The new physician entrepreneur--friend or foe?

Cappel, Sam D. ; Waiker, Avi ; Tucci, Jack E. 等

ABSTRACT

The Physician Entrepreneur--a double edged sword? Is the new physician entrepreneur good for healthcare in the United States or simply another force contributing to the escalating costs of our healthcare system? Regardless of opinions, today's entrepreneurial physicians are steadily becoming a rival to established healthcare providers. Physician owned healthcare services and physician owned specialty hospitals are increasingly capturing a large portion of healthcare dollars, especially in the high profit areas. Depending upon the perspective taken, physician entrepreneurs can be seen as both friend and foe. This study examines some of the positive and negative impacts of the new physician entrepreneur, and examines the role of the physician entrepreneur in shaping healthcare delivery systems of the future.

INTRODUCTION

While physicians have a long history as entrepreneurs, recently the number of physicians participating in entrepreneurial ventures has been growing at an unprecedented rate. The principal factors contributing to this growth among physician entrepreneurs appears to be downward pressures on physician incomes resulting from increased expenses associated with the operation of medical practices, advances in technology resulting in the practice of "scientific medicine", and pressures from third-party payers to reduce payments for medical services The first consideration is increasing costs associated with operating a medical practice.

Physician's practice incomes are eroding today due to lower reimbursements, higher costs for malpractice insurance, administrative burdens, delayed payments for services and complex reimbursement procedures from insurers that require increased professional and clerical man hours, and frequently delay reimbursements (Kalogredis, 2004). One specific example of reimbursement pressure on physician incomes is an initial reimbursement reduction of 4.3% for Medicare Part B charges in 2006, which under current law will continue over a six year period, during which reimbursement reductions for Medicare Part B charges will total 26% (Sloan, 2005). Compounding the pressure of reduced reimbursement is the expectation that physicians will become more efficient as they see more patients in less time--due to population increases combined with a physician shortage. Adding to incomes pressures for physicians created by increases in practice costs are income reductions tied to a shift to more outpatient procedures and reduced length of stay for inpatient procedures. Much of this is a result of scientific and technological advances in medicine.

Scientific and technological advances in the practice of medicine have virtually eliminated the need for "exploratory surgery". New medical diagnostic equipment, tests, and advances in medical and surgical equipment and processes have resulted in many procedures previously requiring lengthy hospital stays, being performed on an outpatient basis. Scientific and technological advances have also led to shorter lengths of stay for patients requiring in-patient hospital services. While scientific medicine has vastly improved the quality of care, it has also contributed to downward pressures on physician incomes. In addition to income pressures resulting from the increased utilization of science and technology in the practice of medicine, third party payers have also contributed to pressures on physician income levels (Broxterman, 2005).

As healthcare competition heats up along with escalating costs, hospitals, health systems, and physicians are under more pressure than ever to accept risk in the form of various capitation agreements. Under these plans primary healthcare providers are paid a fixed fee based on the number of plan members under their care, or by diagnosis, rather than on the basis of services rendered. According to Johnson and Egger (2000) the major failure of capitation programs to reduce the costs associated with healthcare delivery has been a failure to put physician specialists at risk in the same way that hospitals and primary care physicians are put at risk. New capitation agreements are designed to reimburse specialists based on the number or percentage of plan members under their care, or by diagnosis, rather than basing reimbursement on the number of procedures performed by the specialist as has been common practice for quite some time. This system re-designed is intended to encourage specialists to practice less costly (less profitable) medicine. Given that practice costs are increasing, technology has reduced length of stay, and payers are adopting more comprehensive capitation systems--physicians are seeking ways to protect their income levels.

In order to alleviate income pressures resulting from advances in the application of "scientific medicine" and pressures from third party payers the primary areas of physician investment have been freestanding surgical centers, specialty hospitals and diagnostic centers. In response to this movement, many universities are now offering MD-MBA programs, preparing entrepreneurial physicians to seize new business opportunities. While this may create new opportunities for some, does it also contribute to escalating costs of healthcare delivery, as more physicians are now involved in many new and evolving business opportunities?

