Doctors’ Perspective

Outside hospital walls, physicians are struggling with increased costs and shrinking revenues – and MGMA President William Jessee explains how IDNs may benefit from offering a hand.

If Journal of Healthcare Contracting readers want to understand what keeps their physicians up at night, they might try digesting this statistic from the Medical Group Management Association (MGMA): Over the last 10 years, physician practice operating expenses have increased by an average of 5 percent per year, while revenues have increased by only 3 percent.

Doctors face dwindling reimbursement for their services from tweaks to Medicare Part B, growing demands for “pricing transparency” of their services from customers and the government and competition from acute-care facilities and so-called “retail clinics” in drug and department stores.

Most are aware that at some point in the near future, they will need to implement an electronic medical record system, but they’re nervous about the cost and potential shortcomings of such systems.

While dealing with Medicare and Medicaid is no picnic, physicians say that dealing with private payers is even more onerous. According to MGMA research:

  • Practices on average must verify insurance information for 3.33 patients per physician each day, spending approximately 10 minutes on each patient’s verification. Yearly cost for a 10-physician group: $38,761.
  • Practices contract with an average of 15 different health plans per year, and renew six of those each year. Group practice administrators spend 4 1/2 hours negotiating each insurance contract, bringing the yearly cost for a 10-physician group to almost $34,000.
  • Many medical groups have 100 or more separate contracts with third-party payers, and each one is negotiated separately, and usually annually. The cost incurred by medical groups in negotiating these contracts is at least $700 million per year.
  • An average of 2.78 claims per FTE physician are denied each week because of lack of information about the insurer’s requirements, and 73 percent of denied claims are ultimately paid, at least in part. Support staff spends an average of 15 minutes per resubmission. Yearly cost for a 10-physician group: $9,248.
  • Practices submit to payers an average of 17.86 credentialing applications per physician each year, with each requiring an average of 69 minutes of support staff time and 11.27 minutes of physician time. Yearly cost for a 10-physician group: $7,618.

Doctors are not only providers of care, but they are independent businesspeople too. Whether they operate a solo practice or participate in a large, multispecialty group, they must balance the twin demands of clinical excellence and financial solvency.

Recently, JHC spoke with William Jessee, M.D., president and CEO of MGMA, about the challenges and opportunities facing physicians today. MGMA’s 20,000 members manage and lead more than 12,000 organizations in which more than 242,000 physicians practice. The Englewood, Colo.-based association was founded in 1926.

The Journal of Healthcare Contracting: Your research shows that over the last 10 years, practice operating expenses have increased by an average of 5 percent per year, while revenues have increased by only 3 percent per year. In addition, MGMA has stated that “an aging population, new medical treatments, innovative medical technology and the information technology necessary to store and transmit electronic medical records pose additional financial demands on an already overburdened system.” Can you discuss the financial situation facing your members, why it’s occurring, and how they’re dealing with it?

William Jessee: This is the No. 1 issue that most practices are facing. [JHC] readers need to understand that the economic situation that hospitals are in is dramatically different than that of their physicians.

Ever since the Balanced Budget Act of 1997, hospitals have been getting positive updates in their payment rate, to keep pace with the MEI, or Medicare Economic Index. But there’s a very different formula for physicians. It’s called the “sustainable growth rate” formula, and it projects a positive update for physicians so long as [Part B spending] doesn’t increase. If it does increase – which it has every year – Medicare [imposes] lower payment rates for the succeeding year to recoup the – quote – excess.

Although there is some logic to that, [the fact is] that physicians have been moving a lot of services to the ambulatory setting, which saves money for Medicare. But lower expenditures in Part A leads to increases in Part B. So, the more services the physicians provide in the outpatient setting, the more they are “shooting themselves in the foot.”

Another problem is that physician-administered drugs are now considered a cost. But physicians have no control over the price of drugs, which are going up 10 to 12 percent a year.

All of these things add up to the fact that physicians are not meeting the targets set. So payment rates will continue to be lowered. Physicians are now looking at an average 5 percent cut starting January 1. Some specialties [will fare worse].

This issue of Medicare cuts ripples out to private payers, because most private payers piggyback on the Medicare rate. So physicians have a singular preoccupation with, “How am I going to stay even when the payment rates are going down?” That’s why so many are looking for other streams of revenue.

JHC: How are your members dealing with the gap between expenses and revenues? Are they increasing productivity? If so, how?

