As networks gobble up practices, independent doctors fight to survive

In those days, he said, a doctor billed for his service to the insurance company and the hospital would separately bill the insurance company.

“There was no real financial relationship between the hospital and the doctors at the time,” he said.

That relationship has changed dramatically over the last two decades in the Greater Lehigh Valley and across the country, as more doctors become salaried employees of large hospital and health systems.

And the trend is accelerating as more health care systems consolidate.

<In 2000, 57 percent of doctors were independent; by 2012 that number dropped to 39 percent, according to Accenture Health Strategy, a global consulting firm.

<Nearly 5,000 independent physician practices were acquired by hospitals in a one-year period beginning in July 2016, according to new data from the Physicians Advocacy Institute, a nonprofit physician-based health care policy organization comprised of leaders from nine state medical associations.

<In 2016, for the first time, less than half of practicing physicians in the United States owned their own practice, according to a survey by the American Medical Association.

In the Lehigh Valley, about half of the members of the Lehigh County Medical Society and the Northampton Medical Society are independent.

In neighboring Berks County, doctors in private practice are rare; nearly all of the Berks County Medical Society’s 600 members are employed by either Tower Health or Penn State Health St. Joseph. Earlier this month, 14 physicians at Berks Cardiologists Ltd. reached an agreement to become Penn State Health employees.

Dippolito and others say it is becoming more difficult for doctors who want to remain independent to compete with the large hospital and health networks, which have deeper pockets, can negotiate greater reimbursements from insurance companies and discounts from vendors, and can offer higher salaries.

Large health care networks say their sheer size provides economies of scale not available to doctors in private practice. They say their resources and technology, such as electronic medical records, free up doctors to concentrate on practicing medicine instead of running a business.

Doctors who own their practices are running their own business and pay all costs themselves, from overhead to malpractice insurance.

“For more and more physicians, it’s becoming untenable,” Dippolito said. “They can’t take the stress and strain of taking care of patients and worrying about paying for their car payments.”

Doug Kilpatrick, executive director of the Northampton Medical Society, said, “All the independent doctors are feeling the squeeze. Their income is down, and they are feeling pressure in the marketplace.”

LESS COMPETITION, HIGHER COSTS

To gain greater advocacy for their concerns, Dippolito and 16 other doctors last fall formed the Pennsylvania chapter of the Association of Independent Doctors, a nonprofit organization with nearly 1,000 members in 33 states.

“Hospitals in the Lehigh Valley have been buying up medical groups,” said Marni Jameson Carey, executive director of the national association.

And as more health systems merge, it reduces competition and increases health care costs, Carey said.

“Hospitals buy up practices because they can capture more patient care, control more doctors and their referrals, have more leverage with payers and charge a facility fee, which is an added cost that independent doctors can’t charge,” she said.

Carey said costs increase because hospitals charge more and get greater reimbursements from insurance companies.

BULLIED?

The association has been fighting against consolidation of hospitals and opposed the merger of Blue Mountain Health System in Carbon County with St. Luke’s University Health Network, which was ultimately approved by federal regulators in December.

“Hospitals play two cards: bribe and bully. They tell the doctors how great it will be; we’ll take care of this and that and you’ll make a lot of money,” Carey said. “But if the doctor starts to resist, let’s say an orthopedics group, they’ll say fine, we’ll the hire the newest graduates right out of residency and we’ll create our own practice to compete directly and with billboards.

“These doctors get worried. These hospitals have a lot more resources to compete, so they fold their tents. Some cave because they’re afraid. They’re terrified of the hospital closing their staff to their specialty and not having admission privileges.”

UNEQUAL PAYMENTS

In a letter sent to Congress in February, the Physicians Advocacy Institute warned that consolidation is driving more patient care to hospitals and increasing costs. A study by PAI and Avalere, a health care consultancy, found Medicare payments are higher for care provided in hospital-owned settings than physician-office settings.

Dippolito, who has admitting and operating privileges at all of the area hospitals in the Lehigh Valley, said he often charges less than the local hospitals for certain procedures such as colonoscopies, but said the large health networks have the advantage of deeper referral networks.

As a self-employed physician running his own business, he shoulders costs that nonprofit hospitals do not incur, such as real estate taxes.

“The hospital doesn’t pay any taxes. I have to pay taxes to the municipality here, and that’s like having a partner in our business,” he said.

VALUES FREEDOM

Carey questioned nonprofit hospitals that have “a valet and marble fountains and folks making seven-figure salaries. It’s concerning to me where the money is going. I think they should pay taxes and have less marble.”

Dippolito said he values his independence.

