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The Decline of Small Physician Owned Practices Explained.... and a Prediction That Private Practice Will Hang In There

Posted Apr 12 2010 5:12am
Are small physician-owned practices, along with Theodoric of York's long discredited leeching, cupping and poultices , destined to go extinct? Check out this article in the American Medical Association's AMNews, describing how private practice docs are selling out to joint ventures and agreeing to outright ownership. Or, according to the New York Times, they're becoming salaried employees of their local hospitals. And this article says the rest are just going to quit altogether.

It seems physicians are unable to make a business of tight-fisted insurers and debtor patients.

The Disease Management Care Blog agrees something is happening, but it thinks this picture is more complicated. Much like an impressionist painting, stand too close and you will miss the picture for the dots. The DMCB stands back and sees
This Is a Stick-Up (and the Stick Is Getting Bigger): The reason physicians can be pushed around by increasingly dominant regional payers is that the insurers have even greater control of their markets , which is only destined to grow thanks to reform-powered mandates and subsidized premiums. In the meantime, consolidations have made hospitals more powerful, leaving physicians as the next best target for insurers' quality and cost-control efforts.

A Hostile Work Environment: Not only is it easy to blame them for quality shortcomings, physicians have to put up with the SGR monkeyshines, dreaded RAC audits and constant threats of litigation .

Throw In the Towel: The return on investment from a 7 to 9 year medical education is being battered by decreasing incomes with increasing debt , practice hassles , an unfavorable trade-off between life-style and hamster-wheel hustling , variable cash flows , and having to run the business like... a real business .

Bowling Alone : Organized medicine is struggling to maintain its allure . The DMCB thinks singled minded focus on reimbursement isn't helping. As a result, what's left of any physician community is fractured and unable to fight back with a coherent voice.

You Must Be Kidding: And spending $30K per doc on electronic health records will fix this ? A lot of docs may be willing to take the incentive payments but have little doubt about what the impact will be on their practice environments.

As for the hospitals... the DMCB thinks that they, thanks to their consolidated market power (see above), are feeling quite bullish and want to grow their way out of their perenially thin margins . Plus, the warm after-glow of health reform has them hankering for capital . It's so good, even the dogs are looking like good investments .

Which is why more dots on the canvas are needed to see why hospitals view docs as bull market opportunities. They are more than happy to joint venture and hire or own more physician assets because
The Best Defense Is a..... Not only do the existing revenue streams need to be protected, but new ones have to be developed . The means ever more services by ever more physicians.

Integrated Delivery System (IDS) Lust: Hospital administrators are not immune from succumbing to the fantastical visions from our national addiction to IDS Kool Aid . They dream that by getting their own critical mass of docs, they too can some day be invited from their new born IDS to another IDS to talk about how wonderful IDS' are !

A Rose By Any Other Name Smells As Sweet: Let's call it an ACO! If it includes the Patient Centered Medical Home , that's even more reason to bring the docs on board. Oh, never mind, the more physicians, the better , whatever you call it.

Never Mind the Not-for-Profit Status Either : Hey, they're running a business and they have bills to pay also . Don't like it? Well, they're probably also the biggest employer in your county and would be happy to hire even more people. That includes docs.

Those Who Read About the Past Are Condemned to Repeat It: The DMCB suspects the current crop of hospitals execs have forgotten the '80's Physician-Hospital-Organization (PHO) debacles. While some PHOs succeeded in managing episodes of care , most were unable to achieve the most important part of making this work: cost-effective utilization.

All of which leads to a DMCB Prediction
Despite the dire circumstances, there are still plenty of practices out there that are and will continue to be profitable. They are owned by savvy, hard working and entrepreneurial physicians that know how to manage overhead, maximize cash flows, hire the right kind of office help, keep their customers satisfied, document things to satisfy any audit, vigorously defend against any allegation of malpractice, show their unsatisfied customers to the door, work with their local medical society, handle bad debt, minimize the percent of Medicaid in the practice, aggressively refuse to be pushed around by insurers and, most importantly, keep the local hospital at arms length. While the Wal-Marts and Kaiser Permanentes are currently in the ascendancy, there will always be smaller and moderate size businesses in their shadow who can profitably service a sizable market segment. They won't go away and many will thrive. What's more, some of the reborn PHOs-ACOs will struggle and the bloom will come of the rose of physician-hospital integration. The only question is where the market will equilibrate over the short term. It will not be 0% private practice.

As for over the long term, who knows? That will be the topic of a future post ( which is here ) .... and maybe a different allegory.
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