Physician Job or Private Practice?

Throughout the entire debate leading up to the passage of the Affordable Care Act one of the mantras heard continually was that our healthcare system is broken. That’s unfortunate, because such a simple statement misrepresents the true state of the American healthcare system.

In reality, American healthcare is not broken; it is still the finest system in the world. What’s broken is the way we pay for it. This is easily demonstrated by looking at the quandary facing America’s doctors: is it better to take physician job with a hospital or remain in private practice?

Private Practice Being Choked Out

Up until the late 1980s the idea of private practice was still the “golden egg” med students pursued. To set up their own practice, develop relationships with each of their patients, and control their own destiny was what being a doctor was all about. Very few back then would even consider taking a physician job at a big institution. So what changed?

HMOs and the managed care philosophy came off in the mid-1980s and set the stage for where we are today. In other words, what most people view today as health insurance is really not insurance at all; it is simply a middleman (in the form of an insurance company) who takes money from subscribers and gives to healthcare providers. Because the middleman must be paid, insurance premiums must go up.

When premiums go up fewer people can afford insurance and insurance companies lose premiums. They turn around and cut reimbursements to doctors, in order to stem their losses, so doctors must raise their rates as well. All of this has resulted in the choking of the private practice.

Physician Job Cheaper

The harsh reality here is that taking a physician job with a hospital or healthcare group is significantly less expensive than for the doctor. He doesn’t have to worry about hiring employees, renting space, procuring equipment, and complying with state and federal regulations. As a salaried employee all the money in his paycheck (less tax) goes right into his pocket.

Along the same lines, taking a physician job is also easier in terms of stress and mental fatigue. As an employee the salaried doctor doesn’t have to worry about the business end of medicine.

Not All Roses

Despite all its positives, taking a physician job with an institution is not all roses. Some doctors who go this route feel as though they have entered a healthcare factory in which patients become revenue streams. Doctors often complain of being put under pressure to order unnecessary tests and treatments in order to secure more business for the hospital.

In the end the one thing we must face heading into the new healthcare world is the fact that we need to fix how we pay for healthcare — or all of this is moot. We need to scrap our current insurance system and go back to the legitimate insurance we had prior to the HMO age.

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Good Quality Improvement Programs Produce Better Bottom Lines

W. Edwards Deming once said, “In God we trust, all others bring data!” That is just what I propose to do in this newsletter. I often speak of how continuous quality improvement programs improve the bottom line at a healthcare site. This idea is throughout my web site. I promote the idea that “Quality pays, it does not cost.” That is, a good quality improvement program based upon population level data not only is not cost neutral, it improves the income and profit at a site. Many healthcare professionals do not believe this. They point at all the regulatory standards for quality, such as those written by JHACO, and believe that quality is actually costing them quite a bit. I have done some extensive research on this topic recently and believe that I can prove this point convincingly to you.

Fortunately there is good documentation of financial outcomes at healthcare sites which use various quality improvement approaches. I am very familiar with two of these-TransforMed’s National Demonstration Project and the Federal Government’s NIST (National Institute of Standards and Technology) Baldrige Award program. Starting in 2006 TransforMed, a subsidiary of American Academy of Family Physicians, began a program to aid in transforming a sample of primary care practices into models of the Patient-Centered Medical Home (PCMH). One group of sites was actively involved with representatives from TransfoMed to adopt the Patient-Centered model and the other group used materials supplied to them by TransforMed to use in a self-directed approach to adopt the model. TransforMed’s CEO, Dr. Terry McGeeney, wrote an article recently (available on the TransforMed website) summarizing the financial impact of the adoption of the PCMH. The results were very positive. The revenue for the assisted sites rose 10.49% on average and the rise in revenue for the self-directed sites was 2.43%. For physicians at these sites personal income rose nearly 14% at the assisted sites and 13% at the self-directed sites. This was achieved while most of these practices were installing electronic medical records. These results are well documented because of TransforMed’s practice change model incorporates strict tracking of financial data.

I am familiar with one such site here in West Michigan that has seen its bottom line swing from the red to the black because of its involvement with the TransforMed national project.

The Baldrige Award is given out each year to competitors in manufacturing, small business, education, healthcare and nonprofits. Those competing for the award must document continual quality improvement in a variety of categories. For healthcare providers there must be demonstrated improvement and achievement in healthcare outcome, patient and other customer-focused outcome, financial and market outcomes, workforce-focused outcomes, process effectiveness outcomes and leadership outcomes. In 2002 SSM Healthcare in St. Louis, the first healthcare recipient of the Baldrige Award, noted that it was able to maintain a AA credit rating over 4 years as it worked on the goals of the Baldrige Award. It increased its market share in St. Louis from 13% to 18% while three of its competitors lost ground. It has also been able to maintain its goal of contributing at least 25% of its operating revenue to charity care at its site. This is very impressive, given today’s marketplace challenges.

Another healthcare recipient, Mercy Health System of Janesville, Wisconsin, maintained its AA bond rating since 1989, all the while growing from a stand-alone hospital to a fully integrated system with three hospitals and 64 outpatient service facilities. In 2007 Mercy Health Systems was given a rating of positive long term outlook by Moody’s rating service.

This summer Modern Healthcare released a report prepared by Thomas Reuters Center for Healthcare Improvement focusing on the CMS’s Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey of patient satisfaction. The intent was to see if the ‘happiness’ as measured on the survey improved the bottom line. The report stated that there was not a strong direct correlation between the two measurements but that the hospitals with the best scores on the survey did generally have significantly better bottom lines than those who did not. Those with significantly better satisfaction scores did achieve significant results in core metrics other than financial. For instance, most reduced significantly patient-waiting times for discharge. Patients don’t like to wait for discharge and tend to be more dissatisfied when they do. When discharge time is minimal, then the cycle time for bed use is reduced and income per bed increases, thus improving the bottom line. Another measure of patient satisfaction relates to personal care. Hospitals with higher nurse to bed ratios show generally improved patent care and attention. According to J.D. Powers those with higher ratios also have a better bottom line. Those with an average of 1.19 nurses per patient bed had an average operating margin of 0.64%. Those with a ratio of 0.91 nurses had a negative 0.27% operating margin.

These three examples provide ample illustration, I believe, that good continuous quality improvement programs improve the bottom line. Those who use professional assistance in their improvement efforts earn a better bottom line improvement, as illustrated in the TransforMed example. The American Society of Quality at its website has several good samples of better bottom lines with quality improvement efforts; there is usually at least one article each month in its flagship publication Quality Progress which details an improvement effort at a healthcare site. My illustrations along with a variety of other resources available online prove that “Quality pays, it does not cost.”

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