September 18, 2006
Trend or epidemic? | Physicians increasingly are giving up private practice for hospital positions, but the impact of that change on health care isn't clear
By Whit Richardson
In 1988, following an orthopaedic residency at Boston University and a year spent working in trauma in New York, William Strassberg moved to the coast of Maine to fulfill his dream of being a private practice physician in a rural community.
For years Strassberg lived that dream, running a small, one-man orthopaedic practice in Belfast. He was on call for his patients 24 hours a day, seven days a week. For many years he was the only orthopaedic surgeon in Waldo County, so he offered his services to anyone who needed them. He sometimes received a cord of wood or tree work for his services.
But the model, no matter how altruistic, proved unsustainable. After 14 years, he was exhausted. He was tired of always being on call. He was tired of the myriad business and administrative duties that go along with maintaining a small office and a three-person staff. He was tired of watching his business expenses increase while the government and insurance companies continued to lower their reimbursements for patient care. "It becomes like squeezing a stone," he says. "You do your best, you get a higher deductible on the office pension plan; you look for ways, just like any business, to pare down and save money."
So in 2002, Strassberg, now 50, decided to give up self-employment and joined the staff of Mount Desert Island Hospital in Bar Harbor ˆ the first orthopaedic surgeon that hospital ever had on staff. "Maine is not a place where payer reimbursement is high. And the cost of doing business in Maine ˆ and a small office practice is still a small business ˆ is also high," Strassberg says. "All those factors mitigate against successful small solo practices."
Perhaps because he works at a small hospital, Strassberg says he still has a certain amount of autonomy to run his practice like he did before. He just has a lot more help now: The hospital handles administrative hassles like payroll and hiring; and pension plans and health insurance for his staff; the hospital pays for his malpractice insurance; he no longer has to navigate insurance reimbursement rates on his own; and he has the security of a steady paycheck. As a result, he says he can better concentrate on what he was trained to do ˆ provide health care.
The pressures Strassberg experienced increasingly are causing small-practice physicians to turn to hospitals, nonprofit health centers or larger, independently owned group practices for employment. In May 2003, the Maine Hospital Association reported that hospitals directly employed 1,322 physicians in the state. Today, that number has increased to 1,600 physicians, or roughly 35% of the 4,500 licensed physicians in Maine. "Hospital employment has become the answer, for better or for worse, for what has become a difficult struggle to maintain a private practice," says Gordon Smith, executive vice president of the Maine Medical Association, which advocates for physicians and patients in the state.
A similar trend is at work across the country. In 1994, 40.7% of physicians were in solo or two-person practices, according to the Washington, D.C.-based Center for Studying Health System Change. That number declined to 32.5% in 2004. At the same time, the number of physicians employed at hospitals and medical schools increased from 26.2% to 31.4%.
While the situation seems better for physicians, no one in the health care industry is exactly sure what it might mean for the future of medicine. But the trend ˆ or "epidemic," as Smith calls it ˆ raises questions in the medical community about its future implications for patients' access to health care, physician-patient interaction and the mentality of physicians themselves. "There's public policy implications to this issue of employing doctors and physician supply in Maine, and very few people are giving this any thought. It's just happening," Smith says. "People are going to wake up some day and wonder whether it was a bad thing that we lost private practice in medicine in Maine."
The financial disadvantageof private practice
Although physicians with private practices across the country are feeling the pinch of low Medicaid reimbursements and increased costs of doing business, Maine physicians face challenges unique to a relatively poor, rural state. For one, Maine has the country's highest per capita number of residents enrolled in the Medicaid program, known as MaineCare here, with roughly 270,000 enrollees.
Physicians say they have to carefully watch their patient mix, making sure they see enough patients insured by Anthem and Aetna to make up for MaineCare reimbursements that the MMA says are among the lowest in the country. "The Medicaid reimbursements are abysmal," agrees Anthony Mancini, an orthopaedic surgeon in Augusta.
Mancini was a member of a four-physician private practice, Augusta Orthopaedic Associates, which opened in 1993. Besides struggling with low reimbursement rates, Mancini and his partners' also faced another challenge common to small private practices in the state: recruiting young doctors. With his colleagues nearing retirement, Mancini says the practice tried for years to recruit a new physician to the practice, to no avail. "The problem is we couldn't offer any candidate an amount of money comparable with the national average," Mancini says. "And obviously we're competing in a national market."
