For many medical groups that specialize in family practice, the current fiscal formula doesn’t make a lot of economic sense: Higher operating costs and stagnant or reduced reimbursements almost always add up to pretty bad news.
What’s more, the bleak economic environment for many of these single-specialty operations grew a bit gloomier this year. Despite a new pot of about $4 billion from the CMS for increased evaluation and management-service fees, family-practice doctors are not expecting substantially better financial results than the previous year.
Overall, family-practice medical groups registered the lowest income of any single-specialty group surveyed in 2005 by the Englewood, Colo.-based Medical Group Management Association, which found that the average margin per full-time-equivalent physician fell 3.5%, to $206,812.
"Some groups are doing well, some are in very, very bad trouble -- but most are struggling," says David Gans, vice president of practice-management resources for the 20,000-member MGMA.
Take, for instance, the family practice clinics at 149-bed Lawrence (Kan.) Memorial Hospital . With six doctors spread between them, the four clinics serve about 32,000 patients per year, including a sizable portion of the city’s Medicaid population, says Bob Harvey, the clinics’ director. Despite subsidies from the parent hospital, the clinics are in the red and have been for some time, Harvey says.
Physician Bob Harvey, M.D., (left) director of the family practice clinics at Lawrence (Kan.) Memorial Hospital, discusses the financial climate for group practices with family physicians David Jones, M.D. (center) and Kevin Hughes, M.D. (right).
"Our reimbursements are just not going up, and costs continue to rise," he says.
Faced with continuing deficits, Harvey says, the clinics, like other money-losing operations around the country, have had to take dramatic steps in recent years to cut costs despite economic assistance from its parent not-for-profit hospital.
Four years ago, Harvey says, the main clinic in Lawrence boasted 19 full-time-equivalent employees. Since then, the number has been cut almost in half, with the budget in 2007 slated for 8½ full-time-equivalent employees. The clinics also have done away with transcription services, relying on doctors to use voice-recognition software for these purposes. That has saved about $56,000 per year, Harvey says. He says the clinics also have been able to renegotiate their leases, saving about $60,000 annually in rent. In all, he says, expenses have been reduced by about $335,000 over the past four years.
"Obviously, without those deep cuts, it’d be a lot worse," Harvey says.
If not for the subsidy from the parent hospital, he adds, "We would not be able to survive. Without the hospital, this office would have closed a long time ago."
On the other hand, he points out, the affiliation with a safety net, community-owned hospital in Lawrence obligates the medical group to accept an unusually large number of Medicaid patients—somewhere between 30% to 35% of the total patient population, Harvey says. The low reimbursement for these patients "puts a crunch on us," he says, adding that the clinics are viewed by hospital administrators as a way to avoid the higher costs of treating these individuals in the emergency room.
"Not many practices can afford to take on that huge amount of Medicaid patients," he says. "We are the hospital’s first line of defense in trying to keep these patients out of the ER."
Harvey, summing up the bottom line, says, "We’re struggling—just like everyone else. My counterparts in family practice across the country are pinching the nickel so tight the Indian is actually riding the buffalo."
In the MGMA’s annual survey, total medical revenue after operating costs per full-time-equivalent physician fell to $206,812 in 2005, down 3.5% from $214,377 in the previous year. That figure represents the average money paid to each full-time physician—the funds remaining after all normal operating costs are covered, Gans says.
Family practice doctors aren’t the only generalists hurting financially, according to the MGMA. The total margins for pediatric groups increased slightly to $222,205 per doctor, the survey found. Total margins for obstetrics/gynecology practices fell about 2%, dropping to $346,164, while urologists saw their margins plunge more than 14%, to $393,297.
Gans, the MGMA’s group-practice expert, says family practice groups also are at a distinct disadvantage because there is little in the way of high-margin ancillary revenue available to these generalists. Instead, family practitioners must see more patients and be more productive to earn additional money. But they are working harder and longer than ever before, Gans says, and there are only so many hours in a day.
"Most of the work done in family medicine is through direct patient visits and care—these are not proceduralists," Gans says. "So the opportunity to increase revenue is dependent on being able to support the doctors’ productivity."
In an ideal situation, Gans says, the "formula is: good reimbursement levels, good management and good productivity—if you have all those you can do quite well."
Of course, he says, that doesn’t happen all the time.
The long-term impact of this bleak environment, Gans adds, is the likelihood that fewer and fewer doctors will make a career out of family practice. Or if they do, it’s likely they’ll be inclined to join a hospital system as employees rather than try to make a go of it in a solo practice or a small physician-owned group.
"These small groups," Gans says, "are the ones who can least afford the systemic changes you need in order to optimize productivity. They lack the economies of scale, and they are those who are perhaps less able to afford professional management. So, they’re the ones easiest to sell out to a hospital system."