Do you want to pay a healthcare bill online?   Make a payment now

News & Events

During his residency in emergency medicine for the Medical College of Pennsylvania back in the early 1980s, Richard MacKenzie, M.D., got a piece of memorable advice from his mentor on the topic of physician independence. “He told me to just give it up. He said, ‘you’ll always work for the man; it’s just a question of who the man is.’ Physicians are never totally independent. Even in private practice, you have to follow the rules of the federal government or you won’t be in practice long. For most traditional group practices, independence is more of a mindset than a financial benefit.”

MacKenzie is now ensconced in his role as a physician employed by the Lehigh Valley Physicians Group. He serves as senior vice chair of operations for the emergency department, which handles some 150,000 annual visits. The Allentown, Pa.-based group practice consists of some 500 physicians and, in theory at least, maintains an arm’s length distance from Lehigh Valley Health Network, its three-hospital, 900-bed corporate partner. But in reality, “the group supports the mission of the health network. We have shared governance. On paper, it is a separate ownership. In reality, it’s their group.” Physicians are not contractually obligated to admit solely to Lehigh Valley, but the opportunities to work with competing hospitals are few, MacKenzie says. “As physicians get bought up, and allegiances form, there is no longer an opportunity to work at a competing hospital. If a doctor is bought up by Lehigh Valley, they declare themselves as a Lehigh Valley physician.”

MacKenzie’s got plenty of company industry-wide. During the last few years, physicians have been abandoning their once-cherished role as independent practice owners and opting for employment with medical groups owned by hospital-based health systems. At the dawn of the century, nearly 60 percent of the nation’s physicians were independent, according to research by Accenture. Entering 2013, that figure had dwindled to just over 36 percent and the trend continued to accelerate even as the number of physicians increases overall.

Market expansion
Several factors are converging to entice physicians to trade their independence for W-2s. They have plenty of buyers, as health systems are seeking to expand their employed physician base-once the domain of a small group of hospitalists. Health systems are seeking to expand their market, if not shore up their referral base. And faced with the demise of fee-for-service reimbursement, they want tighter alignment with physicians than afforded by the conventional medical staff model.

Common information systems also are part of the new mix. Physicians are seeking to sell for similar reasons. In addition to reimbursement cuts, they face mounting practice management overhead-not the least of which is I.T. infrastructure which the government has for all intents mandated with its meaningful use program.

But the risks to both buyer and seller are considerable. I.T. figures prominently in the industry makeover, but it is also a potential landmine waiting to be stepped on. For that reason some observers have declared the death of the private practice-but others are not so sure.

The skeptics recall how the industry’s first big wave of group practice dissolution did not end favorably. Back in the mid-90s, a spate of physician practice management companies sprung up, buying physician groups and offering employment. But the hospitals behind the arrangements quickly got a lesson in economics. Pay a productivity-driven, fee-for-service oriented physician a salary, and ambition often is a casualty. “The physician management companies went bust and dissembled,” recalls JB Silvers, professor of health care management at Case Western Reserve University, Cleveland.

This time around the calculus has changed, as the industry eyes the demise of fee-for-service and is looking for a long-term strategy to accommodate its polar opposite, fee-for-value. At the same time, group practices and hospitals are depending on volume to keep the doors open during the transition. “The impetus for hospitals to buy physician practices is the need to capture referrals and any ancillary business that might come in, such as lab work and imaging,” says Silvers.

Others describe the spate of acquisitions in almost Darwinian terms. “Health systems are seeking safety in size,” says Kim White, a consultant with Numerof and Associates, St. Louis. “Hospitals are looking to acquire other hospitals and physician practices to become gigantic systems, and increasing referral reliability is a great benefit.”

Hospitals have other economic incentives as well, Silvers points out. While their inpatient visits are reimbursed on the DRG system, their outpatient operations are not. Those are paid under the OPPS, Medicare’s Outpatient Prospective Payment System, in which they are paid extra for maintaining the facilities. When hospitals acquire group practices, they reclassify them as outpatient services. “The hospitals get an outpatient facility fee in addition to the professional fee paid to the physician,” says Silvers. “When hospitals do the analysis, they’re looking at extra cash flow. That is the lubricant to make the acquisition work financially.”