The upshot: The partners in 2004 sold the practice to MaineGeneral Medical Center in Augusta to ensure its survival, Mancini says. Since then, the physicians have been able to hire two orthopaedic surgeons and receive new equipment like a digital x-ray machine ˆ goals they probably couldn't have achieved as a private practice, Mancini says.
One advantage hospitals have over private practices is the ability to join federal programs designed to improve access in rural and inner-city areas that allow hospitals to collect Medicaid reimbursements differently. For instance, while a private practice physician is reimbursed on a fee-for-service basis ˆ with set rates for procedures like an annual physical ˆ rural hospitals and nonprofit health centers can receive a cost-based reimbursement, which includes facility overhead and the physician's salary in the equation. "Everybody practicing privately loses money on every Medicaid patient they have, no question," says Smith. "All you're really trying to do is recoup your expenses and then try to make enough money on your commercially-insured patients to have enough money to take home."
Most hospitals in Maine have switched to the cost-based reimbursement system, he says, which makes it easier for them to absorb new physicians. "If it wasn't for those small hospitals being able to buy these practices and convert to provider-based [reimbursement] we would have had a significant crisis in access for Medicaid patients a long time ago," Smith says.
Hospitals such as MaineGeneral and Mount Desert Island Hospital have their own reasons for buying up private practices. For one, orthopaedic surgery and other specialties are profit centers for hospitals. Private practices perform their surgeries in hospital facilities, allowing the institution to charge facility fees, such as for the use of an operating room and equipment, that generate millions of dollars. "Hospitals enjoy the presence of orthopaedic surgeons to bring in revenue," says Strassberg, who is also the incoming vice president of the MMA. "So it becomes a situation where the hospital ends up offering to employ the surgical practice to keep it viable and strong."
A quality of life decision
Besides avoiding financial strains, some physicians choose to give up private practice for simple quality-of-life reasons. Anthony Mistretta, a hospitalist at Maine Medical Center in Portland, left private practice at a 50-physician primary care group practice in Florida after six years. The financial struggles were still there: reimbursement decreases for Medicaid and Medicare patients, ongoing battles with insurance companies and increased business costs such as the need to switch to electronic health records. In Florida, Mistretta also had to deal with some of the highest medical malpractice liability insurance rates in the country.
But in the end, he says, it was the frequent nights on call and constant pressure to see more patients that finally led Mistretta to leave private practice. "We'd all like to have our own private practice, but it got to the point where you have to balance an ideal with reality," says Mistretta. "The reality is working more hours than ever and being scared of making a mistake because you're asked to do too much."
By contrast, working at Maine Med gives Mistretta more free time. There's no overhead to worry about and the hospital pays for his malpractice insurance. In fact, Mistretta's new job actually is a fairly recent creation in the medical field. The term "hospitalist" was first coined in 1996 in a New England Journal of Medicine article, and is a byproduct of the decline of the traditional primary care physician who also cared for his or her own patients when they had to go to the hospital. The pressure to see more patients and increase revenue has led many physicians to give up their hospital privileges, since they can make more money seeing patients in the office. Thus the rise of the hospitalist, whose job is to care for patients admitted to a hospital that have primary care physicians who don't do hospital rounds.
Even larger private practices seem to be giving up their independence. In early September, Maine Medical Center announced it was purchasing Neurosurgery Associates, a seven-physician private neurosurgery practice in Scarborough, for $1.5 million. The practice is the premier neurosurgical practice in the state, according to Smith, and their joining Maine Med is significant.
Unlike small practices, Neurosurgery Associates is not struggling, according to Smith, but like Mancini and Augusta Orthopaedic Associates, the issue comes down to recruitment capability and capital. Maine has 40% fewer neurosurgeons than it did ten years ago, and most are members of Neurosurgery Associates, Smith says. With only a few thousand neurosurgeons in the country ˆ and a full 10% of those retiring last year, according to Maine Medical Center ˆ competition for them is fierce, and Maine has problems offering candidates an attractive compensation package. "Contrary to what some people in Maine think, people aren't going to come to Maine because they like to hunt and fish if they make a third of what they can in Cleveland or Phoenix," Smith says.
Watching for a change in patient care
Still, large, private group practices in the state have an easier time remaining independent. Many have their own ambulatory surgical centers, which means they don't need to use the nearby hospitals for their surgeries. That way, instead of the hospital collecting the facility fee, the private practice gets a second revenue stream.