“It’s not all about the money. I may work harder and longer, but I’m free. I make my own decisions. I don’t have anyone telling me to see a patient every 15 minutes. If I want, I can spend more time with a patient. In a hospital, they have someone looking over their shoulder.”

Dr. Manny Iyer, president of the Northampton Medical Society, cautioned its members may be witnessing the demise of independent physician practices, which he said may have been an unintended consequence of the Patient Protection and Affordable Care Act of 2010.

In his presidential address this year, Iyer said hospital mergers give “unprecedented clout to these systems to pick and choose which physicians will be offered staff privileges and the ability to practice in a given area.”

COLLABORATIVE

Doctors’ employment status varies across Pennsylvania, with doctors in or near urban areas more likely to be employed by hospitals or health networks, said Dr. Jaan Sidorov, CEO of the Care Centered Collaborative, a subsidiary of the Pennsylvania Medical Society, which advocates for both salaried and independent physicians.

“It’s really up to the individual physician to choose what’s best for him or her and for their patients,” Sidorov said.

The collaborative helps physicians get contracts with hospitals that may include alternatives to being strictly salaried or independent.

“The large health systems have an interest in working with as many physicians in their local service areas,” Sidorov said.

FUNDING FOR INDEPENDENTS

Sidorov said independent physicians offer a set of advantages in the marketplace that are important. He said independent doctors have a reputation for being community and service-minded and providing better access for patients.

“Those kinds of advantages also confer disadvantages, which is why the medical society wants to work with the physicians that are unaffiliated with a hospital and help them scale the same way. We’ve got the funding mechanism to help physicians achieve scale,” he said.

“We are seeing more and more of these arrangements. We are talking to insurance companies across the state who are interested in partnering with physicians to do this. They are interested in working with hospitals to do this. The machinery is there.”

REGULATORY, MARKET PRESSURES

Joe Minahan, president of St. Luke’s Physician Group, the network of primary care and specialty physicians within St. Luke’s University Health Network, said changes in regulatory and market conditions over the last two decades have forced health care systems to change their physician employment model.

In 1999, SLPG employed less than 100 doctors. As health maintenance organizations became more prevalent and the cost of malpractice insurance increased for obstetricians and gynecologists in Pennsylvania, doctors in private practice struggled to stay afloat.

“If St. Luke’s didn’t employ those doctors, they would have gone out of business,” Minahan said.

COST-EFFECTIVE INVESTMENTS

Over the last decade, as SLUHN expanded, the number of physicians employed by SLPG has more than tripled, increasing from about 350 physicians to about 1,100.

“Ninety-five percent of the physicians reached out to us,” Minahan said.

He said St. Luke’s can offer size and economies of scale necessary to make cost-effective investments that independent doctors can’t afford.

A doctor’s status is generally not a barrier to obtaining operating privileges at one of the hospitals in the region.

“We work with hundreds of independent physicians at St. Luke’s. They provide a service in our hospitals,” he said. “If a physician provides high quality and appropriate care, we want to work with them whether they are our employee or whether they are a community-based physician.”

MORE MEDICINE, LESS ADMINISTRATION

Some formerly independent doctors say becoming a salaried doctor with a large health network freed them from having to run a business so they could spend more time practicing medicine.

Dr. John Brinker was in private practice for 11 years before he and his business partner became part of SLUHN in 2014. Insurance contracts were becoming more complex and reimbursement rates were getting lower because it was no longer fee-for-service.

“The notations for fees and schedules became very difficult and time consuming. So just getting paid was becoming more and more difficult,” said Brinker of St. Luke’s Monroe Family Practice Associates in Stroud Township.

“From an office standpoint, running the day-to-day operations of the office became a bigger duty simply because computers were becoming a bigger part of the practice,” he said. “You were no longer just a physician, you were the IT [information technology] manager and also the chief negotiator for the insurers.”

HELPING TO RUN THE PRACTICE

It was becoming a lot of work, and Brinker was spending more and more time dealing with these issues than providing direct patient care.

“Very few young doctors come out of med school with any practical office experience,” he said.

“You learn everything about the human body, but you don’t learn how to run your practice and hospitals. Networks do that for you.”

WHAT’S BEST FOR THE PATIENT

Brinker said SLUHN does not pressure him to refer patients within the network.

“I live in a community where there are specialists of all kinds, employed and [independent]. You refer to what’s best for the patient,” he said.

Since his practice became part of St. Luke’s, it has been able to provide its patients with more access, open an office in Bartonsville and add four nurse practitioners that Brinker said it wouldn’t have had the ability bring on board.