October 31, 2005

 

Tacoma orthopedic surgeon Dr. Nick Rajacich is one of an increasing number of doctors who, faced with intolerable financial pressures, has given up independent practice and gone to work for a hospital.

On Aug. 1, Rajacich, along with his partner, Dr. Victoria Silas, signed up to work for Multicare Health System, which runs three hospitals in the Tacoma area.

"The gist of it," Rajacich said, "was that the cost of running a practice kept going up, and reimbursement (for medical services) was not going up anywhere near that rate."

No survey data is available on how many doctors have been leaving practice as independents, but anecdotal evidence suggests that it's not just a few here and there.

Five years ago, no Tacoma orthopedic surgeons were hospital employees, Rajacich said, but now "close to a third of the orthopedic community in Tacoma is employed by big hospitals."

During the past four or five years, Multicare hired three orthopedic surgeons, he said. "I and Dr. Silas make five."

Multicare since has hired three more, Rajacich said, and another has gone to work at St. Joseph Medical Center, a Tacoma hospital owned by Franciscan Health System.

A recent report on the Seattle area, published by the Center for Studying Health System Change, a policy research organization based in Washington, D.C., observed that "Seattle physicians are facing increasing financial pressures as operating costs rise and health plans and public programs (Medicare and Medicaid) hold payment rates steady or to modest increases."

Small private practices in particular are feeling the pinch, the center said. As a result, "physicians are leaving small practices to join larger groups, seeking employment with hospital systems, and in a few instances, leaving the profession."

The center and the Washington State Medical Association point to several cost pressures that are undermining small physician practices -- costly medical malpractice insurance; higher labor, administrative and regulatory costs; low service payments from public and private insurers; and increasing pressure to invest in expensive electronic medical record systems.

"A medical practice is an independent business, and like any business, its revenue curve must outpace its expense curve or it cannot survive," said Bob Perna, health-care economics director at the state medical association

Rajacich's practice could not. "Everything has changed," he said.

For starters, he said, he faced malpractice insurance rates that doubled during the past five years.

Perna said professional liability insurance costs have "imposed crippling expenses on medical practices."

"Practices have closed," he said. "Physicians have left Washington state, moving to states with more favorable regulations -- such as caps on noneconomic damages -- and a better business environment."

As paperwork and regulations mounted, Rajacich had to hire more help.

Perna said state and federal laws and regulations impose operating costs for which there is no compensating revenue. Doctors must train their staff or hire more to handle "the operational complexities imposed," he said.

Surveys by the Medical Group Management Association, based in Englewood, Colo., show that physician practices average more than five support staff per doctor, he said. "These labor costs, as with any business, can push a practice to the point of no longer being economically viable," he said.

While his practice expenses kept increasing, Rajacich found that his income was not keeping pace. As an orthopedic surgeon, he treats many children whose care is paid for by Medicaid. "The reimbursements are pretty low," he said.

Doctors also complain about low Medicare payments. Perna said the Medicare payment formula "is not kept current and therefore underrepresents actual operating costs, especially for professional liability insurance rates."

"The problem," he added, "is magnified as the vast majority of (private) health insurers use some version of the Medicare payment formula to reimburse medical practices."

Not only did Rajacich have to struggle with higher operating expenses, looming ahead was the prospect of major capital costs.

Though he faced no immediate pressure, Rajacich said he expected that within the next five years or so he would have to invest in some form of electronic medical record (EMR) software.

Public agencies, such as the state Health Care Authority, and private health insurers likely will pressure doctors to make EMR investments as they seek more information from doctors about how patients are being treated. The agencies and carriers indicate they will use that information to assess the quality and efficiency of doctors and to pay them accordingly.

Perna said EMR investments, which come with high price tags but low business returns, may "drive physicians to the tipping point of closing their independent practices and seeking employment relationships."

A survey by the Medical Group Management Association, he said, found that the average cost of implementing an EMR system was $33,000 per doctor. Monthly maintenance fees added another $1,500 per doctor.

Perna said a University of California study pegged startup EMR costs for solo and small practices at $44,000 per doctor.