Physician organizations face uncertainty in 2008
By Jay Greene
If you are a partner in a medical group or an investor in a physician-owned hospital or ambulatory surgery center, 2008 is expected to be a particularly tough year filled with change, challenges and uncertainty.
Dig this. Although delayed six months by congressional action, physicians still face a 10.1% average Medicare physician reimbursement cut on July 1, while new action is expected on a federal bill that could ban new physician-owned hospitals and curtail growth of existing ones as well as a new reimbursement system for ambulatory surgery centers that cuts fees for many procedures.
But wait. Physicians also must deal with ongoing concerns that include practice expenses rising faster than revenue, demands by government and private payers to publicly report quality measurements, and growing numbers of uninsured and underinsured patients who sometimes require expensive medical care.
It will be extremely difficult if the 10% cut goes through. Our overhead expenses were 40% in 1997. It is 60% now, says Michael Russell, M.D., a partner at 18-member Azalea Orthopedics, Tyler, Texas.
Like many medical groups, Russell and his partners are trying to increase ancillary-service revenue by purchasing a small MRI unit and adding physical therapy. It has helped a little bit, he says.
Russell, who also is an investor at physician-owned Texas Spine & Joint Hospital in Tyler, says the 20-bed hospital has been squeezed by rising expenses and flat reimbursement. It has been able to maintain profit margins by increasing volume, he says. We have been able to lower cost in certain areas like big implants, but employee and insurance costs have gone up, Russell says.
While uncertainty and change will dominate 2008, one piece of good news for physicians over the last three years is that medical malpractice insurance costs have declined for orthopedic, obstetrics/gynecology, cardiology, internal medicine and general surgery practices, says the Medical Group Management Association.
But a growing number of physicians are asking who should pay for the care of 47 million uninsured people?
Physicians are seeing more uninsured and underinsured patients. That is increasing uncollectible (patient bills) to a critical level, says William Jessee, M.D., the MGMA's president and chief executive officer. We as a nation need to address this hidden tax.
In late December, Congress approved a plan to delay the 10.1% average cut in Medicare payments to physicians through June. The bill also increases Medicare physician fees by 0.5% for six months. President Bush signed the Medicare bill Dec. 29.
We have a continuing problem with the Medicare payment formula, Jessee says. The payment rate now is 1% lower than it was in 1999, and practice operating expenses have escalated 65%. For example, costs increased 7.4% in 2006 for multispecialty practices while revenue rose 1.8%, MGMA says.
Donald Fisher, president and CEO of the American Medical Group Association, says Medicare's current sustainable growth-rate payment formula used to calculate physician fees should be thrown out and replaced with a new system.
Fisher says Medicare should break down the sustainable growth-rate formula into components that reward doctors who are efficient and high quality. The 10% reduction is not sustainable. We need to bring it back to zero, Fisher says. We support e-prescribing and additional quality reporting as a compromise to roll back upcoming Medicare rate cuts.
A Senate bill proposes to pay doctors a 1% bonus each time they prescribe electronically, which would help cover the estimated $2,500 cost to install the technology. But starting in 2011, doctors would have their payments cut by 10% each time they don't use e-prescribing.
The CMS has added electronic prescribing in 2008 to the list of 119 quality measures in its voluntary Physician Quality Reporting Initiative. One study indicates e-prescribing could save $29 billion over 10 years, says the Pharmaceutical Care Management Association.
E-prescribing is a safe and efficient way to get medications to patients, Fisher says. We think that is the way to go.
Jessee also supports e-prescribing initiatives. Our advice is if you are not moving (to develop e-prescribing systems) you need to move because it is highly likely it will be mandatory by 2010, he says. EMRs are not far behind that, but that is difficult because of cost and Medicare is not providing new money for that.
For the Duluth (Minn.) Clinic, the top three issues in 2008 are coping with potential Medicare cuts, managing shortages of physicians and midlevel practitioners and moving to a team approach in care delivery, says John Smylie, chief administrative officer of the SMDC Health System, which includes the clinic and four area hospitals.
If the Medicare cuts are not reversed by July, Smylie says the 440-physician Duluth Clinic, which has 20 office locations in Minnesota and Wisconsin, may limit the number of Medicare patients it sees.
It would be a very tough decision because we are a safety net facility, Smylie says. We operate at a huge los* (for Medicare). We get paid about 55% to 59% of our costs, so we take a 40% direct loss. If we take another 10% on top of that, and that is close to 50% of our total business, we may need to look at the option of limiting Medicare.