Physicians, on the other hand, have their own set of financial pressures. “The economic model is getting harder for private practices,” says David Blair, M.D., president and chief medical officer at Grand Rapids, Mich.-based Advantage Health. The multi-specialty group practice of 200 physicians is owned by St. Mary’s Health Care, a local hospital, which is itself owned by Trinity Health, a national hospital system. “The private practice is unsustainable and has caused physicians to seek employment. Primary care can get paid more in the employed model than a private model. Even specialists are seeing their referrals dry up. In five to 10 years, there will be little left of private practices.”

Information technology ranks high as a financial pressure driving physicians into the arms of hospitals. “Physician need access to I.T. but they can’t do it on their own,” says Jeff Wasserman, vice president, Culbert Healthcare Solutions, a Woburn, Mass.-based consultancy which advises on EHR selection and clinical integration projects. “Practices realize they will be paid for performance. They will also be asked to assume more risk. You can’t do either without state-of-the-art information systems.”

Ideals and reality
In an ideal world, a group practice acquisition would look something like this: Both the hospital and physician practice would be on a common information system, or at least two systems that could easily share data. Care could more be seamlessly coordinated across the inpatient and ambulatory settings, and the larger and more diverse the group practice, the easier to keep patients within the confines of the hospital-and outside the reach of competitors. Cash-strapped physicians would benefit from having the technological resources offered by the hospital. And economies of scale would figure in as well, with common operations staff shared across physician practices, as opposed to each hiring its own support staff.

But in the real world, the huge spate of practice acquisitions isn’t playing out so nicely. The move by hospitals is laden with risks, not the least of which is I.T. Hospitals acquiring practices are not always getting a clear picture of what they’re buying, financially and clinically, often due to limitations in data analytics. And once the deal is done, hospitals are facing even more substantial challenges in getting physicians up on their EHRs and activating physician billing.

Having physicians attest to meaningful use is an imperative-otherwise they face long-term, permanent reimbursement cuts. But that’s no easy feat, particularly for practices converting from a paper-based documentation system, as many acquired groups are.

Some industry veterans are sounding the alarm. Donna Kell, who runs a Pittsburgh-based billing company for private physician practices, has seen many a practice bought-and then later cut loose when the deal didn’t work as planned. “Some health systems have acquired practices, cut them loose and now are trying to reacquire them,” she says. “It is a bit of a vicious cycle.”

Managing the group practice revenue cycle is a whole new world for hospitals, Kell says. When they buy practices, they do not always understand what they’re getting-particularly in the complex arena of cash flow. That’s because the data needed to adequately undertake the due diligence is often buried in the physician practice management system, and often not understood by the physicians themselves.

She cites the example of a podiatrist who does foot debridement for Medicare. “His billing system shows X amount of reimbursement, but it can’t distinguish between procedures done in the office from those done in a nursing home. The payment gap is big. The hospital buying the practice has not drilled down far enough to know where the procedures are done, but they’ll use the data to estimate his income. Later, they find that most of his procedures were done outside the office and they don’t generate the revenue they expected. No one in the hospital knows to ask the question.”

After the deal goes through, hospitals may be in for other surprises as well-particularly around physician billing. “When a hospital buys a medical group, the I.T. risk is significant,” says Wasserman. “If you try to bring in a group using your hospital billing systems, you can jeopardize your cash flow. There is a big difference in how you structure professional billing versus physician billing, not just with the technology but in the organizational structure.”

Even if the hospital’s information system can handle physician billing, without a proper set-up the hospital may unwittingly sacrifice 3 percent to 4 percent of revenue, Wasserman says. “That can be a large number and it’s very important to do it right.” He cites the example of one hospital client that, after acquiring a number of physician practices, attempted to deploy best-of-breed systems on its inpatient and ambulatory sides. “But the two systems didn’t work well together and were not bi-directional. They wound up doing patient registration manually. Now the hospital is looking for an integrated information system.”

