Physician practices grapple with new financial pressures

Financially, most physician practices are either stuck in neutral or falling behind, according to results from the 2014 Medical Economics Physician Practice Survey. More than 84% of the physicians surveyed said their practices are doing the same or worse than a year ago. Nearly 40% say they are doing worse. Only 15% of those respondents on average say that economic conditions have improved for their practices.

On one side, the costs of running a medical practice are rising, from basic utilities to medical supplies, vaccines and equipment. On the technology front, physicians are forced to implement expensive upgrades to attest to meaningful use and become ready for the International Classification of Diseases-10th Revision (ICD-10).

Preparing for ICD-10 alone can cost even a solo practice upwards of $56,000, says Stanley Nachimson, principal for Nachimson Advisors and author of a study on ICD-10 costs for the American Medical Association.

NEXT PAGE: Why reimbursement rates vary by market

Meanwhile, reimbursement rates for many common procedures are not keeping up with rising costs, says Elizabeth Woodcock, MBA, FACMPE, CPC, an expert in practice management healthcare consultant with Woodcock & Associates. Private payers still use Medicare as the bellwether for reimbursement rates, so as government payers decrease reimbursements, private payers follow along, she says.

“We’re seeing lower reimbursements for just about everything we do, even to the point that some of the reimbursements are less than what the insurance companies will pay,” says David Cohen, DO, an independent physician in Oakwood, Georgia. One of the problems with primary care, as Cohen sees it, is that physicians “don’t get paid for thinking.” In other words, all of the work a physician does building relationships with patients, including speaking to them on the phone and after hours, isn’t reimbursed in the fee-for-service world. “It’s unfortunate, but it’s getting harder to make a living in primary care,” Cohen says.

Healthcare reimbursement is driven primarily at the local level based on provider saturation and payer consolidation, so large disparities often exist between individual markets, Woodcock says. For example, you can travel an hour outside of Atlanta and see reimbursement rates that are 30% higher. 

“It’s supply and demand, and it speaks to the dominance of the payers and market dynamics” she says. “When you have that sort of monopoly, especially in so many markets, physicians hands are being tied behind their backs like never before.”

Many densely-populated areas are seeing intense competition between providers. At the same time, payers are working to narrow networks. Not only are physicians in these markets seeing reimbursement rates fall, but many physicians are being cut out of networks completely, slicing off a large portion of practice income at once.

Physician practice owners are most impacted by these forces, and as a result are dealing with incomes that have not budged in the last few years, according to survey results. Practice owners saw average incomes remain flat in 2013 at $244,000. Meanwhile, average income for employed physicians has grown, from $211,000 in 2011 to $216,000 in 2012, to $224,000 in 2013, a 6% increase.

“There are difficulties to owning a practice, and [the survey] does speak to a shift in the market from a reimbursement perspective into the hands of health systems,” Woodcock says. “Health systems have more dominance in markets than small independent physicians. Physicians who are employed are sheltered from that market force.”

Physicians are reacting to these financial pressures in a variety of ways. Many are earning secondary incomes away from their practices. Nearly one-third (32%) of physicians said that they earn income away from their practice or primary employer, mainly through consulting (20%), speaking (12%) non-emergency department hospital work (12%) and non-medical work (12%). The average annual  earnings from  secondary incomes was $48,800.

The other option is to see additional patients. Physicians who see more patients earn more income, yet another indication that the fee-for-service model is far from dead. Physicians who saw 50 or fewer
patients per week earned $169,000 annually on average, while those who saw between 50 and 100 patients earned $220,000 on average. Physicians who saw between 100 and 150 patients earned $274,000. 

But seeing more patients is not always so simple, because physicians’ time increasingly is taken up with administrative burdens.

NEXT PAGE: How much do physicians earn?

Average compensation for internal medicine physicians posted a 2% decline over last year. Pay for family physicians held steady at $195,000. The most significant income gains were noted for pediatricians, psychiatrists, ophthalmologists and dermatologists. Compensation declined for physicians working in emergency and acute care, gynecology and cardiology. 

NEXT PAGE: Physician pay by gender

Male physicians made significantly more on average than female physicians, regardless of whether they were employed in a group practice or maintained an ownership position within a practice. For every dollar earned by a male physician, a female physician earned 74 cents, with males earning $257,000 annually on average, compared to $190,000 for a female doctor. For employed physicians, the annual mean income for females  was $180,000, while their male colleagues earned $248,000. Among  physicians with a practice ownership position, female physicians earned $200,000 compared to $264,000 for male respondents.

NEXT PAGE: Physician earnings by region and community type

The survey denotes some regional differences in income, but not as large as might be expected based on factors like cost of living, cost of care, reimbursement rates, etc.