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While their colleagues seek hospital employment, some physicians choose to remain fiercely independent

It’s true that some physicians are giving up their private practices in favor of hospital employment. But Norman Chip Harbaugh isn’t one of them. Neither is Jacqueline Fincher or Keith Michl. These physicians fully intend to maintain their independent status. But they won’t do it by standing still.

Harbaugh, for example, founded an independent practice association, Kids Health First Pediatric Alliance. Fincher’s practice is also part of an IPA, and she and her colleagues are tightly networked with colleagues through national and statewide associations. And Michl is set to embark to transform his solo practice to one based on “affordable personalized healthcare.”

“We see a strong trend of doctors who are moving into hospital ownership,” says Dave Gans, vice president of innovation and research, Medical Group Management Association. As of December 2010, more than 11 percent of MGMA’s 12,000 practices were hospital-owned. Seven years earlier, in 2003, that number was slightly more than 8 percent. While those numbers seem small, they represent a 40 percent growth in hospital-owned practices, notes Gans. As of December 2010, 28 percent of the doctors represented in MGMA’s membership were in hospital-based practices, compared to 17 percent in 2003 – a 65 percent increase.

MGMA data, as well as that of the American Medical Association, indicates that it is the larger practices that tend to seek hospital ownership. The average size of MGMA’s physician-owned practices is 16.6 doctors, while that of its hospital-owned practices is 70.6, says Gans. Three-fourths of MGMA’s physician-owned groups are single-specialty, which tend to be smaller than multispecialty groups.

Reimbursement a big reason
Doctors turn to hospital systems for employment or to sell their practices for many reasons, points out Gans. But reimbursement is king.

  • The federal government as well as private payers are forcing doctors and hospitals to lock arms by offering them “bundled payments” or “global payments,” that is, reimbursement for episodes of care, both inpatient and outpatient. Accountable care organizations are one manifestation.
  • Value-based purchasing, which rewards providers for providing high-quality, cost-effective care, could replace traditional reimbursement methods, which reward physicians for providing more care.
  • Reimbursement for some outpatient procedures is declining. In the past, Medicare encouraged the use of outpatient care by offering higher reimbursement for procedures performed in the outpatient setting than for similar procedures offered in the inpatient setting. Now, the government is clamping down, allowing the pendulum to swing back to hospitals. As a result, doctors who formed their own freestanding cath labs or imaging centers are being drawn back to the hospital, with its greater capital base.

Personal reasons
Economics aside, many doctors are drawn to hospital employment for personal reasons, says Gans. “The doctor who practices in many of these large institutions has the history and culture of that institution with him, and that’s huge.” There’s a certain prestige to being part of Cleveland Clinic, for example. And being part of a larger hospital system or IDN offers opportunities for subspecialization. “It’s difficult to subspecialize in private practice, because you need a broad referral network, which you can get if you’re part of a large health system.”

Being part of a large organization, such as an IDN, also offers the opportunity to network with many colleagues and to take advantage of continuing education opportunities, says Gans.

Then there are the much-talked-about lifestyle issues. “Many doctors are saying, ‘I would forego some income for lifestyle,’” says Gans. “That helps to understand why many younger doctors are looking for the security of employment. They want to work hard when they’re working, but they also want the opportunity to be somewhere else [in their off-hours], to take vacations and leave their patients behind.”

Bucking the trend
All that said, some physicians value their autonomy too much to seek employment by a hospital. “In my opinion, we’ll see a resurgence of the IPA,” says Gans. “It provides the opportunity for contracting and negotiating clout; it also offers the ability to sustain information systems on behalf of many of its doctors and to help the communication function.”

You don’t need to tell that to pediatrician Chip Harbaugh, M.D., FAAP, managing partner of Children’s Medical Group in Atlanta. Harbaugh has been in practice 22 years. His group has 19 providers – 13 physicians, two physician assistants and four nurse practitioners – in two locations.

“My basic premise is, I want to preserve the physician/patient relationship. I feel doctors who have that relationship with their patients and know them can provide better quality and caring healthcare. I think physicians perform better when challenged by other physicians and not dictated to by payers or anyone else.”

