The Times They Are a-Changin’ And Some of These Changes Haven’t Helped Physician Practices

Looking back through the practice management articles in the Healthcare News since it first went to print in November 2000 reveals dramatic changes over the last 10 years that have impacted the way doctor practices operate. Some changes have been for better, others for the worse.

What follows is a synopsis of some of the more important developments.

Private Practice of Medicine

At the close of the last century, private practices were thriving. Doctors and their employees were happier. The initiatives of the previous decade by practice-management companies, hospitals, HMOs and insurance companies to acquire group practices had dissipated. These institutions failed miserably at medical practice management. Most either collapsed financially or just pulled out of the business.

Doctors who sold their practices realized that their financial, clinical, and quality-of-life expectations had not been met. Compensation levels had fallen to all-time lows, with some doctors reporting that they were working without paychecks. The lack of timely, accurate financial information made doctors question the credibility of management. The governance and complex organizational structure led doctors to feel they had no voice in the decision-making process. Their expectations of more favorable managed-care contracts and reimbursements never came to fruition.

Most made the transition back to private practice successfully. They became more productive, and earned more than their counterparts in large institutional settings. They worked harder but enjoyed a group culture and rewards not found elsewhere, that is, for a while anyway. We’ll come back to this later in this article.

Changes in Reimbursements

Doctors had dumped the capitation arrangements of the 1990s, and fee-for-service was the main source of revenue. The more doctors worked, the more revenue they generated, which prompted changes in group-practice compensation arrangements to reward the high-volume producers. The Medicare conversion factor reached its all-time high in 2001, at $38.2581, and most third-party payers used a multiple of this in their fee schedules. Times were good for group practices.

In 2002, CMS reduced its allowable fees by 5.4{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} across the board. The Medicare conversion factor dropped to $36.1992. Today, eight years later, the conversion factor is $36.0791. As goes CMS, so go the private payers, as they say, and so reimbursement rates continue to fall while the costs of doing business increase. To counter this, realizing revenue is volume-driven, doctors found themselves having to see more patients, but there are just so many hours in a day, so doctors began utilizing non-physician providers (NPPs) more often, which most found very profitable.

Practices then started offering more ancillary services to compensate for lower fees. Changes in the health-insurance sector began taking a toll on doctor practices. The introduction of health savings accounts (HSAs) and high-deductible health plans redirected risk from the third-party payers to the patients. Thus, patients are now paying more out of pocket. Today co-pays and patient deductibles account for a higher-than-ever portion of all practice revenue. This cuts down on elective procedures and creates unique collection issues for practice managers. In 2004, CMS tightened its rules for billing NPPs incident to physician services. In 2005, electronic prescribing and electronic health records were being widely promoted by CMS and third-party payers as cutting-edge technology and the ‘here and now of medical practices.’

Unfortunately, the immediate beneficiaries were the patients and the payers, with the doctors reaping longer-term benefits such as efficiencies in the office and in the delivery of care. Soon these became a mandate by CMS. In 2009, CMS issued financial incentives to utilize e-prescribing and, beginning in 2012, will actually penalize practices for not using this. CMS and other payers also instituted pay-for-performance incentives (P4P) for doctors who follow prescribed protocols for patient encounters.

The American Recovery and Reinvestment Act of 2009, a/k/a the economic stimulus bill, offered $17 billion in incentive payments to doctors to adopt electronic health record (EHR) systems. It also mandates the way doctors will have to report patient services, the way doctors manage their practices, and the way doctors maintain and protect patient health information. Failure to follow these mandates will lower payments for services. CMS and some states (including Massachusetts) are moving forward with plans that will replace fee-for-service with other methodologies for reimbursement. These will include bundled prospective payments and/or capitation arrangements (remember these?), and shared savings bonuses by achieving measured quality targets and by demonstrating reductions in overall health spending for a given population of patients.