Single-specialty private practices used to be able to build their own ambulatory surgical centers without a Certificate of Need from the state. But a provision in the Dirigo Health Act put a stop that that. "In my opinion, in the current environment there will never be another [ambulatory surgical center] in the state of Maine," Smith says. "One of the things that's driving doctors out of practice is that they can't compete and the laws in Maine, particularly the existing administration and existing Legislature, have sided with hospitals over physicians on the issue of competition."
However, Trish Riley, the director of the Governor's Office for Health Policy and Finance, disagrees that the administration has sided with the hospitals on the issue of competition. She notes that 12.5% of capital expenditures approved in the state must go to non-hospital projects, a measure designed to avoid discrimination against private practices. She adds that private practices only have to go through the CON process if they are going to spend more than $2.6 million on a capital expenditure. And while she admits an ambulatory surgical center would likely cost more than $2.6 million, a private practice is simply going through the same process of demonstrating a need that hospitals already have to go through. "It was leveling the playing field," Riley says.
In the end, though, Smith isn't sure whether the decline of small private practices is good or bad for medicine. While maintaining that he does not favor private practice over hospital employment, Smith says there are subtle differences in the practice types. The office of a private practice physician ˆ from the people they hire to the magazines they have in their waiting room ˆ is the personification of that physician. As soon as that practice is acquired by a larger entity, that autonomy is gone.
Moreover, Smith says the comfort and security of a salaried position may decrease the individual productivity of a physician. "Human nature would tell us that if you own your own practice and you have to hire staff, pay your staff and have some money at the end of the day to take home, then you're going to work as hard as you can," says Smith. "If you give all that up and work on a salary, then unless there's a productivity incentive in your contract you're not going to work as hard."
It might be a controversial opinion, but Strassberg agrees that such a risk exists. "The trick for me is to not don that corporate mentality, and keep pushing and pressing at full speed ahead," Strassberg says. "That salary is a two-edged sword because you're going to get it no matter whether you work hard or not. You don't want to get caught in that trap of easing back on the throttle a little bit because you can."
In the end, Strassberg and the other physicians say it's too early to tell where this trend will lead the medical field. But even physicians that have opted out of private practice say they'll be watching carefully to determine whether a change in business model has an impact on patient care. "I think that medicine may start to change," Strassberg says, "if physicians start to feel more like employees than doctors."
For years Strassberg lived that dream, running a small, one-man orthopaedic practice in Belfast. He was on call for his patients 24 hours a day, seven days a week. For many years he was the only orthopaedic surgeon in Waldo County, so he offered his services to anyone who needed them. He sometimes received a cord of wood or tree work for his services.
But the model, no matter how altruistic, proved unsustainable. After 14 years, he was exhausted. He was tired of always being on call. He was tired of the myriad business and administrative duties that go along with maintaining a small office and a three-person staff. He was tired of watching his business expenses increase while the government and insurance companies continued to lower their reimbursements for patient care. "It becomes like squeezing a stone," he says. "You do your best, you get a higher deductible on the office pension plan; you look for ways, just like any business, to pare down and save money."
So in 2002, Strassberg, now 50, decided to give up self-employment and joined the staff of Mount Desert Island Hospital in Bar Harbor ˆ the first orthopaedic surgeon that hospital ever had on staff. "Maine is not a place where payer reimbursement is high. And the cost of doing business in Maine ˆ and a small office practice is still a small business ˆ is also high," Strassberg says. "All those factors mitigate against successful small solo practices."
Perhaps because he works at a small hospital, Strassberg says he still has a certain amount of autonomy to run his practice like he did before. He just has a lot more help now: The hospital handles administrative hassles like payroll and hiring; and pension plans and health insurance for his staff; the hospital pays for his malpractice insurance; he no longer has to navigate insurance reimbursement rates on his own; and he has the security of a steady paycheck. As a result, he says he can better concentrate on what he was trained to do ˆ provide health care.
The pressures Strassberg experienced increasingly are causing small-practice physicians to turn to hospitals, nonprofit health centers or larger, independently owned group practices for employment. In May 2003, the Maine Hospital Association reported that hospitals directly employed 1,322 physicians in the state. Today, that number has increased to 1,600 physicians, or roughly 35% of the 4,500 licensed physicians in Maine. "Hospital employment has become the answer, for better or for worse, for what has become a difficult struggle to maintain a private practice," says Gordon Smith, executive vice president of the Maine Medical Association, which advocates for physicians and patients in the state.