Smylie also says recruiting more physicians and midlevel practitioners is a top priority this year.
The growing demand for healthcare services and an aging population is driving this, Smylie says. One effect of physician shortages is that access to care is sometimes limited, he says. We are running a triage sometimes to get people seen.
Like many groups, the Duluth Clinic also has been moving toward a team approach in patient care to stretch resources and provide continuity of care. We have been early adopters of using physician assistants and nurse practitioners and other credentialed professionals, he says.
While the final Medicare bill eliminated an onerous section that would have limited the growth of physician-owned hospitals and restricted investment by physicians, the issue is expected to resurface again this year, says Molly Sandvig, executive director of Physician Hospitals of America. The PHA represents 108 of the nation's 180 physician-owned hospitals.
We may not have an industry in 2008 i* (legislation) revokes the hospital exemption from Stark anti-kickback statutes, Sandvig says.
Last summer, the House passed the Children's Health Improvement and Medicare Protection Act, or CHAMP Act, that exempted hospitals that held a Medicare provider agreement as of July 24, 2007, from the Medicare rule that prohibits physicians from referring patients to facilities in which they hold financial interest. That provision didn't make it into the final Medicare bill, but the issue is expected to resurface this year.
It is a real travesty that physician hospitals, many of which offer the highest quality care available, are so constantly challenged by the big box, bureaucratic hospitals, Sandvig says. This is merely a turf battle between bureaucrats who want to control healthcare and physicians who believe they can deliver better, more personalized care.
The CHAMP bill would have prohibited new construction and expansion, Sandvig says. It would also have banned those physician hospitals under construction but without a Medicare provider number. The Congressional Budget Office estimates the bill would have saved Medicare $700 million over five years and nearly $3 billion over 10 years.
The legislative issue is the No. 1 issue on everybody's minds because of the significant investment we all have, Russell of Texas Spine & Joint Hospital says. Texas Spine opened in 2002 with 36 physician investors. We lost money in the beginning and our profit margins are small now, he says.
The bill also would have limited the portion of a facility that physicians can own to 40% and caps individual investments at 2%. If we lost control, we would go broke, Russell says.
Another challenge for physician-owned hospitals and ambulatory surgery centers is lack of access to managed-care contracts, Sandvig says. The two big hospitals in our market control the contracts and are aggressive in not allowing us int* (insurance company) contracts, Russell says. They use their big size to keep us out.
However, an antitrust lawsuit in Kansas may address these contracting barriers. A federal judge recently ruled that 19-bed Heartland Spine & Specialty Hospital in Overland Park may pursue its antitrust lawsuit against two major insurers and three Kansas City-area hospitals. The trial, which would be the first of its kind, is slated to begin April 1.
Heartland alleges that the insurers and hospitals conspired to keep the doctor-owned facility out of insurance networks.
Ambulatory surgery centers
In January, Medicare began paying ambulatory surgery centers similarly to how hospital outpatient departments are paid. The ASC reimbursement change is good news and bad news for ASCs, depending if you are a single-specialt* (bad) or multi-specialty facilit* (good), says Kathy Bryant, CEO of the Ambulatory Surgery Center Association.
While the formula varies by specialty and procedure, the average reimbursement for ASCs is 65% of the hospital outpatient department rate. We would like 100%, but we have bills in the legislature to increase it to 75%, says David Shapiro, M.D., chair of the Ambulatory Surgery Foundation, the ASCA's educational arm.
While orthopedics is slated for a substantial reimbursement increase, gastroenterology and pain management procedures are being cut about 20%, says Shapiro, an anesthesiologist in Tallahassee, Fla.
If ASCs are not able to continue to provide the service because they are losing money each time a procedure is done they will be reluctant to do it, Shapiro says. If it is not done in an ASC, the surgeon will take it back to the hospital where it will cost more for Medicare and patients.
Bryant adds that the new ASC reimbursement system also may have a ripple effect on rates paid under workers' compensation and commercial insurance contracts. Some of these contracts may be tied to Medicare reimbursement, she says, adding: What will happen to those rates when we go to the new ASC reimbursement system?
ASCs also have another year before Medicare will require them to report standard surgical quality measures. To date, five measures have been proposed, including patient burns, patient falls, patient transfers, antibiotic timing, and wrong site/wrong patient surgery.
We would like to see the same measurements reported as hospital outpatient departments, Bryant says. Final rules are expected in July.