Regulations, Regulations, Regulations

Over the past decade, doctors have been hammered by so many new federal and state regulations, it is almost impossible for the average practice to keep up. It began in 2001 when the federal government issued the Final Rules for implementation of the Stark II Law governing doctor referrals for designated health services to labs, imaging centers, and other organizations that the doctor has a financial relationship with. This law required many practices to restructure their ownership and compensation arrangements.

Then came the Pastor Medical Associates case in Brookline, Mass. that resulted in a penalty of $230,000 in settlement of Stark Law violations charged by the office of Inspector General, that made doctors realize that the feds are serious in enforcing the laws. Then came the Final Rules requiring compliance with the HIPAA Law for protecting patient health information by April 14, 2002.

In 2006, The Massachusetts Health Care Reform Plan was enacted into law. The law was intended to increase access to health care by requiring universal insurance coverage for all Massachusetts residents. This placed more financial responsibility on employers to offer and contribute to the cost of health insurance for employees and mandated annual filing requirements by employers. The result was that 500,000 additional insureds suddenly were trying to get appointments with the already overbooked primary-care doctors in the state. As a result, access to care for everyone was made worse than before the law was enacted, and hospital emergency rooms became as overcrowded as ever, at a huge cost to taxpayers.

In January 2009, a new ruling by CMS became effective. Referred to as the Anti-Markup Rule, its purpose was to reduce incentives for over-utilization of diagnostic testing by not allowing doctors to bill Medicare for more than what the doctor paid a third party from whom they purchased professional and technical services. It also placed restrictions on the supervision and location of such testing.

In November 2007, the Federal Trade Commission (FTC) developed final rules and regulations, commonly referred to as the Red Flags Rule, which was published in the Nov. 9, 2007 Federal Register. The rule, whose effective date has been postponed several times, requires written compliance programs with reasonable policies and procedures for identifying, detecting, and responding to signs of identity theft. Several medical organizations are contesting its application to doctor practices.

In regards to the economic stimulus bill previously discussed, there are still rules and regulations to be ironed out which affect medical practices. On the state level, Massachusetts general laws mandate that, effective Jan. 1, 2015, in order to be licensed to practice medicine in Massachusetts, doctors will be required to display a level of competency in the meaningful use of EHR systems and other forms of HIT.

Doctor Compensation

An analysis of 12 categories of doctors, including primary care and specialists, indicates that compensation has increased, on average, between 2.3{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} and 3.8{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} per year from 2000 to 2010. This is good news, as it has kept up with the cost-of-living increases. What is interesting, though, is that in 2000, doctors in private practice generally had higher compensation levels than those employed by hospitals. Today that is generally not the case; in fact, except for high producers, doctors employed by hospitals make the same or higher compensation.

Back to Private Practice of Medicine

Today, private practices are surviving, but as in the 1990s, there is a wave of hospital acquisitions of medical practices. There is a difference, though, in why this is happening. Many doctors will tell you that government regulations and related costs of compliance are overwhelming, and they would much rather have someone else worry about that.

The costs of technology, in terms of actual costs, as well as downtime and lost production, discourage many from wanting to go this route alone. Doctors in private practice are working harder than ever to maintain their level of compensation. It is becoming more apparent that fee-for-service is not cost-effective, that higher utilization increases health care costs and results in lower revenue per unit of service. New methodologies of payment are already being employed successfully around the country and even in our area.

Value-based purchasing of health care services is on the horizon. Full-risk contracting for a given population size is part of this. Shared savings and similar incentives can be very lucrative because there is so much waste in the current system. In order to negotiate for these contracts, you need to service a critical volume of patients, and you need to have a very costly and sophisticated infrastructure that most small practices can’t afford.

The good news is that smaller practices may still remain in place by participating with larger medical groups in these arrangements. Given the opportunity and the proper incentives, doctors are much better at delivering quality, cost efficient health care.

That has not changed over time.

