The Private Practice Squeeze

James Gaden D.O. is a living fossil of sorts.

A primary-care physician practicing alone in a semirural area, he sees a mix of low- and moderate-income patients.

Gaden’s two-employee practice in Orleans County covers 3,800 to 4,000 patients. He takes walk-ins, adjusting his hours to accommodate patient needs. He keeps only written notes.

“I can just practice,” Gaden said. If he were to sell the practice and go to work for a health system, “I don’t believe I would be able to do all that I can do now for my patients.”

Gaden acknowledges he faces strong headwinds, though.

For several decades, doctors in private practice have accounted for a shrinking slice of U.S. physicians. Remaining private practitioners increasingly are driven by economics to form or join large group practices. Groups in turn are heavily recruited by health systems eager to grow their complement of covered lives.

Nationally, private practitioners accounted for 17.1 percent of U.S. doctors in 2014, down from 40.5 percent in 1983, an American Medical Association survey found.

The Monroe County Medical Society is in the process of compiling data and unable to provide local numbers at this time, but the local trend mirrors or even exceeds the national trend, Executive Director Christopher Bell believes. The Rochester area historically has been ahead of the national curve with more than half of roughly 3,000 doctors here employed by a system.

“Due to an untenable economic squeeze between rising practice costs and reductions in payments, more and more (privately practicing) physicians are being forced to close their practices and join large health systems,” a recent MCMS bulletin warned. “Worse still, many experienced physicians have indicated they may retire from practice early, further exacerbating barriers to care.”

For doctors, employment by a system can mean greater access to resources and critical infrastructure. Yet it also can mean being more subject to bureaucratic strictures and having less choice when they need to make referrals to specialists, order lab work or send patients for other tests like CAT scans or MRIs. Working conditions and patient interactions can be constrained as well.

For patients, the ongoing consolidation of physician services into ever larger organizations often brings access to care that otherwise would have been less available as local providers found it less practical to stay in business.

But consolidation of care into ever-larger systems also has fostered some disconnect as routine front-line care in some areas moves from settings such as primary care offices like Gaden’s to urgent care centers, telemedicine consults and even to drug store chains, which now routinely feature vaccination booths alongside pharmacy counters, magazine racks and groceries.

Office visits to U.S. primary care physicians dropped 18 percent over a four-year span between 2012 and 2016, the New York Times recently reported, citing an analysis of insurance claims by the Health Care Cost Institute.

In the Rochester area, two increasingly massive health systems—the University of Rochester Medical Center’s UR Medicine and Rochester Regional Health—now control delivery of most of the area’s health care.

Each has taken over hospitals in a territory stretching west halfway to Buffalo and reaching south into the Finger Lakes and Southern Tier regions. They have built new clinics and surgery centers where their employed physicians practice, opened and built urgent care centers, and acquired or struck deals with private practice groups.

In the process, UR—almost entirely due to growth in its largest division, URMC—and RRH eclipsed the former manufacturing sector giants that once led the local economy, Eastman Kodak Co. and Xerox Corp., to become Rochester’s largest and second-largest private employers.

Ontario County-based Finger Lakes Health System, a smaller two-hospital system, so far has maintained its independence. But as area systems compete for patients, absorption by RRH or URMC may not be out of the question. Both Rochester systems have opened satellite offices in the Geneva area and both run hospitals minutes away from FLHS’s Geneva General Hospital.

The economics of care

The forces driving consolidation are largely a matter of economics.

High on the list of expenses MCMS cites as stressing private medical offices is the millions of dollars practices need to spend to install and maintain electronic medical records systems.

When one of the region’s largest cancer practices, Interlakes Oncology & Hematology P.C., joined URMC’s Wilmot Cancer Institute in 2013, the main spur was the $1 million to $2 million in initial costs and maintenance fees it would have faced had it stayed strictly private, said Alexander Solky M.D., the group’s president.

The eight-doctor, multi-location cancer practice at the time was still keeping paper records. And like all U.S. medical practices, it was under the gun from the Centers for Medicare and Medicaid Services to install EMR or face financial penalties.

The group also was spending some $1 million a month to maintain the inventory of costly cancer drugs it needed to treat its patients. Affiliation with URMC lifted both burdens, Solky said.

Financial considerations have weighed even more heavily on smaller practices. To maintain his independence, Gaden has resisted computerizing his practice. Prohibitive cost partly but not entirely keeps him from installing EMR.