Kell’s clientele-consisting of 10 small, specialty group practices-do not even use EHRs and do their billing manually. “They fill out encounter forms, we load that into a database and we electronically submit claims for them and do the follow-up. Even though these acquisitions are going on, our market is not going away and there are still plenty of private practices.”

Why docs sell
Physicians sell, Kell maintains, because of frustration over billing. “They are fed up with how difficult it is to get paid. Most doctors don’t want to deal with it. They’d rather outsource their billing or join a larger entity.”

In a corollary to the productivity drop in the ’90s, hospitals buying practices do face similar revenue risks, but for different reasons, adds Wasserman. “There are still a lot of hospitals with state-of-the-art EHRs and the systems can dramatically impact the efficiency of the practice. Physicians are learning how to do things electronically and it is slowing them down and impacting the revenue stream.” One hospital Wasserman advises saw professional revenue reimbursement plummet nearly 30 percent within a year of an acquisition. Hospitals have tried to cover the productivity issue in their employment contracts, which often compensate physicians based on a relative value unit model-one that essentially rewards them based on work done.

But even if productivity issues are addressed, moving physicians to an EHR-and many acquired groups are moving from paper-based environments-is fraught with its own kind of peril, Silvers observes. One big fear factor revolves around meeting meaningful use. “If physicians don’t show meaningful use, they won’t get paid an incentive and they will be penalized in the future. Hospitals don’t know if the doctors being bought can show meaningful use. If they do, the hospitals get a huge amount of money and it’s a way to finance the expansion. But hospitals don’t understand the I.T. risks.”

Bringing a group practice into the hospital fold causes another major technology challenge-data integration. Historical patient records can’t be simply scrapped-myriad state laws typically require they be kept for several years, plus physicians often need to access them for current patients. That has led some practices, such as Advantage Health, to undertake massive document scanning efforts. “The physician has a ton of accumulated knowledge in paper,” says Blair, the hospital-based practice’s president. “There’s no good way to get it out. Old paper charts can be 12 inches thick.”

Even practices on their own ambulatory EHR face likely data integration challenges with a new owner. “A health system can’t always just force practices or other acquired hospitals to adopt their system,” says White, the consultant. “The I.T. integration issue could upend the effectiveness of the consolidation. If you can’t share data, you are not helping the patient. Systems that don’t communicate will become mass chaos.”

Systems integration
Advantage got an object lesson in systems integration when it first attempted to deploy an ambulatory EHR five years ago, Blair recalls. Rather than adopting a best-of-breed ambulatory system, the group attempted to run on a module that was part of its hospital owner’s inpatient EHR. The still-immature software module couldn’t accept data from Advantage’s long-standing patient registry, a customized application it used to track various lab values and keep track of patient progress. As a result, Advantage two years ago switched to a more compatible EHR, from NextGen. Documenting patient histories in the EHR can be cumbersome, Blair says, but says the software enables much safer medication management. “You can see what has been ordered and filled,” he says.

Unlike Advantage, which mandates the use of the NextGen system, some hospital-based practices offer a choice of ambulatory systems. That can be a smart move, notes Jerilyn Cowper, solutions manager at CTG Health Solutions, a Dallas-based I.T. consultancy brought on for EHR implementations. For many practices, a knowledgeable corporate parent can be an I.T. godsend, Cowper says. “Small groups don’t know where to begin with the EHR. They lack the funds and they don’t have any expertise. How do they go about looking for an EHR?”

Yet, many hospitals lack the support staff to properly train physicians and deploy an ambulatory EHR-particularly when their own staff are already saddled with other projects and regulatory challenges. That can lead to a sour relationship, Cowper says.

“Hospitals can’t maintain their own level of expertise, yet they are bringing on more groups. Staffs are really stretched. The risk is whether the hospital can support the new practice they way they’re expecting. You need to install, update, get hardware going, and get on a network. You need a person in the trenches who can go to the group, train them, and bring them up efficiently. Some practices are rebelling-they want to go back to their old application.”