A similar trend is at work across the country. In 1994, 40.7% of physicians were in solo or two-person practices, according to the Washington, D.C.-based Center for Studying Health System Change. That number declined to 32.5% in 2004. At the same time, the number of physicians employed at hospitals and medical schools increased from 26.2% to 31.4%.
While the situation seems better for physicians, no one in the health care industry is exactly sure what it might mean for the future of medicine. But the trend ˆ or "epidemic," as Smith calls it ˆ raises questions in the medical community about its future implications for patients' access to health care, physician-patient interaction and the mentality of physicians themselves. "There's public policy implications to this issue of employing doctors and physician supply in Maine, and very few people are giving this any thought. It's just happening," Smith says. "People are going to wake up some day and wonder whether it was a bad thing that we lost private practice in medicine in Maine."
The financial disadvantageof private practice
Although physicians with private practices across the country are feeling the pinch of low Medicaid reimbursements and increased costs of doing business, Maine physicians face challenges unique to a relatively poor, rural state. For one, Maine has the country's highest per capita number of residents enrolled in the Medicaid program, known as MaineCare here, with roughly 270,000 enrollees.
Physicians say they have to carefully watch their patient mix, making sure they see enough patients insured by Anthem and Aetna to make up for MaineCare reimbursements that the MMA says are among the lowest in the country. "The Medicaid reimbursements are abysmal," agrees Anthony Mancini, an orthopaedic surgeon in Augusta.
Mancini was a member of a four-physician private practice, Augusta Orthopaedic Associates, which opened in 1993. Besides struggling with low reimbursement rates, Mancini and his partners' also faced another challenge common to small private practices in the state: recruiting young doctors. With his colleagues nearing retirement, Mancini says the practice tried for years to recruit a new physician to the practice, to no avail. "The problem is we couldn't offer any candidate an amount of money comparable with the national average," Mancini says. "And obviously we're competing in a national market."
The upshot: The partners in 2004 sold the practice to MaineGeneral Medical Center in Augusta to ensure its survival, Mancini says. Since then, the physicians have been able to hire two orthopaedic surgeons and receive new equipment like a digital x-ray machine ˆ goals they probably couldn't have achieved as a private practice, Mancini says.
One advantage hospitals have over private practices is the ability to join federal programs designed to improve access in rural and inner-city areas that allow hospitals to collect Medicaid reimbursements differently. For instance, while a private practice physician is reimbursed on a fee-for-service basis ˆ with set rates for procedures like an annual physical ˆ rural hospitals and nonprofit health centers can receive a cost-based reimbursement, which includes facility overhead and the physician's salary in the equation. "Everybody practicing privately loses money on every Medicaid patient they have, no question," says Smith. "All you're really trying to do is recoup your expenses and then try to make enough money on your commercially-insured patients to have enough money to take home."
Most hospitals in Maine have switched to the cost-based reimbursement system, he says, which makes it easier for them to absorb new physicians. "If it wasn't for those small hospitals being able to buy these practices and convert to provider-based [reimbursement] we would have had a significant crisis in access for Medicaid patients a long time ago," Smith says.
Hospitals such as MaineGeneral and Mount Desert Island Hospital have their own reasons for buying up private practices. For one, orthopaedic surgery and other specialties are profit centers for hospitals. Private practices perform their surgeries in hospital facilities, allowing the institution to charge facility fees, such as for the use of an operating room and equipment, that generate millions of dollars. "Hospitals enjoy the presence of orthopaedic surgeons to bring in revenue," says Strassberg, who is also the incoming vice president of the MMA. "So it becomes a situation where the hospital ends up offering to employ the surgical practice to keep it viable and strong."
A quality of life decision
Besides avoiding financial strains, some physicians choose to give up private practice for simple quality-of-life reasons. Anthony Mistretta, a hospitalist at Maine Medical Center in Portland, left private practice at a 50-physician primary care group practice in Florida after six years. The financial struggles were still there: reimbursement decreases for Medicaid and Medicare patients, ongoing battles with insurance companies and increased business costs such as the need to switch to electronic health records. In Florida, Mistretta also had to deal with some of the highest medical malpractice liability insurance rates in the country.