CONCERNS

There are many concerns regarding physician investments in health care related services and facilities. A 1992 study in Florida found that at least 40 percent of physicians in that state who were involved in direct patient care, had investments in a health care agency to which they might refer patients. (Mitchell & Scott, 1992). Areas of physician and physician group investments include both diagnostic and therapeutic services often related to the primary practice of the physician or physicians. Specific diagnostic areas where physician investments are common include freestanding laboratories, diagnostic imaging centers (CT scanners, MRI units, ultrasound units and radiology centers) mobile heart catheterization laboratories, and endoscopy centers. Physicians also frequently invest in therapeutic services such as ambulatory surgery centers, minor emergency rooms, dialysis centers, alcohol and drug abuse treatment centers, physical therapy and rehabilitation services, prenatal nutritional centers and radiation therapy centers. Other investments which are common among physicians include home health agencies, durable medical equipment suppliers, outpatient infusion therapy services, and nursing homes (Anonymous, 2004).

The current healthcare system in the United States funds much uncompensated and charity care through a process referred to as cost shifting. Under this system payments received for medical services from insured and private pay patients also cover many of the expenses associated with the delivery of uncompensated and under-compensated care. Thus, by increasing the number of healthy patients with adequate health care coverage and minimizing the number of very sick and indigent patients a medical facility can substantially increase operating profits.

One concern, especially tied to investments by physicians in freestanding outpatient surgical centers and specialty hospitals is the erosion of community based full service hospitals ability to provide charity care. The Texas Healthcare Association's "Report on Limited Service Providers" illustrates the disparity in services provided by full service community hospitals and limited service health care centers. This study found that limited service doctor-owned businesses selectively admit healthier and better reimbursed patients--a process commonly referred to as "cherry picking". Patients who are less healthy and in addition to the primary diagnosis associated with admission present with co-morbidity factors such as coronary problems, morbid obesity, respiratory problems, and diabetes are more likely to be admitted to full-service community based facilities. Under the current system which often involves capitation, a single fixed rate often reimbursed by primary diagnosis, so it more profitable for healthcare facilities to avoid admitting patients who are "high risk". The primary care of these patients is more costly to deliver and the potential liability risk is greater for less healthy patients. Thus "cherry picking" by admitting physicians could increase profits for limited service facilities at the expense of full service community hospitals. In addition to shifting profits to physician owned specialty facilities by patient selection, the offering of limited or no emergency room services also may increase the profitability of specialty facilities at the expense of full service community based hospitals..

Because the emergency room provides a gateway to health care for the indigent, much of the uncompensated in-patient care delivered by full service community hospitals is originated by emergency room admissions. A study conducted by the American Health Standards Group found that limited service healthcare centers deliver significantly less emergency care and access to the emergency department by offering a limited range of emergency services, or in some cases no emergency department. Full-service hospitals within the American Health Standards Group study had an average of 14,760 emergency room visits per year or 40.4 visits per day, compared to an average 480 emergency room visits per year or 1.3 visits per day for physician-owned limited service hospitals that offer some level of emergency services (Speak Out on Doctor Owned Services,1995). While physician investments in freestanding surgical centers, specialty hospitals, diagnostic and therapeutic services are understandable attempts to protect and increase income levels among physicians, these entrepreneurial practices also raise numbers of questions. For example, a study by the American Health Standards Group (Speak Out on Doctor Owned Services,1995) determined that there was an increase in orders for services of over 40% when the physician entrepreneur held a financial stake in the service being administered. The question here is whether tests are ordered more frequently by physicians with personal financial interest in the facility providing these services because of financial interests, or is a higher level of care being administered because tests in these facilities are more easily scheduled, feedback is received more rapidly, or because patient inconvenience is minimized? Regardless of the motivation of physician entrepreneurs, the question remains as to the appropriate response by traditional providers.

RESPONSE TO THE PHYSICIAN ENTREPRENEUR

Traditional healthcare providers are using both cooperative and competitive strategies in response to entrepreneurial physicians. Hospital cooperative VHA recently counseled its members to "build barriers" to restrict physician entrepreneurs who compete with them. These barriers can take many forms which include, threats of revoking the admitting privileges of physician investors, lobbying for tighter state control of permits for construction of new medical facilities, convincing insurers that competitive pressures will require higher reimbursement rates to offset volume declines, support of bills that tax facilities providing little charity care to provide additional funds for providers of charity care in the community, and initiating large numbers of lawsuits against those who desire to construct new facilities, are just a few examples of "barrier building"(Anonymous,2004).