Gaden denies any Luddite tendencies. His fear: Installing a “not ready for prime time” EMR system would put him deep in debt, only to quickly become obsolete, requiring even less affordable upgrading.

Those qualms are not unjustified.

In 2016, a few years into CMS’ EMR push, then-Acting Director Andrew Slavitt publicly apologized to U.S. doctors, conceding that available systems were still buggy and were too often unable to communicate with systems sold by rival suppliers.

Slavitt vowed to fix the problems, but with the advent of the regulation-hating Donald Trump administration, he was pushed out. The Trump administration proposed some $18 billion in budget reductions at the Department of Health and Human Services, which would have meant hefty cuts to CMS. In the recently passed federal budget, CMS funding stayed virtually flat, seeing a $15.4 million increase to the agency’s $1 billion budget.

EMR systems’ steep installation and maintenance costs were supposed to be offset by efficiencies the systems would introduce, resulting in a net decrease in administrative costs.

Spurred by CMS, such systems are now virtually ubiquitous in private and system-owned medical offices. But rather than falling, administrative costs—typically a 25 to 30 percent slice of U.S. medical providers’ overhead—have gone up, a study published this year in the American Medical Association’s journal JAMA found. For an inpatient surgical procedure, costs of billing and insurance-related functions typically run to approximately $215, the study determined.

As currently implemented, EMR systems “do not add value to patients, employers or providers,” study co-author Barak Richman of the Duke-Margolis Center for Health Policy concluded.

EMR systems in this country fall short, Solky believes, because systems were developed by providers that grafted medical records systems onto software originally meant to track billing rather than designing systems from scratch to deal with clinical complexities.

Growing cost burden

The growing number of highly specialized staffers needed to track a labyrinthine welter of billing and coding requirements demanded by private and government payers adds more each year to practices’ overhead costs.

Gastroenterologist John Avanzato M.D. founded a small private group more than two decades ago. A Bronx native who graduated from SUNY at Buffalo’s Jacobs School of Medicine and Biosciences, he set up the practice in Geneva in 1990.

In 2016, as area health systems courted the group, it split up. Avanzato went to work for Auburn Community Hospital in Auburn, Cayuga County, and his former partners accepted employment with Geneva General Hospital.

Seeing the group dissolve was painful, Avanzato said. Still, he is glad to be relieved of the burdens of running a small business.

“I used to run an office with just two secretaries. Before I knew it, I had an office full of secretaries. I had to pay a nurse $40,000 (a year) just to schedule CAT scans,” Avanzato said.

Hand surgeon Peter Ronchetti M.D. is a member of a three-doctor private orthopedic group. He joined the 25-year-old group 16 years ago

“The bad part (of private practice) is having to manage people,” said Ronchetti, who intends nevertheless to keep practicing privately.

As overhead costs have gone up, practices’ revenue stream has become less certain. Moves by third-party payers and employers to shift an ever-larger share of rising medical costs to patients through high-deductible plans have left providers with more unpaid bills. At the same time, the final effect of changes payers are making to provider reimbursement schemes is not clear.

More than 80 percent of U.S. workers covered by private plans faced deductibles of $1,000 or more in 2016, a Kaiser Family Foundation study found. All plans sold through exchanges set up under the Patient Protection and Affordable Care Act include deductibles as well.

High-deductible plans were supposed to solve two problems: high premiums and a rise in patients seeking unneeded care. Originally tagged euphemistically as consumer-directed health care, the idea was that by having to pay more out of pocket, patients would become smarter consumers.

Studies by athenahealth Inc., a provider of cloud-based practice management services to some 100,000 U.S. medical facilities, link the rise of high-deductible plans to an increase in unpaid doctor bills.

Lured by low-cost premiums, patients who sign up for high-deductible plans often do not understand that the price of low monthly premiums can include very high out-of-pocket expenses. Many pay slowly or do not pay at all, an athenahealth bulletin warns.

“People absolutely respond to the incentives in a high-deductible policy, but as they try to limit out-of-pocket costs, they often skimp on needed care,” David Cutler noted in the bulletin. He was senior health care advisor to the 2008 Obama presidential campaign and a member of the Massachusetts Health Policy Commission. “In turn, many health systems have had to change their own procedures and stare down the risk of bad debt.”

As for achieving high-deductibles plans’ dual goals, “so far, no one has found anything that actually works,” Cutler concluded.

Gaden tries to absorb his practice’s rising uncompensated care costs, but he is not sure to what extent he can continue to do so.

