Physicians: Are small practices going the way of the house call?

NEW BRITAIN–Dr. Lawrence Koch began practicing medicine in what he calls “the golden era.” For 27 years, he cared for patients in his private practice.

But in the mid-1990s, as payment rates from Medicare and private insurers declined and paperwork increased, requiring more employees to handle it, Koch gave up ownership of his practice and began working as part of a hospital-owned practice. He’s glad he did.

“It was obvious to me that a solo practitioner in internal medicine really couldn’t survive any longer,” he said recently in his office near The Hospital of Central Connecticut’s New Britain campus.

Koch may have been ahead of the curve, but many doctors in private practice are now contemplating similar moves, giving up ownership of their practices to become part of hospital-owned practices or larger groups with multiple specialties.

Connecticut is still dominated by practices with fewer than four physicians and has been slower to change than many other parts of the country, but hospital officials and doctors say the shift has been accelerating. Young doctors in particular are choosing to work for larger organizations rather than starting their own practices, they say.

The change is fueled in part by hospitals looking to grow their ranks of community-based physicians, who are a reliable source of referrals for lab work, tests and inpatient care. The health care system is evolving toward payment structures that reward better coordination between doctors and hospitals–and keeping patients out of the hospital. That’s led many hospital officials to see links with community physicians as critical to their future.

For doctors, meanwhile, becoming part of a larger organization means not having to handle administrative tasks like billing or be on call as often. It can mean more manageable hours, more leverage in negotiating with insurers, and a more secure financial situation.

In addition, many changes in health care seem to favor larger organizations, doctors say, particularly the push to adopt electronic medical records and an increased focus on measuring care quality and patient outcomes.

“All of these new types of delivery systems require incredible amounts of infrastructure, both in physician time and knowledge about the bureaucratic ins and outs of government regulations,” said Dr. Claudia Gruss, president of the Fairfield County Medical Association. “For a small practice, it’s extremely difficult to keep up to date with all these new regulations and reporting requirements.”

Gruss is one of five doctors in a practice with offices in Georgetown, Wilton and Norwalk. It’s sizable by Connecticut standards. But it’s not big enough to deal with new regulations and have bargaining power with insurers, she said. The group is exploring its options.

But not everybody is looking for a change, and even those who see the shift as inevitable say there are downsides.

Many doctors who built their practices and ran them independently are not interested in going to work for a larger organization, which could mean less discretion about how to practice or how much free care to provide.

Employed doctors might work fewer hours than they did when they were self-employed and reliant on patient volume for income, potentially leading to less access for patients. Some say employed doctors might not be as committed to staying in a particular area as a doctor who built up a practice over many years.

Office-based physicians support an average of 5.7 jobs, including their own, according to a recent study prepared for the American Medical Association, and some of those could be lost if back office functions like billing can be handled by a larger organization.

“The bottom line is the arrangements all go in the direction where the previous total independence of the physician is being sacrificed in order to gain the benefit of reducing overhead, diversifying revenue stream, aligning incentives and being able to succeed into the future,” said Dr. Steven D. Hanks, executive vice president and chief medical officer at The Hospital of Central Connecticut.

Looking for partners

At a dinner meeting in New Haven last month, Dr. Robert Nordgren told a roomful of doctors about the uncertainty hospitals face. The federal government and private insurers are looking toward changes in how they pay health care providers, and the models of the future will likely reward managing the health of a group of patients, rather than paying for each procedure or hospital visit.

To adapt, Nordgren said, hospitals must be able to manage patients across a continuum of care settings.

“If you’re going to be effective in any of that environment, you can’t just be a freestanding hospital,” he said.

Nordgren is CEO of Northeast Medical Group, which was started last year by the parent company of Yale-New Haven Hospital and has been acquiring physician practices. The medical group isn’t interested in managing the practices, Nordgren told the doctors; it buys practices’ hard assets like the building and furniture and has a central office to handle contracting and billing. Doctors get to manage their own practices in their own offices, but gain stability, help recruiting new physicians, electronic medical records and the benefits of being in a larger group in uncertain times.

Nordgren’s presentation, part of a program organized by the Connecticut State Medical Society, drew several skeptical questions from doctors. But Yale-New Haven is far from alone in seeking to acquire physician practices.

Stamford Hospital, for example, began acquiring physician practices through an organization called Stamford Health Integrated Practices last year. It has about 30 doctors now, and is in discussions with about 50 more. By the end of the year, officials hope to have 100, said Dr. Craig Olin, an internist who is part of the group.