Cooperative strategies are emerging especially with regard to hospital / physician joint-ventures. Typically these joint ventures involve procedures that generate a technical fee, or facility use fee from both public and private payers. Ambulatory surgery centers, endoscopy suites and imaging centers are common examples of services where hospitals joint venture with physicians. Hospitals participating in these joint ventures realize that hospital revenues will be reduced, but tend to participate based on the rationale that "half is better than none"-assuming that physicians could move ahead alone or with other partners if the hospital is unwilling to participate (Lifton & Bryant, 2006).

DISCUSSION

There is little argument that the increasing cost of healthcare is a major national problem. Under existing payment structures, much of the costs associated with providing care for the uninsured and indigent are shifted to existing payers. As costs of care and the number of uninsured grow, health insurance costs rise. As health insurance costs rise, fewer businesses can afford to provide medical coverage to employees, fewer employees are able to afford their share of insurance premiums, and fewer of the self employed are able to afford health insurance coverage. The existing structure, which transfers costs for treating the indigent and uninsured to private payers, is no longer working. Cost shifting now acts to reduce the number of payers, provide financial incentives to care providers that target profitable patient populations, and increase the total number of uninsured. Rather than focusing on retaining a system that is failing, perhaps developing a new model is the answer. Can entrepreneurship in medicine provide the foundation for a more successful system?

Perhaps, rather than trying to control the success of the new physician entrepreneur, through additional taxes, legislation to limit their growth, and building barriers to restrict their success, efforts should be made to partner with them for mutual benefit. Providing financial incentives to new physician entrepreneurs may serve to enlist much needed intellectual capital in the quest to design a system that delivers high quality and affordable health care to the population of the United States. In developing solutions for a failing healthcare system much research will be required.

Areas for continuing research should include the examination of practice strategies employed by successful physician entrepreneurs and an assessment of opportunities to transfer these skills to other healthcare providers. Another area for future research is the evaluation of current governmental regulations and controls, to determine which regulations and controls support and which hinder efforts to provide high quality / high value healthcare to our population. It is suggested that research and cooperative efforts are central to the development of a healthcare system capable of providing for the needs of all our citizens now and in the future.

CONCLUSION

The emergence of the physician entrepreneur should not really call the question of friend or foe, as has been the case in most of the academic, professional, and healthcare industry literature. Research demonstrates that physician owned facilities tend to be well run facilities with short lengths of stay and good patient outcomes. Having pressured physicians to reduce patient lengths of stay, integrate more technology in the practice of medicine, accept capitation of payments, while facing increasing costs associated with operating their practices; should it be surprising when physicians seek ways to protect and increase their incomes? The economy in the United States is based on the philosophy that open competition and free market forces result in the delivery of higher quality / higher value products and services to consumers.

New physician entrepreneurs are challenging the established health care delivery system in this country. There are basically two alternatives available which are; enlist the aid of entrepreneurial physicians in designing a more effective and efficient heath care system, or seek to protect the current system that is currently in crisis. Regardless of the alternative chosen, the new entrepreneurial physicians will pay a pivotal role in shaping the health care delivery of the future in this country. The likelihood of significant improvement in the current health care delivery system may well depend on our view of the new entrepreneurial physicians as friends or foes.

REFERENCES

Anonymous (2004). VHA: keep doc investors at bay. Modern Healthcare, 34(10):10.

Broxterman, M.P. (2005). Understand the top 10 reasons doctors quit jobs. Health Care Strategic Management, 23(10), 9-10.

Johnson,D.E. & Egger E. (Editors) (2000). Providers may not like it, but various forms of capitation will increase for hospitals, physicians. Health Care Strategic Management, 12(special issue--future trends), 22-23.

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Mitchell,J.M. & Scott, E. (1992). Physician ownership of physical therapy services: Effects on charges, utilization, profits, and service characteristics. Journal of the American Medical Association, 268(15):2055-2059.

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Sam D. Cappel, Southeastern Louisiana University

Avi Waiker, Southeastern Louisiana University

Jack E. Tucci, Mississippi State University, Meridian