Trumpcare Defeated: Impact on Independent Physicians

The death of the American Health Care Act (AHCA) has been greatly exaggerated — not because it is likely to be revived but because it might never have been alive in the first place. Many of the provisions of the bill were unlikely to survive contact with the Senate. There was also a very strong chance that the bill released from a House–Senate conference would have radically differed from the AHCA. What’s next is anyone’s guess, with the next “deadline” being the 2018 mid-term elections. The best strategy for Republicans may be to hope Obamacare implodes and use its problems as campaign material. However, hospitals are happy with the failure of ACHA because there will be less bad debt. Shares of hospital stocks rose last Friday: HCA nearly 4%, Tenet Healthcare 7%, and Universal Health Services 3%.  Physicians reliant on Medicaid reimbursement can breathe a sigh of relief. For most physicians who don’t have Medicaid patients, the shift to value-based reimbursement will continue. Here’s our forecast on how reform will affect independent physicians in 2017 and beyond.

MACRA Physician Payment Reform Is Here to Stay

The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) isn’t going anywhere. There are three key reasons why MACRA will and should proceed as planned, regardless of Obamacare's possibe repeal in the future:

• MACRA has strong bipartisan support. MACRA repeals are unlikely due to the continued strong bipartisan support for the program. The Senate and the House voted in favor of MACRA 92-8 and 392-37, respectively. Any delay to MACRA would have to go through Congress and, due to strong bipartisan support, is unlikely.
• Delay would be tied to budgetary implications. Because MACRA is also a cost-saving mechanism, there would be budgetary implications if it were to be repealed or delayed.
• Bending the Medicare cost curve is not a partisan issue. Bending the Medicare cost curve is imperative to any presidential administration to ensure the future stability of the Medicare program. MACRA incentivizes providers to shift to value-based payment models and, thus, serves as the framework for driving future Medicare cost savings.

Solo and Small Group Physicians Unlikley to Survive

Life is tough for physicians in solo and small group practice. The federally mandated introduction this fall of ICD-10 requires physicians and their staff to learn a new system of coding diseases. “Meaningful use”, another federal program, requires physicians to install and use electronic health records systems, which are complex and expensive.

The Physician Quality Reporting System (PQRS) is beginning to penalize physicians for failing to report individual patient data for up to 110 quality measures, such as patient immunizations, each of which takes time to collect and record. MACRA adds significant reporting requirements to receive value-based payments (VBPs), requiring modern IT infrastructure and additional back-office staff. Of course, such requirements are not being imposed only on solo and small group physicians.
In many ways, these requirements affect all physicians. Yet the burdens of complying are disproportionately high for small groups, which cannot spread out the costs of purchasing equipment, hiring employees and consultants, and training personnel over a large number of colleagues.

Hospitals and large medical groups can afford to hire full-time specialists to meet these challenges, but such approaches are not economically feasible for a group that consists of only a few physicians. Not surprisingly, independent physicians appear to be going the way of the dinosaur. One study found that only 17% of today’s physicians are in solo practice, a figure that stood at 54% in 1980. Moreover, the percentage of physicians who describe themselves as independent practice owners has dropped from 62% in 2008 to just 35% last year, manifesting an acceleration in the pace of decline. Conversely, over the same period, the percentage of physicians who say they are now employees of a hospital or medical group has increased from 38% to 53%. There are approximately 500 direct-pay physicians in the U.S. and that number is slowly growing. We do not believe that direct pay will become a significant business model, but we do not see direct pay going away either.

Independent primary care physicians in solo or small group practices are unlikely to survive for the reasons stated, as well as the inability to participate in risk-based contracts that will only be available to larger groups. The structure of these groups does not have to be a fully merged, single-taxpayer ID model, although such groups will be favored in contracting due to the inefficiency of other less binding models. Independent physician associations (IPAs) in many states have a significant history of managing risk-based contracts, and as long as these IPAs can be delegated by the physicians to negotiate contracts and develop infrastructure, they may be able to compete with the employed physician groups and the larger primary care, fully-merged groups.

Independent specialty physicians in solo or small groups will face a similar future but may be able to survive without forming larger groups. However, these specialists will struggle with growth, profitability, and finding a successor. The better model is for specialists to consolidate to spread the cost of practice management and reporting, as well as to position themselves to advantage in contracting.

