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Changing Physician Practice Patterns

Posted Aug 26 2008 4:09pm
The Center for Studying Health System Change (CSHSC) periodically tracks physician practice arrangements. Their reports make great reading, so here are some highlights from the most recent one.

Young physicians have more frequently gone into large group and multi-specialty settings, but now older docs are getting out of the game of 1- and 2-physician practices and finding their way into groups. This trend was most marked amongst specialty and procedural providers who are moving into mid-sized, single-specialty groups.

This makes sense, because in multi-specialty groups, high income earners have to somehow redistribute some income to the primary-care physicians who do not benefit from diagnostics and procedures. In return the specialists benefit from a higher than average referral rate. Since restrictions on referrals from primary care have eased, according to the CSHSC, then the outcome is pretty much as expected: dump the the PCP's and maximize revenues. As a business man, I would do the same.

Policy-makers may pause to ask if this is what they wanted:

Policy makers envision physicians aggregating into large and, preferably, multispecialty practices. Larger practices are more likely to have the financial and administrative resources to collect quality data, implement quality improvement and reporting activities, and implement information technology, while multispecialty practices are better positioned to enhance care coordination. Large practices also may have more employed physicians and more structured physician leadership, which may make it easier to implement these types of activities.

[However] most of the growth so far has been in mid-sized practices, which, although they may be better equipped than solo and two-physician practices, do not yet approach the capabilities envisioned by quality improvement leaders. Moreover, increased consolidation in single-specialty practices raises the potential in some markets that certain specialties can drive up prices in negotiation with health plans. Some market observers also are concerned that if physicians are aggregating into larger practices to provide profitable procedures and ancillary services, the greater ability of physicians to legally self-refer patients under exceptions to self-referral laws could lead to overuse of certain services, further driving up costs of care.

What policy-makers still don't realize is that physicians are central to the health care system and as actors in an economic system, they behave according to normal market rules. Reform has to work for physicians or it just doesn't work. If we got rid of all the physicians in this country and just started over, there would soon be a similar problem with whomever is going to replace them. There is nothing surprising about physicians reacting to the natural economic incentives with which they are presented.

Some natural incentives at work here include administrative burdens that make it uninteresting for solo practitioners to continue practicing without a group. Capital requirements bring individuals together to pool resources. Such resources represent investment and will search for and find a return, i.e. higher charges, higher utilization and greater profitability, as in any other industry. Where the savings are, I don't know.

Primary care physicians are disadvantaged here, since consumers naturally gravitate to providers who can differentiate themselves. There may be reasons to go to a cost-leader like Wal-Mart, but if you think can afford something special, you go to a specialty store. (Personally, my weakness is Williams-Sonoma, I mean why buy pans at Wal-Mart?)

Since health "insurance" is really a subsidy , there is no reason to gravitate to a low-cost provider. Most consumers with insurance have no qualms about "affording" a certain specialist.

The more technological solutions are commoditized, the less profitable they will be and the smaller the incentive to build single specialty profit mills. On the other hand, commoditize primary care and you have a disaster. (One that looks an awful lot like the US healthcare system.)

A little disclaimer, as a primary care physician and a manager, I am likely to benefit from any of these trends. I am centrally positioned. Physicians in employed situations suddenly need people to report to, where none were needed before...
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