Despite the many pitfalls, for MacKenzie, the emergency physician, a hospital-based group has a better chance of overcoming care fragmentation. The 30-year veteran recalls when physicians used to routinely show up when their patients were admitted to the hospital. “Today there’s less communication. If you don’t have the I.T. connection, a patient is admitted and stuff is being done on them that often doesn’t need to happen.” At Lehigh Valley Health Network, ED physicians document on an EHR, from T-System, that feeds its output into the hospital’s inpatient EHR, from GE. Patients admitted via the ED enter the hospital with some semblance of a chart-the first step to care coordination, MacKenzie says.

Family Affair
Performance Pediatrics is fast becoming an anomaly-and its founders intend to keep it that way. It’s a bare-bones practice, with, count ’em, one physician, one nurse practitioner, one practice manager and two part-time receptionists. “We are quite small; we have 700 patients,” says Leann DiDomenico, the manager. “Most pediatricians have double that.

“But unlike mega-group practices owned by hospitals, Performance is a family affair-literally. DiDomenico is the spouse of Terrence McAllister, M.D., who launched the “micro-practice” six years ago. He had just finished his clinical stint with the U.S. Air Force, which paid for his medical training in exchange for serving in the military health system. The experience left McAllister with a desire for more autonomy. “He had 5,000 patients and was seeing 30-plus a day,” DiDomenico recalls. “Less than five minutes a day with each patient. Not what we wanted in primary care.

“So the couple decided to open up their own practice in their hometown, Plymouth, Mass. “The start-up years were tough,” DiDomenico acknowledges. “But now we have a solid bank of patients. We might expand to one more physician or nurse practitioner, but that would be as big as we’d want to get.”

The practice’s payer mix is roughly divided into thirds among Medicaid, Blue Cross, and a mix of other commercial payers. “We are fiercely independent, but not completely isolated,” she says, explaining that the practice is part of a larger IPA affiliated with Boston Children’s Hospital. The IPA negotiates payer contracts with the Blues plan and a couple of other commercial payers. Performance Pediatrics is incentivized financially to meet certain quality measures, such as regular wellness exams and flu shots. McAllister may see fewer patients than his peers in larger groups, but in turn, he has to do more work himself, such as taking his own vital signs and giving his own shots. DiDomenico handles all the billing. “My husband doesn’t enjoy the business side of health care,” she says. “His passion is primary care and keeping kids healthy. He loves it, but if he didn’t have me in the back room pushing buttons, he would have to be employed by somebody.”

Those buttons refer to a small array of I.T. systems the practice has deployed to manage the practice. These include a hybrid EHR/practice management system, from Office Practicum; an adjoining patient portal, used to communicate lab results and collect online payments; and an EDI feed to its clearinghouse, Instamed, which handles eligibility checks, claims submissions and electronic remittance advice and funds transfers from the practice’s payers. About 60 percent of reimbursements come back electronically, which simplifies back-end justification of EOBs and payments.

To launch the practice, the couple borrowed about $200,000, of which about 40 percent went to technology. The practice already attested to Stage 1 of meaningful use and got a payment of $22,000, “a huge help” in paying down the debt, DiDomenico says. She says the I.T. is crucial to their operation. “We treat technology as if it were another staff member or two. It is that important to us.”

Using reporting capabilities embedded in its EHR, the practice can keep track of its adherence to various quality metrics, such as ensuring regular wellness visits. “Some parents of adolescents who are healthy put off their wellness exams,” DiDomenico says. “We try to see patients once a year.”

One of the most challenging aspects of maintaining the practice is finding qualified I.T. support staff, she adds. “When we first opened, we used a local guy who did not know health care or health care compliance. So we had to rely on our software vendors to make sure we were compliant. We now have a new support person who understands the requirements.” The new support firm also handles server back-ups for the group, offering off-site data storage and redundancy. The stakes are high. “If our technology goes down, we can’t do anything.”

Hospital Owner? Yes!
Rapid growth is the hallmark of Grand Rapids, Mich.-based Advantage Health, which ballooned from 165 to 200 physicians in the last two years and is looking to add 25 more in 2013, says David Blair, M.D. president and chief medical officer. Owned by its parent hospital, St. Mary’s Health Care, it’s a large multi-specialty group, with a strong core of primary care, he adds.

