having to make hospital rounds.

Two of the biggest headaches for doctors in running practices are the struggle to get insurance payments and the hassles and expense of hiring the right people. Even for the average family doctor, “the ability to just file a claim and be paid in a reasonably short period of time has diminished significantly,” says Jurgensen. Insurers are requiring more justification and documentation for procedures, and sometimes demand prenotification. There are also more rules regarding lab tests or imaging. And there are multiple levels of coding and different rules for different managed-care providers. “It’s extremely complicated to keep the whole system together,” adds Jurgensen.

With a hospital or a larger group run by a professional manager, doctors hope to have more time to practice medicine. Plus, Jurgensen says, they’re more likely to gain access to newer technologies, such as electronic medical records, that can be too expensive for small practices. “I think there will always be a spot for solo practitioners,” he says. But new doctors are less interested in solo careers and are more often looking for employee status. “They’re much more receptive to those types of arrangements when they come out of school.”

It’s also easier for larger organizations to meet patient demand for longer hours. Brian Boyce directs management services for HCA Physician Services, which oversees the management of 60 physicians in 28 Richmond-area outpatient physician offices. He says the average family physician makes so little profit on services that the only way to stay afloat is to pack as many patients as possible into a day. That means appointments are booked solid, and it can be difficult or inconvenient for a patient to get an appointment.

“There are a lot of hourly wage workers or people who are on a time clock. They can’t always take the time off to get to the doctor’s office during traditional business hours,” says Boyce.

As a result, emergency rooms fill up with people who aren’t necessarily facing an emergency. They either don’t have a regular primary-care doctor or can’t get to one. That’s why HCA Richmond Health System opened two Quick Care clinics in Richmond in late summer.

The clinics are staffed by physicians — trained in emergency and urgent care — and are open from 8 a.m. to 8 p.m., Monday through Saturday. The idea is that these clinics will draw people who might otherwise go to the emergency room — an inefficient use of resources for non-emergency cases. Because they are affiliated with HCA, they accept the same insurance and offer the same services and referrals. In the first weeks, the busiest times were lunch hours, but Boyce anticipates that evenings and weekends will become most popular as word about the clinics spreads.

For hospital groups and corporations looking to hire physicians, the demographics are good. Nationally, about 65 percent of physicians are self-employed. A little more than one-third is in solo practice; just under two-thirds are in small groups. Most of them are older — and male. Women now make up about half of medical school graduates. Signing on with a company may seem increasingly attractive.


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