Jessee: The way in which they are increasing productivity depends on the specialty. For primary care physicians, about all they have to sell is their time, so they’re seeing more patients, making appointments shorter, and in some cases, increasing office hours. Specialists have opportunities to augment their revenue by providing ancillary services – which is where the competition with hospitals comes in. There’s hardly an orthopedist alive who doesn’t do X-rays, physical therapy and, in some cases, MRIs in their office. The proliferation of outpatient procedures being performed in physicians’ offices … is both a convenience issue for patients, and certainly an economic issue.

Smart hospitals understand why physicians are doing these things and are reaching out to them and saying, “Let’s provide these ambulatory services as a joint venture.”

JHC: Is there a limit to how much a physician practice can improve the productivity of its doctors?

Jessee: There has to be a limit. My favorite quote from one primary care physician is this: “It feels like I’m a hamster in a spinning wheel.” No one knows exactly what the breaking point is, but we’re already beginning to see an adverse impact. [Medical students] are not going into general internal medicine. They’re choosing to go into a medical subspecialty because [subspecialties] offer a better lifestyle; the doctor doesn’t have to run as fast to stay even. So we’re starting to see an impending shortage of young physicians in primary care specialties.

JHC: MGMA has called for a “simplified payment system,” which would limit the number of insurance policy forms, standardize processes for verification of insurance coverage, standardize the basic terms of provider/payer contracts and simplify the credentialing process. Such a system would replace today’s complex financing and payment system, which, as MGMA says, “diverts billions of dollars each year from the provision of health care services into non-value-added administrative busywork.” How close is the United States to implementing a simplified payment system?

Jessee: We’re moving at a pace that makes a tortoise look speedy. The good news is that our efforts to raise the visibility of the issue have enjoyed a fair amount of success. We have joined the American Academy of Family Physicians, the American Health Information Management Association and others to form the Healthcare Administrative Simplification Coalition. It’s a group of 25 or 30 organizations, including the American Hospital Association, the Blues, a number of health plans and employers, the U.S. Chamber of Commerce and the Centers for Medicare and Medicaid Services. The group meets about every four to five months to talk about how we can streamline, standardize and simplify.

There’s a growing recognition that complexity is a lose-lose proposition for everyone. However, getting from that recognition to substantial change is a slow process. [For example], we’ve discussed standardizing information on health insurance identification cards. You’d think that would be easy. But the [insurance] plans said, “We have a million of those cards out there; we know [standardizing] would save money in the long term; but in the short term, we would have to spend money.”

JHC: There is a great deal of public pressure for “pricing transparency,” that is, letting consumers know exactly how much a procedure will cost prior to treatment. But MGMA has pointed out the difficulty of providing this type of information. Most physicians participate in 20 or more insurance plans. And because many insurers have varying reimbursement rates, it is not unusual for one procedure to be priced many different ways. How important is pricing transparency to this country’s healthcare system, and how close can we get to it?

Jessee: If we are moving toward a system in which more and more of the cost of health services are borne by the individual as opposed to the employer or public payment system – and that certainly seems to be the trend – there has to be easy access to information. But healthcare is not like most consumer services. For example, if you really, really need [emergency] care, you might not have a choice where you go. My personal feeling is that the expectations of change in consumer behavior due to the availability of [pricing] information is a little overblown. Having said that, for elective procedures, people are more likely to make informed decisions if they have some skin in the game as well as access to information about pricing and quality.

As a consumer, what I really care about is not what my doctor charges for a procedure, but how much the insurance company will reimburse my doctor for it. Then I can figure out [how much I will have to pay out of my pocket]. This is where some of the breakdown occurs. Insurance companies pay many different prices for the same procedure. [One plan] extends 20 prices for the same procedure to different medical groups. I think there’s a willingness on the part of providers to give [pricing] information to consumers, but I think insurers have to get more comfortable with the idea.

Almost 100 percent of health plan contracts contain a contractual provision prohibiting the physician from disclosing what the insurer pays them. So even if doctors want to share information, they’re prohibited from doing so. One reason is the health plans’ fear that if payment rates become more widely known, [providers] who are reimbursed less will want to get paid more.

JHC: How much of a threat do the so-called retail health clinics (e.g., MinuteClinic or clinics in drug stores or retail stores) pose to your members?