Nationally, the proportion of doctors working for hospitals has increased in recent years. According to the Medical Group Management Association, which represents medical group practices, 28.1 percent of physicians in medical groups represented by the association worked for hospital-owned practices last year, up from 17 percent in 2003.

Large physician practices that include multiple specialties are also expanding. Dr. Amit Rastogi, president of PriMed, a practice with close to 60 doctors in Fairfield County, said the economies of scale in larger practices make it easier to afford the systems that are becoming increasingly important in medicine.

Last year, for example, Medicare provided a bonus payment to doctors who met certain targets for electronic prescribing. In the future, payments are expected to be increasingly tied to quality of care, Rastogi said, and proving that you meet quality standards requires having a way to measure, collect and report data. Hiring someone to harvest the data or an information technology specialist to troubleshoot the electronic medical records could be unaffordable to a group of 10 doctors, but would be doable if the cost is spread across 50 or 100 doctors, he said.

This isn’t the first time larger organizations have tried to acquire physician practices. In the 1990s, in response to managed care, hospitals began acquiring medical practices as a way to lock in referrals and potentially edge out third-party payers, Hanks said.

Many of those arrangements later unraveled, leaving many doctors skeptical of overtures to partner. Five years ago, said Dr. Frank Scifo, director of primary care development and urgent care medicine at St. Vincent’s Medical Center in Bridgeport, he would have expected doctors to be completely unreceptive to the idea of partnering.

In the past two years, though, doctors have been approaching him about some form of affiliation. Not a day goes by, he said, that he or a colleague don’t have a conversation with a doctor about alignment.

Safety in Numbers

One of those who found the idea enticing was Dr. Michael Kilgannon, a Willimantic internist.

Kilgannon worked in private practice with two other doctors since 1984. When one of his partners retired a few years ago, they struggled to find a replacement, and ultimately hired two nurse practitioners. With the second partner approaching retirement, Kilgannon had to rethink his options. Recruiting a doctor can cost thousands of dollars, and Kilgannon said many young doctors coming out of training want to make more than he does now.

The recruiting quandary was one of the reasons Kilgannon joined Hartford Medical Group, part of Hartford HealthCare, the parent company of Hartford and Windham hospitals. The medical group can handle much of the burden of recruiting, and offer better pay and benefits than he could alone.

Being part of a larger organization also provides a sense of security at a time when health reform is poised to bring change and uncertainty.

“I think everybody’s a little concerned about being out there on their own and not part of a bigger corporation or a bigger group with more bargaining power,” Kilgannon said. “Rather than being this little doc floundering on my own out there, I can be part of a larger group and part of Hartford HealthCare, which is a large corporation and a significant player in the state. I can feel a little safer with that.”

Little changed when he joined the medical group last April, Kilgannon said.

“The biggest difference was I had to make sure I wasn’t overstepping my allotted vacation allowance now that I’m an employee,” he said.

More recently, his practice got electronic medical records. They would have been unaffordable in his old situation, but Hartford Medical Group paid for them and provided support staff to help get him started.

“I think most of the primary care doctors see the writing on the wall,” he said.

For Koch, the decision to work for a hospital-owned practice was in part a way to do more teaching, and in part because of cost and administrative factors.

“It came to a point where I was working to pay my employees,” he said.

While it took away the administrative burdens, Koch said the change made little difference on the clinical side.

“There is no difference, there really is none, other than I don’t have to worry about billing, I don’t have to worry about salaries, I don’t have to worry about benefits for my employees,” he said. “I come in in the morning, put on my white coat, I see patients, I answer phone calls, at the end of the day, I go home.”

But others say that as more doctors become employees and work set hours, there could be less time to see patients.

Hanks said doctors choosing to be employed are making economically rational decisions. Some have been working so many hours in private practice that once they have a more secure situation in a hospital-based practice, they return to a saner existence, with fewer hours or patients per day.

“You can only run so hard and so fast for so long,” he said.

Dr. Craig Czarsty, an Oakville family doctor who has been in private practice since 1983, said access to doctors could become an increasing problem as more new doctors opt for ways to avoid working long hours and being on call, whether in hospital-based practices or other arrangements. Hospital-based practices can also lead to changes in work habits, he said.

“It’s simple human nature that someone receiving a fixed salary will not be as motivated as someone whose income is dependent on their production,” he said. “Production bonuses can be built into the contracts but it’s not the same.”

Czarsty, who is chairman of the board of the American Board of Family Medicine, is among the doctors not planning to leave private practice. He said he’s happy with his current arrangement.

“The boss is a pain in the butt but I can deal,” he quipped. “Did I mention that I’m the boss?”