The plight of private practice doctors

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Facing flat or declining insurance payments while overhead costs rise sharply, the dwindling number of Rochester-area doctors in private practice see themselves in a virtually impossible financial bind.

Dealing with subpar reimbursements from Excellus Blue Cross Blue Shield, a payer that typically accounts for more than half their income, has private practice doctors “literally crying their hearts out,” says Hemant Kalia M.D., president of the Monroe County Medical Society.

Many of these doctors left secure employment with ever-growing health systems to seek greater freedom in treating patients and managing their time. Fewer are willing to do so today, however. According to the American Medical Association, the slice of physicians in private practice versus working for hospital systems nationally dropped from 60.1 percent in 2012 to 46.7 percent in 2022.

The shrinking footprint of private practice physicians here and nationally is not a recent development. Still, the pace at which the ratio of private practice versus system-employed doctors shrunk here has been dramatically more rapid than found nationally, believes Lucia Castillejo, MCMS executive director.

Past MCMS surveys showed this area to have been ahead of the national trend with a roughly 50:50 ratio of system-employed to privately practicing physicians in the late 1990s and early 2000s. MCMS has not recently compiled such figures. However, says Castillejo, the trend in MCMS membership points to a far greater discrepancy in privately practicing versus system-employed doctors than the national picture.

While advocacy for private practice doctors has always been at the at the heart of the local Medical Society’s mission, it also has welcomed system- and hospital-employed doctors into its ranks.

Reflecting its core mission, 80 percent of MCMS members were in private practice in 2012, Castillejo says. Today, the balance has shifted dramatically, with privately practice doctors accounting for only 15 percent of its membership.

Reimbursement relationship

Though private practice doctors are being financially squeezed everywhere, they are facing greater pressures in the Rochester area than colleagues in regions as close as Syracuse and Buffalo, says Kalia, a pain specialist who has solo practice in Rochester but also works in Buffalo.  

Kalia lays much of the blame on Excellus, whose control of more than 70 percent of the local market makes negotiations with the insurer a take-it-or-leave-it proposition for private practices. In regions with a more diverse spread of private payers, he says, private practices have more negotiating clout.

Excellus contracts with each practice separately and does not publicly state rates it pays to any practice. At the same time, Federal Trade Commission rules forbid practices from sharing reimbursement-rate data, making any local areawide comparison of rates difficult if not impossible to determine.

This was not always the case. From the 1970s through the late 1990s, Excellus dealt with a roughly 3,000-physician panel in the Rochester area represented by two successive independent practice associations. The FTC rule against individual practices sharing rate information applied then as now, but the IPA structure gave private practices some group power.

In the late 1990s, Excellus’ IPA at the time, the Rochester Community Independent Practice Association, began a 10-year court fight with the insurer over what the IPA claimed were wrongly withheld fees. That court fight ended with Excellus ultimately paying RCIPA doctors more than $50 million to settle the dispute.

Then, after contracting for a time with another, now-defunct IPA, Excellus unilaterally declared that would no longer deal with IPAs but only contract separately with each individual practice.

Alongside independently practicing Rochester-area doctors’ more recent reimbursement complaints with Excellus stand similar complaints raised by WellNow, a Chicago-based private provider of health care centers including 180 urgent-care centers in eight states.

Citing inadequate reimbursement rates, WellNow—whose portfolio includes 79 urgent-care centers in New York, 11 of which are in the Rochester area—dropped Excellus as of Jan. I.

“WellNow has been negotiating in good faith with Excellus for a long time,” WellNow chief medical officer Robert Biernbaum M.D. explained in a statement. “However, despite WellNow’s best efforts, Excellus has failed to commit to reasonable rates for services. In fact, rates from Excellus for WellNow patients have decreased in the last decade despite the massive inflation over the last several years and the fact that Excellus has continued to raise rates for its insured members each year.”

In a statement, Excellus said that its physician-compensation rates reflect its efforts to hold down premium costs as part of its “non-profit mission of access to affordable, high-quality care. When we pay higher rates, employers and members can face higher insurance costs.”