But in the end, he says, it was the frequent nights on call and constant pressure to see more patients that finally led Mistretta to leave private practice. "We'd all like to have our own private practice, but it got to the point where you have to balance an ideal with reality," says Mistretta. "The reality is working more hours than ever and being scared of making a mistake because you're asked to do too much."
By contrast, working at Maine Med gives Mistretta more free time. There's no overhead to worry about and the hospital pays for his malpractice insurance. In fact, Mistretta's new job actually is a fairly recent creation in the medical field. The term "hospitalist" was first coined in 1996 in a New England Journal of Medicine article, and is a byproduct of the decline of the traditional primary care physician who also cared for his or her own patients when they had to go to the hospital. The pressure to see more patients and increase revenue has led many physicians to give up their hospital privileges, since they can make more money seeing patients in the office. Thus the rise of the hospitalist, whose job is to care for patients admitted to a hospital that have primary care physicians who don't do hospital rounds.
Even larger private practices seem to be giving up their independence. In early September, Maine Medical Center announced it was purchasing Neurosurgery Associates, a seven-physician private neurosurgery practice in Scarborough, for $1.5 million. The practice is the premier neurosurgical practice in the state, according to Smith, and their joining Maine Med is significant.
Unlike small practices, Neurosurgery Associates is not struggling, according to Smith, but like Mancini and Augusta Orthopaedic Associates, the issue comes down to recruitment capability and capital. Maine has 40% fewer neurosurgeons than it did ten years ago, and most are members of Neurosurgery Associates, Smith says. With only a few thousand neurosurgeons in the country ˆ and a full 10% of those retiring last year, according to Maine Medical Center ˆ competition for them is fierce, and Maine has problems offering candidates an attractive compensation package. "Contrary to what some people in Maine think, people aren't going to come to Maine because they like to hunt and fish if they make a third of what they can in Cleveland or Phoenix," Smith says.
Watching for a change in patient care
Still, large, private group practices in the state have an easier time remaining independent. Many have their own ambulatory surgical centers, which means they don't need to use the nearby hospitals for their surgeries. That way, instead of the hospital collecting the facility fee, the private practice gets a second revenue stream.
Single-specialty private practices used to be able to build their own ambulatory surgical centers without a Certificate of Need from the state. But a provision in the Dirigo Health Act put a stop that that. "In my opinion, in the current environment there will never be another [ambulatory surgical center] in the state of Maine," Smith says. "One of the things that's driving doctors out of practice is that they can't compete and the laws in Maine, particularly the existing administration and existing Legislature, have sided with hospitals over physicians on the issue of competition."
However, Trish Riley, the director of the Governor's Office for Health Policy and Finance, disagrees that the administration has sided with the hospitals on the issue of competition. She notes that 12.5% of capital expenditures approved in the state must go to non-hospital projects, a measure designed to avoid discrimination against private practices. She adds that private practices only have to go through the CON process if they are going to spend more than $2.6 million on a capital expenditure. And while she admits an ambulatory surgical center would likely cost more than $2.6 million, a private practice is simply going through the same process of demonstrating a need that hospitals already have to go through. "It was leveling the playing field," Riley says.
In the end, though, Smith isn't sure whether the decline of small private practices is good or bad for medicine. While maintaining that he does not favor private practice over hospital employment, Smith says there are subtle differences in the practice types. The office of a private practice physician ˆ from the people they hire to the magazines they have in their waiting room ˆ is the personification of that physician. As soon as that practice is acquired by a larger entity, that autonomy is gone.
Moreover, Smith says the comfort and security of a salaried position may decrease the individual productivity of a physician. "Human nature would tell us that if you own your own practice and you have to hire staff, pay your staff and have some money at the end of the day to take home, then you're going to work as hard as you can," says Smith. "If you give all that up and work on a salary, then unless there's a productivity incentive in your contract you're not going to work as hard."
It might be a controversial opinion, but Strassberg agrees that such a risk exists. "The trick for me is to not don that corporate mentality, and keep pushing and pressing at full speed ahead," Strassberg says. "That salary is a two-edged sword because you're going to get it no matter whether you work hard or not. You don't want to get caught in that trap of easing back on the throttle a little bit because you can."
In the end, Strassberg and the other physicians say it's too early to tell where this trend will lead the medical field. But even physicians that have opted out of private practice say they'll be watching carefully to determine whether a change in business model has an impact on patient care. "I think that medicine may start to change," Strassberg says, "if physicians start to feel more like employees than doctors."
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