If history is any guide, hospital employment of physicians can lead to unexpected results, says Harbaugh. “We saw it in the ’90s. Hospital system purchases practice. The doctor says, ‘It’s a way out, I get a nice chunk of change, my salary is set.’” Later, the hospital – now financially strapped – comes back to the doctor and says, “Your overhead is up, accounts receivable are up; we have to cut your salary back.” Staff is trimmed, and the efficiency of the practice declines, further exacerbating the situation. “Then it’s, ‘Doctor, you’re not seeing as many patients as you used to.’ The physician is uncomfortable, and [at some point] says, ‘I can’t take this any more.’ That’s a bad relationship.”

Harbaugh believes that integrated systems ultimately drive up costs for the entire healthcare system, because as hospital systems acquire more and more physician practices, they can demand higher fees from payers.

Eighteen years ago, Harbaugh founded Kids Health First Pediatric Alliance, a physician-owned independent physician alliance, which now comprises 210 primary care pediatricians in about 35 practices. More recently, he co-founded 1st Physicians Resource, a co-operative designed to provide all physicians – not just pediatricians – a variety of outsourced business services, such as medical billing, health insurance review, human resources administration, benefits and pharmacy management, IT review, etc. Another company, 1st Healthcare Payment Systems, offers credit card processing, collections, etc., to physician practices. And a fourth, Kids Time Pediatrics, provides after-hours emergency care for kids, by pediatricians.

“We have found that within the IPA in the last 18 years, we’ve been able to increase quality, and partner with payers and the state,” says Harbaugh. Physicians within the IPA share ideas and challenge each other to get better. “I can control my own practice. I’m not controlled by a corporate entity. I’m not a slave that punches a time clock.”

Harbaugh would probably be the first to admit that while private practice remains a viable option in today’s market, doctors must work hard and innovate to maintain their independence.

“For the private doctor, the game is changing, just as it did for Blockbuster,” he says. Today’s physicians need to examine all their options. On the one hand, they can sell their practice to a hospital, but lose their autonomy, he says. On the other, they can look at an IPA or some other vehicle. “The IPA may be a little more work upfront. But it’s better than blindly selling to the hospital, which is hard to extract yourself from.”

Advances in information technology, such as health information exchanges, are paving the way for alternative practice models, says Harbaugh. “After the next 5 to 7 years, with our social system and problems of access to care, someone will look for a [suitable] model. But I don’t want to wait. We’re starting to build it now.”

A sense of independence
Internist Jacqueline Fincher, M.D., MACP, isn’t waiting either. A physician for 22 years, Fincher is managing partner of McDuffie Medical Associates, Thomson, Ga., a private practice with four physicians. The practice was founded in 1961 by her father-in-law, Dr. John W. Lemley. (Her husband, James Lemley, is one of McDuffie’s four physicians.)

Over the past five or six years, McDuffie has been approached twice by hospital systems about being acquired. “We decided it was not the best thing for us,” says Fincher. “The main reason is, we just really value our independence.” Physicians in the state of Georgia tend to be conservative and independent, she says. And McDuffie is located in a rural part of the state, where “people have a greater sense of independence, in terms not only of their business model, but of their ability to practice and do all the things they want to do.”

Being a family group, McDuffie allows its four physicians flexibility to schedule call as well as free time. And Fincher doesn’t want to give that up. “It has been very easy to coordinate our work/life balance here, and to be here for our daughter,” she says, speaking for herself and her husband.

But change is occurring, she says. She sees it as governor of the Georgia chapter of the American College of Physicians. “There’s clearly less risk-taking on the part of new physicians. They are much more afraid of going into private practice, because, particularly in primary care, overhead can run 60 percent straight out of the chute.” Keeping up with technology (including electronic medical records) and providing benefits for the staff (such as 401k plans and health insurance), all in the face of flat reimbursement, adds up to significant risk. “And in a private practice, you lose economies of scale in billing, purchasing and things like that,” she says.

But Fincher sees opportunity for independent practitioners. Her practice is part of an IPA in a geographic area called the CSRA (Central Savannah River Area). The IPA comprises more than 90 primary care physicians, most in metropolitan Augusta, and the remainder in outlying areas, such as Thomson. Each pays a participation fee, which is used to subsidize the management of the association.