Jessee: If I were to summarize what I see from my members, it would be, “I wonder what this is going to do to my practice?” I haven’t heard anybody reporting any negative impact [from the retail clinics]. And it’s entirely conceivable that some of our members could wind up forming affiliations with them. If a MinuteClinic nurse needs a patient to see a physician, smart groups might be setting up affiliations with them.

JHC: How close to reality is pay-for-performance, in which at least part of a physician’s compensation would be based on the quality of care he or she provides?

Jessee: It’s very spotty. In some parts of the country, it’s a reality; but in others, it’s not. Our forecast is this: Pay-for-performance will become a significant part of the new reality. Where you do have it today, it’s often a very minor component of the practice’s total income, so it isn’t driving a lot of decision-making. But many players plan to ratchet up the proportion of payments tied up in the pay-for-performance formula. When you start to get up to 25 or 30 percent of the compensation being based on it, you’ll get people’s attention.

The other big unknown is this: What are the feds going to do with pay-for-performance in the Medicare program? It’s been widely discussed on Capitol Hill that the tradeoff for fixing the current sustainable-growth-rate formula for physicians would be implementing pay-for-performance. If that happens, 50 percent of most doctors’ practices would be driven by it. That would raise the stakes.

JHC: What’s your greatest fear about pay-for-performance?

Jessee: That no two payers will do it the same way. The best pay-for-performance project we’ve seen is that of the Integrated Health Association of California. Eight or nine major payers got together, all using the same measures, all using the same approach. [In that scenario], it’s much clearer to providers what they’re incentivized to do.

JHC: Everyone is talking about the implementation of electronic medical records. What are the challenges your members face in this regard?

Jessee: Practices are asking, “You want me to invest $30,000 per FTE position on electronic medical records, and at the same time, payment rates are going down? Where is the money coming from?”

We’re also facing changes in the coding system, from ICD-9 to ICD-10. [ICD-10 refers to the 10th edition of the International Classification of Diseases. The ICD is used to classify diseases and other health problems recorded on many types of health and vital records, including death certificates and medical records.] This means that almost everyone will have to invest in new practice management systems. That will be another diversion from electronic prescribing and electronic health records. So you have a choice: Do you invest in new IT for billing, or new IT for electronic records?

JHC: Our readers believe that physicians often have more allegiance to device and product vendors than to hospital administration; and they believe physicians resist efforts to standardize on high-cost devices and equipment. What can they do to forge a closer working relationship with physicians?

Jessee: The key is to start a dialogue with physicians much earlier in the [contracting] process. I’m a board member for a hospital system in Denver. We’ve had good success in getting standardization because we have a good, tight working relationship with the medical groups doing the largest volume of cases. If you can get them to be the leaders in any attempt to standardize, it’s easier to pull the lower-volume groups along. It takes time to do this. But better to take six months and work with the leading groups, and then let them carry some of the water to bring the smaller practices along.

JHC: Along those same lines, can you comment on gainsharing, in which physicians and hospital administrators work together to reduce costs in the acute-care facility, then share the savings? How viable is this approach in helping hospitals and physicians work together to reduce costs at the hospital?

Jessee: As long as you do it in such a way that people don’t get sent to jail [because of Stark legislation, which prohibits physicians from making referrals to a healthcare entity in which the physician or any immediate family members have a direct or indirect financial relationship]. There’s nothing more effective than an economic win-win to get people to figure out how to play together. In the system [of which I am a board member], we contract with a medical group to provide ICU services. The contract includes bonus provisions that say, if they reduce the incidence of ventilator-acquired pneumonia, they will get a bonus. It’s one thing to cajole doctors and say, “You have to lower ventilator-acquired pneumonia.” It’s another to say, “If you help us lower ventilator-acquired pneumonia, there’s an economic reward for you.”

JHC: What about hospital ownership of physician practices? Is this an idea that failed? If so, why? One of the sessions at your recent annual conference was titled “They’re at it again: Hospitals are building employed-physician networks.” Is that true?

Jessee: In the ’90s, hospitals were buying practices because others were doing so. Then you went through a wave of hospitals divesting these practices. Now I think the pendulum is swinging back, but it’s not the same kind of panic buying as before. It’s much more selective and strategic. Hospitals are buying practices that they believe are strategically valuable to them. At the same time, more physicians – particularly those in primary care – are coming to the hospital and saying, “Buy my practice; I’m getting killed economically.”

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