Ronchetti said his group sees little uncompensated care, but only because it demands payment in advance from patients with high-deductible plans.

Citing studies that show higher-cost bills are far less likely to be paid, athenahealth strongly recommends that specialist groups in its network follow that practice.

Size matters

Health systems and hospitals face many of the same pressures. But they can ease them with a remedy not as readily available to private practitioners: getting bigger.

A peculiarity of U.S. health care economics is way federal antitrust policy sees doctors. Third-party payers set prices. Government and private insurers determine reimbursement rates with doctors having little say in the matter,

Federal regulators, meanwhile, see private medical providers as sellers of a service and forbid them from banding together to negotiate rates with payers on the grounds that such cooperation would be a form of price fixing.

As single entities, systems and big hospitals are under no such constraints. The more patients they can bring into their orbit, the more negotiating clout they have with insurance companies.

That gives health systems an economic incentive to bulk up their patient populations up by acquiring practices and binding private groups to them through physician organizations like URMC’s Affordable Health Partners IPA LLC and RRH’s Greater Rochester Independent Practice Association.

Gaden has been approached as a potential recruit by URMC and RRH as well as by the Buffalo-based Kaleida Health. Believing that his autonomy might suffer and fearing that once a system had locked in his patients, it might close or move his office, he has resisted all such overtures and belongs to neither GRIPA nor AHP.

“I don’t see any reason to sell myself to a health system that wouldn’t do anything for my patients I can’t do on my own,” he insisted.

The economics of health care delivery also put regional players like URMC and RRH in direct competition with each other. To ensure a healthy revenue stream, both local systems instruct their directly employed doctors to make referrals within their own system whenever possible.

Outside referrals are permitted when clinical factors mitigate for them or when patients insist, instructions to URMC Medical Faculty Group doctors state. But too many unwarranted referrals to non-system providers could be grounds for dismissal.

Doctors who have made the switch from private practice to system employment are not necessarily unhappy to have done so.

As a hospital employee, Avanzato works out of a small satellite office in Seneca County whose staff also is employed by Auburn Community, a Cayuga County hospital that has partnerships with URMC as well as St. Joseph’s Hospital in Syracuse.

Solky believes that Interlakes Oncology patients as well as he and his partners benefit from the group’s affiliation with URMC. The doctors are relieved of much of their administrative burden and patients get boons from the academic medical center the group could not have provided had it stayed strictly private.

Things have worked out well partly because the cancer group’s arrangement with UR is a hybrid in which Interlakes is still legally independent. Before agreeing to join URMC, Solky and his partners worked out terms that allow them considerable autonomy in clinical matters.

Not all system-employee doctors have that autonomy, Ronchetti said.

“What I hear (health system employed physicians) complain most about is being told what to do,” said Ronchetti, who currently is MCMS president.

When Anees Fazili M.D. recently completed a urology residency at URMC’s Strong Memorial Hospital, the path of least resistance for the next step in his medical career would have been the one most of his medical school cohorts chose: a job with a health system or academic medical center.

Fazili instead chose private practice, joining the Center for Urology in Rochester.

Factors that went into the Buffalo native’s decision included a desire to stay in the area where his family lives and where his wife, also a physician, practices as a recently minted partner in a private Ob-Gyn group.

Fazili seriously considered a job offer from URMC. As an academic medical center employee, he would have had more opportunities to do research, an avenue that interests him, he said. On the other hand, there would be less autonomy.

“The entrepreneurial aspect of private practice appeals to me,” he said.

The deciding factor for Fazili was URMC’s demand that he sign a non-compete agreement. He found the pact’s terms, which bar private or system employment within a 60-mile radius of Rochester should he leave URMC, too limiting of his future prospects.

“They told me the non-compete was a formality that probably would not be enforced if it came down to it, so I said: ‘OK, then why do I need to sign it?’” Fazili said. “The person I interviewed with was fine with that. But higher ups said no.”

Fazili is happy with the path he chose. With his wife, Afreen Tariq-Fazili M.D., and their three children, he is settled into a home in a Rochester suburb. He expects to make partner next year.

Still, Fazili said, he expects to end up working for a system eventually, probably RRH.

While Center for Urology doctors now work with both systems, Fazili explained, the group has been forging bonds with RRH and its members expect to ultimately affiliate with the health system. If recruited as doctors already in private practice, they would not be asked to sign a non-compete.

“That would actually be OK with me,” Fazili said.