Gastroenterologist Surinder Devgun M.D. is managing partner of Rochester Gastroenterology Associates, a five-physician group that also employs three nurse practitioners. As small-business operators, he says, private practice physicians and their employees are faced with continual, costly health insurance premium increases and high-deductible plans that put them in a double bind, squeezed between less than adequate payments by Excellus and high costs to pay for their own health care.

As to WellNow’s decision to drop Excellus, the insurer says: “It was WellNow’s decision to leave our provider network Jan. 1, 2024. WellNow had declined our offer, which had included a reimbursement increase. While we’re disappointed by their decision, our focus now is on assisting our members.”

Counters WellNow’s Biernbaum, “Excellus has gone public that they did make an 11th- hour “rate increase that we did not accept. However, their last proposal is still significantly less than what we were paid by them 10 years ago. These factors make it unsustainable for WellNow to continue to do business with Excellus unless rates improve. WellNow is still open to further negotiations.”

Economic pressures

Devgun names flat reimbursement rates among his group’s major challenges but also says rising overhead costs that far outpace reimbursement income greatly exacerbate the problem.

For the gastroenterology group, which uses specialized equipment to perform colonoscopies and do other exams, rising equipment costs are a continuing challenge, Devgun says. But in a complaint also voiced by other doctors, he also cites ever-growing paperwork demands required to process insurance claims and to resubmit claim denials. While his practice has eight clinicians on staff, it employs 25 to handle paperwork.

Private payers like Excellus typically calculate rates they pay to providers at some percentage above rates paid by the federally run insurance program, Medicare, which itself has come under criticism by doctors for paying too little.

According to data compiled by the AMA, inflation-adjusted Medicare payments nationally between 2001 and last year dropped 26.3 percent while the costs of running a medical practice increased 47 percent and the consumer price index rose 73 percent.  

Data compiled by AMA

Citing his employer’s fear of possible retaliation by Excellus, a practice manager of a private Rochester-area internal medicine practice spoke to me on the condition that neither he nor the practice he works for be named.

For the practice that employs him, the practice manager says, “Excellus is a particular problem.”

A spreadsheet (shown below) compiled by the practice manager shows inflation-adjusted fees paid to his employer’s practice by Excellus for 10 commonly billed codes have fallen by amounts ranging from 6.7 percent to 30.1 percent over the past three years despite showing flat or slightly increased dollar amounts.

Kalia runs a one-doctor office in Rochester. Until a year ago, he was employed by Rochester Regional Health. He says he left the relative security and higher pay of an employed position in order to be able to devote more time to patients.

Health systems face similar financial pressures as private practice doctors, he says. But while  system-employed doctors are shielded from dealing directly with poor reimbursements, they are more beset by demands to increase productivity, that is to cram more patient visits into less time.

Persistent economic pressures are a woe of many system officials, who complain that the economics of U.S. medicine put the doctors they employ on an endlessly turning “hamster wheel.” But few, if any, health care systems have come up with a solution.

In a recent update to employees, for example, RRH CEO Chip Davis shared what he said was the system’s improved financial condition, citing a drop in losses of $1 million a day last year to $100,000 a day as of last October.

In private practice, Kalia says, he is able to keep his patient roster down and spends adequate time with patients. But he also directly faces overhead costs that he was shielded from as an employed physician and a compensation level that falls under what he made as a system-employed physician.

To compensate for what he says are the less than adequate payments that his Rochester practice gets from Excellus, Kalia joined a multi-specialty group in Buffalo, making a one-hour drive two days a week to take advantage of the Niagara Frontier private payers’ generally more generous fee structures.

Like Kalia, John Genier M.D. was once employed by Rochester Regional but left the system to practice privately. He exited 10 years ago when the system wanted to shift his office to another location he saw as less convenient.

The economics of running a private practice is not his sole or even his main worry, but is “one of my biggest stress points,” Genier says. Staffing, “especially since COVID,” is a top concern. Still, the rate structure he deals with as an Excellus payee is a troublesome black box. Says Genier: “You can’t figure it out.”

Mary Coan M.D. runs a Rochester-area family medicine practice. A onetime UR Medicine employee, she quit the University of Rochester health system in 2006. Like Kalia and Genier, she sought greater control and more time to deal with patients. And like Genier and Kalia, she finds the economics of private practice an ever-greater challenge.