According to Blair, physicians are eager to join the practice, which has obtained recognition as a patient-centered medical home from its state Blue Cross, its biggest payer. Reasons: Independent primary care physicians find it difficult to obtain the certification-which requires a variety of I.T. tools. Other specialists, such as cardiologists, have been hit hard by changes in CMS reimbursement policies and cannot sustain an independent practice.

Advantage Health is completing the rollout of its NextGen system this year. It works in conjunction with a customized disease registry platform the practice has had in place for years and uses to keep tabs on lab values and patients with chronic conditions. Physicians must use the EHR, but Blair says the mandate is little deterrent to most. “All doctors are thinking about the EHR. New residents expect it. Established physician practices are glad to have a team of people to train them on the system. That was hard to do on their own.”

Advantage is well situated for the accountable care era, Blair says. In addition to several risk-sharing arrangements with its payers, the practice sets aside $10 million in performance incentive payments, paid as quality metrics are upheld.

“The fee-for-service system encourages fragmentation,” Blair says. “It does not support value. Patients see the flaws firsthand.” Asked about the demise of the long-standing private practice model, Blair says that “the health care system doesn’t exist just to give physicians a chance to be in any environment they want. Health care will be refocused as a public good.”

Hospital Owner? No!
For William Carriere, M.D., the employment offer was almost too good to turn down. “For me personally, it would have been a nice way to exit the practice of medicine. It would have been a powerful financial incentive,” he says. But Carriere and his colleagues at Family Care Partners concluded that going to work for the local hospital would have been ill-fated. Carriere began the Jacksonville, Fla.-based practice in the mid-70s as a solo physician. It now spans about 55 physicians and physician extenders, treating over 100,000 patients. The practice deployed an EHR, from NextGen, 12 years ago and has continued to expand its I.T. portfolio-which now includes a document management application, a patient portal, a physician portal, data analytics capacity, clinical decision support tools and a coding search engine.

During the last three years, the group has entertained two offers to buy-the most recent getting as far as legal due diligence. “Saying no became a consensus among the doctors,” Carriere recalls. “The long term care of our patients, the effect on our ability to participate in new health care economy, and the previous experience some of our members had with hospital ownership steered us away,” he says. “Hospital systems are led by finance people, not clinical people. Over time, the management of physicians becomes a numbers game that is tied to relationships with payers. It is a numbers game that becomes very complex.”

The prospective owner even agreed to let the practice maintain its EHR infrastructure, says Daniel Choquette, I.T. director. But operating the system in a corporate environment would have be difficult. “A hospital would have a lot of red tape,” he says. “We are nimble now. If we want to change a system, upgrade, or make an addition, we bring the idea to the docs, they approve it, and we do it. At the hospital, we would have to go through corporate and our doctors could not drive our systems.”

Many physicians join hospital-owned practices because of concerns about participating in the era of accountable care. But Carriere contends that Family Care Partners-certified by NCQA as a Level 3 Patient-Centered Medical Home-will be better situated in the pay-for-performance era than it would be as an owned group. “Our vision is simple: we are trying to help doctors make better decisions quality-wise and finance-wise. Payment systems are evolving to favor what we are doing.”

The practice already is receiving bonus payments for its medical home program and has quality incentive programs in play with its commercial payers. Its biggest fee-for-value fish, however, may be with CMS. The practice is among a handful selected to participate in Medicare’s shared savings ACO program, which advances the practice reimbursement on the condition it invests in care management infrastructure. CMS will split a portion of any savings the practice achieves as compared to expected national benchmarks. “There is a potential of $3.2 million,” says Carriere. “We think primary care is in the strongest position to drive value. [Acquiring practices] won’t impact the wasted dollars. Physicians need to work for a higher purpose. That gets diluted by hospital financial management.”

Click here to read the article originally published by Health Data Management.

Let's Talk

Let the InstaMed team put together a customized business case for your organization and show you InstaMed in action.

Download PDF

Thank you for your interest in InstaMed. Please complete and submit the webform below and your PDF Download will become available.

  • Cancel

Thank you for your interest in InstaMed.

Please click the link below to download your PDF.

Download PDF

To learn more about InstaMed, please click here.