James B. Calnan, CPA, is partner and co-director of the Health Care Services Division of Meyers Brothers Kalicka, P.C. in Holyoke; (413) 536-8510; www.mbkhealthcare.com

ooking back through the practice management articles in the Healthcare News since it first went to print in November 2000 reveals dramatic changes over the last 10 years that have impacted the way doctor practices operate. Some changes have been for better, others for the worse.

What follows is a synopsis of some of the more important developments.

Private Practice of Medicine

At the close of the last century, private practices were thriving. Doctors and their employees were happier. The initiatives of the previous decade by practice-management companies, hospitals, HMOs and insurance companies to acquire group practices had dissipated. These institutions failed miserably at medical practice management. Most either collapsed financially or just pulled out of the business.

Doctors who sold their practices realized that their financial, clinical, and quality-of-life expectations had not been met. Compensation levels had fallen to all-time lows, with some doctors reporting that they were working without paychecks. The lack of timely, accurate financial information made doctors question the credibility of management. The governance and complex organizational structure led doctors to feel they had no voice in the decision-making process. Their expectations of more favorable managed-care contracts and reimbursements never came to fruition.

Most made the transition back to private practice successfully. They became more productive, and earned more than their counterparts in large institutional settings. They worked harder but enjoyed a group culture and rewards not found elsewhere, that is, for a while anyway. We’ll come back to this later in this article.

Changes in Reimbursements

Doctors had dumped the capitation arrangements of the 1990s, and fee-for-service was the main source of revenue. The more doctors worked, the more revenue they generated, which prompted changes in group-practice compensation arrangements to reward the high-volume producers. The Medicare conversion factor reached its all-time high in 2001, at $38.2581, and most third-party payers used a multiple of this in their fee schedules. Times were good for group practices.

In 2002, CMS reduced its allowable fees by 5.4{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} across the board. The Medicare conversion factor dropped to $36.1992. Today, eight years later, the conversion factor is $36.0791. As goes CMS, so go the private payers, as they say, and so reimbursement rates continue to fall while the costs of doing business increase. To counter this, realizing revenue is volume-driven, doctors found themselves having to see more patients, but there are just so many hours in a day, so doctors began utilizing non-physician providers (NPPs) more often, which most found very profitable.

Practices then started offering more ancillary services to compensate for lower fees. Changes in the health-insurance sector began taking a toll on doctor practices. The introduction of health savings accounts (HSAs) and high-deductible health plans redirected risk from the third-party payers to the patients. Thus, patients are now paying more out of pocket. Today co-pays and patient deductibles account for a higher-than-ever portion of all practice revenue. This cuts down on elective procedures and creates unique collection issues for practice managers. In 2004, CMS tightened its rules for billing NPPs incident to physician services. In 2005, electronic prescribing and electronic health records were being widely promoted by CMS and third-party payers as cutting-edge technology and the ‘here and now of medical practices.’

Unfortunately, the immediate beneficiaries were the patients and the payers, with the doctors reaping longer-term benefits such as efficiencies in the office and in the delivery of care. Soon these became a mandate by CMS. In 2009, CMS issued financial incentives to utilize e-prescribing and, beginning in 2012, will actually penalize practices for not using this. CMS and other payers also instituted pay-for-performance incentives (P4P) for doctors who follow prescribed protocols for patient encounters.

The American Recovery and Reinvestment Act of 2009, a/k/a the economic stimulus bill, offered $17 billion in incentive payments to doctors to adopt electronic health record (EHR) systems. It also mandates the way doctors will have to report patient services, the way doctors manage their practices, and the way doctors maintain and protect patient health information. Failure to follow these mandates will lower payments for services. CMS and some states (including Massachusetts) are moving forward with plans that will replace fee-for-service with other methodologies for reimbursement. These will include bundled prospective payments and/or capitation arrangements (remember these?), and shared savings bonuses by achieving measured quality targets and by demonstrating reductions in overall health spending for a given population of patients.