Flat reimbursement rates her practice has been forced to take from Excellus over the past decade have amounted to a de facto rate cut, while paperwork required by the insurer eats into her time, Coan says.

“The administrative burden is terrible,” complains Coan, whose solo practice employs only a single nurse and a secretary/office manager.

Though she is not compensated for doing it, Coan says, “I take chart notes home at night because I don’t want to take time away from dealing with patients.”  

Ironically, she complains, systems are allowed to add hospital overhead costs to boost reimbursement rates so that system-employed physicians can paid more for delivering “the exact same services.”

Kalia echoes Coan’s complaint. Such “site-of-service differentials” between system and private practice reimbursement rates are part of what are “decimating” area private practices, he says.

The three physicians concede that in leaving relatively secure jobs as system employees, they took on greater risk and bucked a trend that has seen few younger doctors choose to practice privately.

Despite the financial challenges, Genier says that going private “was the best thing I ever did. I got to stay where I was and I got to set my own schedule.” Like Kalia, he says that Excellus’ rates fall under other insurers’ and that Excellus’ dominance in the local market means it has an outsize negative effect on his practice’s bottom line.

“I love what I do,” Genier says. Even so, having just turned 60, he’s starting to think about early retirement. Among challenges besides economic woes he looks forward to shedding are difficulties in recruiting staff.

Genier is hardly alone.

“Physician burnout—the long-term, cumulative stress and depersonalization that doctors experience amid growing burdens in the practice of medicine—continues to pose a major threat to a healthcare industry that remains in dire need of clinical leaders,” a 2022 Mayo Clinic study found.

In line with what Genier and other local private practice doctors say, the Mayo Clinic study, which looked at costs added to the U.S. health care system by physician burnout, cites economic factors, increasing administrative burdens and staffing woes that are driving doctors into earlier retirements than they otherwise might have contemplated. The loss of experienced clinicians is costing $979 million a year, the study found.

Acknowledging the temptation some of her colleagues feel to quit, Coan says “it’s getting harder and to pay our bills, but I feel like I can’t abandon my patients.

“The insurance companies are bleeding us dry,” she adds. “It’s very annoying.”

Will Astor is Rochester Beacon senior writer. The Beacon welcomes comments and letters from readers who adhere to our comment policy including use of their full, real name. Submissions to the Letters page should be sent to [email protected]

5 thoughts on “The plight of private practice doctors

  1. Great coverage by Will Astor and the Beacon on an issue that is being ignored by other local media. One key point Astor made: For healthcare providers in this community, there is no negotiating with Excellus. With Excellus’s dominant market share here, providers – particularly smaller practices – have no leverage. But yes, the pressure to squeeze reimbursement has driven a focus on efficiency in healthcare delivery, but Excellus should be far more transparent about what it is doing internally to reduce its own operating costs. Perhaps the subject of a follow-up article by the Beacon?

  2. Your options as a doctor are: an employed technician pressured for ever more billable units in shorter and shorter visits, a private practicioner progressively underpaid and drowned in insurance paperwork, or a concierge who has a cash only relationship with a wealthy patient/patron. Most private practice Psychiatrists locally don’t accept insurance at all, and most employed ones are in mental health clinic settings designed to handle the poorest and sickest leaving those with jobs and insurance undeserved.

  3. Great coverage, as usual, by Will Astor. It would be interesting to learn how much private equity is pushing into health care, earning profits for private investors at the expense of patients and doctors.

  4. An interesting item to add to this discussion would be information about executive compensation at Excellus over the years. And are there insurers in other markets who have better reimbursement rates for the practices they work with, and how does their executive compensation compare to Excellus’?

  5. Honestly, the medical reimbursement system is well beyond me to understand. My ongoing wonderment is this: Why don’t the medical insurance companies and the doctors (more appropriately, the doctor groups) negotiate something reasonable in between the ridiculously high rates and fees and the ridiculously low reimbursement rates. A structure of reasonably negotiated reimbursement rates would, I believe, considerably reduce the administrative costs related to all the paperwork that is involved. Reasonable people could, if they chose to, formulate a win-win solution.

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