“We see the IPA as a godsend for us,” says Fincher. It provides economies of scale with regard to purchasing (and negotiating with payers). Even more valuable is the networking the IPA encourages among practice administrators and physician leaders. “You can’t keep up with everything that’s changing daily, with every insurance company, not to mention Medicare and Medicaid,” she says.

Regional hospital is coming
Change is brewing in the city of Thomson itself, says Fincher. The local hospital – McDuffie Regional Medical Center – is facing financial problems due in part to declining admissions. Consequently, the board was at press time entertaining an offer to be acquired by University Hospital in Augusta, about 30 miles east of Thomson.

Thomson’s physician practices have already felt the impact of University’s acquisition of some specialty groups in Augusta. Specialists from Augusta make the 30-mile trip to Thomson regularly to see patients there. But as those specialists’ practices become hospital-owned, practices such as McDuffie now find themselves negotiating contracts with a large medical system instead of another medical practice.

“We feel the ground is changing under our feet, and our job is to try not to fall down,” says Fincher.

A squeaky wheel
Keith Michl, M.D., a solo practitioner in Manchester Center, Vt., has seen quite a bit of change himself since starting in practice in 1984. And he’s anticipating more.

“When I started in practice, I joined two physicians already in practice,” explains Michl. “We were all very idealistic, and a little naïve.” The group ultimately faced severe economic and organizational difficulties, and its members opted to become hospital employees.

“It worked nicely for the first five years, but as my tenure ended, I found I was increasingly frustrated at slow organizational change. I felt I wasn’t in charge of my destiny. I couldn’t get the kind of employees who I felt were really dedicated to patient care. I found myself a squeaky wheel.”

Michl and the hospital worked out an amicable break-up. “I’m still very involved in our hospital,” he says, helping out during fund-raising and serving on various boards and committees.

Over the last five years, the pendulum has swung back toward hospital employment of physicians, Michl notes. “There’s been great interest among our whole medical staff in becoming closely affiliated with hospital administration, in having an integrated medical practice in our community.” But discussions moved slowly, and Michl decided to look at alternatives. He found one with a Boca Raton, Fla.-based company called MDVIP.

Founded in 2000, MDVIP Inc. is a facilitator of what it calls “affordable personalized healthcare.” Patients pay MDVIP practices an annual fee. In return, patients have increased access to the physician, next-day service, a personalized wellness plan and more. Physicians agree to limit their practices to no more than 600 patients, ensuring that their patients receive personalized care. MDVIP reports that more than 450 affiliated physicians provide care to more than 150,000 patients throughout the country.

Some refer to the MDVIP approach as “concierge medicine.” “It’s not a Persian-carpet, terry-cloth-robe kind of practice,” says Michl. “Patients will be able to contact me after hours without going through a physician on call. They will receive next-day service. If that’s concierge medicine, then that will be part of it.”
Michl sees MDVIP as an opportunity to remain independent. “You get very busy in a high-volume practice,” he says. Overhead costs keep rising, and the doctor finds himself or herself in a vicious circle. That’s why many are selling their practices to community hospitals and medical centers. “I want to stay small,” he says. With MDVIP, “I won’t need to hire nurse practitioners or physician assistants. Fortunately, I already have a very good electronic medical record system. My expenses will moderate, and we’ll get added revenue.”

Satisfied, if not ecstatic
While Michl believes he has found a solution that will allow him to remain independent, he understands why colleagues are seeking employment by hospitals. In fact, had he not found MDVIP, he might have joined them.

That’s because, unlike 15 or 20 years ago, hospital systems today have people who understand how physician practices work, he says. “They’re much more savvy,” though they still face challenges in maintaining the profitability of primary care and specialty care practices. “From what I hear from doctors who are employed, they are generally satisfied, if not ecstatic.

“I think there are a number of people who don’t want to continue in independent practice, who will find some other line of medicine,” he continues. “They may become hospitalists, or work as medical directors for companies or health plans. Maybe they’ll go into administration themselves.

“I’m hearing a lot more murmuring by doctors in their 50s and their 60s looking to retire early.”

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