Regulations, Regulations, Regulations

Over the past decade, doctors have been hammered by so many new federal and state regulations, it is almost impossible for the average practice to keep up. It began in 2001 when the federal government issued the Final Rules for implementation of the Stark II Law governing doctor referrals for designated health services to labs, imaging centers, and other organizations that the doctor has a financial relationship with. This law required many practices to restructure their ownership and compensation arrangements.

Then came the Pastor Medical Associates case in Brookline, Mass. that resulted in a penalty of $230,000 in settlement of Stark Law violations charged by the office of Inspector General, that made doctors realize that the feds are serious in enforcing the laws. Then came the Final Rules requiring compliance with the HIPAA Law for protecting patient health information by April 14, 2002.

In 2006, The Massachusetts Health Care Reform Plan was enacted into law. The law was intended to increase access to health care by requiring universal insurance coverage for all Massachusetts residents. This placed more financial responsibility on employers to offer and contribute to the cost of health insurance for employees and mandated annual filing requirements by employers. The result was that 500,000 additional insureds suddenly were trying to get appointments with the already overbooked primary-care doctors in the state. As a result, access to care for everyone was made worse than before the law was enacted, and hospital emergency rooms became as overcrowded as ever, at a huge cost to taxpayers.

In January 2009, a new ruling by CMS became effective. Referred to as the Anti-Markup Rule, its purpose was to reduce incentives for over-utilization of diagnostic testing by not allowing doctors to bill Medicare for more than what the doctor paid a third party from whom they purchased professional and technical services. It also placed restrictions on the supervision and location of such testing.

In November 2007, the Federal Trade Commission (FTC) developed final rules and regulations, commonly referred to as the Red Flags Rule, which was published in the Nov. 9, 2007 Federal Register. The rule, whose effective date has been postponed several times, requires written compliance programs with reasonable policies and procedures for identifying, detecting, and responding to signs of identity theft. Several medical organizations are contesting its application to doctor practices.

In regards to the economic stimulus bill previously discussed, there are still rules and regulations to be ironed out which affect medical practices. On the state level, Massachusetts general laws mandate that, effective Jan. 1, 2015, in order to be licensed to practice medicine in Massachusetts, doctors will be required to display a level of competency in the meaningful use of EHR systems and other forms of HIT.

Doctor Compensation

An analysis of 12 categories of doctors, including primary care and specialists, indicates that compensation has increased, on average, between 2.3{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} and 3.8{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} per year from 2000 to 2010. This is good news, as it has kept up with the cost-of-living increases. What is interesting, though, is that in 2000, doctors in private practice generally had higher compensation levels than those employed by hospitals. Today that is generally not the case; in fact, except for high producers, doctors employed by hospitals make the same or higher compensation.

Back to Private Practice of Medicine

Today, private practices are surviving, but as in the 1990s, there is a wave of hospital acquisitions of medical practices. There is a difference, though, in why this is happening. Many doctors will tell you that government regulations and related costs of compliance are overwhelming, and they would much rather have someone else worry about that.

The costs of technology, in terms of actual costs, as well as downtime and lost production, discourage many from wanting to go this route alone. Doctors in private practice are working harder than ever to maintain their level of compensation. It is becoming more apparent that fee-for-service is not cost-effective, that higher utilization increases health care costs and results in lower revenue per unit of service. New methodologies of payment are already being employed successfully around the country and even in our area.

Value-based purchasing of health care services is on the horizon. Full-risk contracting for a given population size is part of this. Shared savings and similar incentives can be very lucrative because there is so much waste in the current system. In order to negotiate for these contracts, you need to service a critical volume of patients, and you need to have a very costly and sophisticated infrastructure that most small practices can’t afford.

The good news is that smaller practices may still remain in place by participating with larger medical groups in these arrangements. Given the opportunity and the proper incentives, doctors are much better at delivering quality, cost efficient health care.

That has not changed over time.

James B. Calnan, CPA, is partner and co-director of the Health Care Services Division of Meyers Brothers Kalicka, P.C. in Holyoke; (413) 536-8510; www.mbkhealthcare.com