Surviving Reimbursement Cuts by Being Proactive

If steep Medicare reimbursement cuts arrive early next year — and there are many health care analysts who believe it’s just a matter of time before they do — how will physicians and their medical practices survive?

Be proactive? Develop a plan now? Jodi Laurence, a board certified health law attorney with the Florida Health Law Center, believes that’s easier said than done.

“Physicians don’t do anything proactively, that’s the challenge,” Laurence says. “They really do need to be proactive in this new, changing health care environment. They have to learn to provide quality care at affordable prices, that’s the key. And they have to set themselves up in order to do that.”

Taking steps

Laurence is a proponent of physicians adding ancillary services to their practice to supplement their income. These services can include in-house dispensing, weight loss programs, or developing a clinical trial division. A lot depends on the type of practice. A dermatologist, for example, could add different types of skin care programs, or spa services.

Next, look at the way the practice is structured.

“Some doctors are always going to be solo practitioners no matter what,” Laurence explains. “If a physician is like that, he or she should consider becoming part of an IPA, a network of doctors, where they can keep their own practice, but come together for the purpose of negotiating contracts and having a management company manage them. Because they need the ability to show that they can provide good, quality care at affordable prices. And they’re not going to be able to have those resources as a lone ranger. So, for that type of doctor, they can still become part of a network and keep their autonomy.”

For other doctors who either have leadership ability, or want to be part of a bigger group, Laurence suggests that now is the time to start forming a group practice. And for those who are tired of the administrative aspect of medicine and simply want to practice medicine, if they’ve ever considered becoming a hospital employee, now is the time, Laurence says.

But she cautions that it’s critical to have a health care attorney review any contract you plan to sign.

“I’ve had doctors call me after they’ve become a hospital employee to tell me they’re so unhappy and want to get out,” Laurence says. “They send me their contract, and I ask them, ‘Why did you sign this? You have a non-compete.’ And so it’s critical to have an outside advisor advise you well.”

An alternative route

Matt Jacobson is the chief executive officer and founder of SignatureMD, a leading concierge medicine provider. He believes that adding ancillary services to a medical practice is like “putting a Bandaid on a gunshot wound.”

“When you think of a typical primary care physician, for example, a well-run practice has a 60% overhead, and 40% profit margin,” Jacobson explains. “If you take a 30% cut to a 60% overhead practice, you’re basically taking 30 cents of the 40 cents per dollar of profit that practice has. That’s a 75% cut.”

A practice with 75% overhead will be in the red. According to Jacobson, it doesn’t matter what physicians do with ancillary services, because those numbers just aren’t going to work.

“Doctors need to make some sort of major structural change to at least de-couple part of their revenue stream from the third-party reimbursement system,” he says.

What should those changes be? Jacobson suggests considering a market-segmented approach, such as a concierge-type practice.

“We have 2,000 patients who are non-concierge, and 300 to 600 who are concierge,” he explains. “If you have 300 [concierge] patients, that’s going to bring in an additional $400,000 of revenue to you. You can even afford $100,000 for a nurse practitioner that you bring on board to handle the non-concierge patients. That’s a big change. That can more than eat up the Medicare reductions.”

Analyze, then be proactive

Laurence says it’s imperative that physicians do an initial assessment of their practice. Examine the practice’s profits and losses to see if there are opportunities for cuts to be made internally. In addition, physicians need to look at the geographic aspect of the practice, what’s going on in their community and figure out what is going to work best for them.

“Physicians can’t just sit on the sidelines any more,” Laurence says. “Medical practices are big business. Health care is big business. And in order to survive in this economy, medical practices need to be properly structured. Physicians can’t just worry about practicing medicine; they have to be concerned with the aspects of practicing medicine as a business. It’s important for physicians to take action, but to take calculated risks with respect to that action.”

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