Hospital Physician Employment Under Significant Cost Pressure

The employment of physicians by hospitals is also under significant cost pressure. The cost for a hospital to employ a physician is increasing, with a new report out of Kentucky revealing that 58% of hospitals reported annual per-physician losses of more than $100,000 — an increase of 17% over the prior year.

A bright spot, however, is that hospitals who hired primary care physicians incurred lower losses on average ($100,000 or less) compared with hospitalists or specialist physicians (more than $100,000). Specialists also accounted for the greatest losses across the board, representing the only physician provider type to incur more than $200,000 in losses per physician annually.

Such losses have typically been rationalized by “incremental” hospital admissions and utilization of hospital-owned outpatient services. Given the goal of reducing inpatient utilization, and adjusting hospital outpatient rates to freestanding rates, the ability of the hospital to subsidize losses in physician employment may diminish. 

Given the cost pressures on hospitals and health systems, it seems possible there may be a change in the physician employment model commonly used. Perhaps employed medical groups will be reorganized as stand-alone but connected medical groups, like Kaiser's Permanente Medical Groups. Separating the medical group from salary guarantees will likely create more autonomy for the physicians and have significant and unforeseen effects on the independent physician environment.

A Note of Optimism amidst the Gloomy Predictions

Most prognostication about the fate of physicians today is gloomy, but payment reform is necessary. Physicians can’t turn back the clock; reform must happen; and physicians that are willing to adapt to the new order may be able to achieve reasonable practice solutions. Here’s one physician’s optimistic take on healthcare reform:

According to Alejandro Badia, MD, the Co-founder and Medical Director of OrthoNow in Miami, “The Affordable Care Act created a climate that encouraged entrepreneurial thinkers to activate new and disruptive methods of healthcare delivery. These innovations provided better outcomes, lower costs, improved patient experiences and improved clinician experiences. We should expect the innovations that emerged during that time, like access to specialized care on-demand, to remain viable options as we look to the future regardless of any actions that would repeal or modify the ACA.”

Our Recommendations for Independent Physician Practices

Physicians will need to continue to form larger groups to spread the costs of practice management and reporting over a wider base and obtain contracting leverage. Pressure to shift to VBP will remain, and models may be more varied. Physicians will be required to team with each other, healthcare systems, outpatient providers, skilled nursing providers, behavioral health providers, and others to deliver the care.

Physicians should be looking at their current locations critically. To achieve contracting leverage, physician groups need to offer geographic coverage in their service areas. The quality of their locations and the ability to offer coverage in desirable sub-markets will be a competitive factor in obtaining favorable managed care contracts. Some sort of payment based on “controlled patients” is inevitable and not completely different from capitation, or pay per each member per month. Without convenient locations that are well distributed, capturing and retaining patients will be challenging, and physicians won’t be paid for patients they don’t have.

At each location, the facility must be able to deliver care efficiently and maximize provider productivity while maintaining patient satisfaction. The spaces that house many physicians currently are obsolete and impede efficiency and productivity while requiring too much staffing due to their design. New designs can improve the layout of the space and lower the cost per encounter notwithstanding the higher rental rate associated with new buildings. Today’s medical office spaces are designed around a different reimbursement system, which is shaping a new way of delivering care organized around information technology.
 
Conclusion

2017 is not just another year of moderate change in U.S. healthcare — it is the advent of true healthcare reform.  Physicians will struggle to adjust to the reporting requirements and practice changes of MACRA and other payment reform initiatives designed to shift away from fee-for-service. Physician practice consolidation is necessary to achieve scale, afford sophisticated management talent, and recruit new physicians. There will be pressure on take-home pay while providers learn how to work the system.

However, we believe there are some signs for optimism. A study by the American Hospital Association projected a shortage of 56,000 primary care physicians and 7,000 orthopedic surgeons by 2015. This relationship between escalating demand and shortage of supply will give physicians leverage in maintaining their compensation levels, provided they organize into groups, purchase up-to-date information technology, fund back-office infrastructure, leverage themselves to become clinical managers supported by mid-level providers, participate in innovative contracting opportunities, and improve their practice facilities and locations.
 

 

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