For almost 28 years, Dr. Carolyn Fields ran her primary care practice on her own.
Along with treating diabetes, curious rashes and stomach bugs, she hired the staff and managed payroll.
But in June, she became an employee of Bon Secours St. Francis Health System.
“I didn’t want to be bought. I wanted my independence,” she said of her earlier practice days. “But it’s becoming more and more difficult. And I got tired of all that.”
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It’s happening in the Upstate and across the nation — hospitals are acquiring more physician practices as they prepare to move away from a fee-for-service reimbursement system that pays for services and treatments to one that focuses more on quality outcomes and containing costs.
Greenville Health System has 750 employed physicians and another 250 nurse practitioners and physician assistants. St. Francis has about 250 and expects to hire more.
The Greenville County Medical Society estimates that 70 percent of its 900 members are employed by a hospital now.
Though the trend has been gaining steam, some experts say the push may be driving up health care costs.
However, hospitals and other experts say it’s an investment in a new way of doing business that will lead to smaller cost increases eventually.
The move to employ physicians has been growing steadily over the past decade as care increasingly shifted from the inpatient setting to the outpatient setting — from 2004 to 2011, outpatient services in the Medicare program grew by 34 percent, according to the federal Medicare Payment Advisory Commission.
And between 2001 and 2011, the number of physicians and dentists employed by hospitals nationwide grew from 157,312 to 225,771, according to the American Hospital Association.
MedPac, an independent body funded by Congress that provides advice on Medicare issues, says this push may be driving up costs as services once billed as physician visits are increasingly billed at higher hospital outpatient rates, even if they remain in the same location.
“For example, compared with rates in physicians’ offices, Medicare payment rates for (office) visits are 80 percent higher and echocardiograms are over 70 percent higher when billed as outpatient services, even after adjusting for differences in packaging,” the commissioners wrote in their 2013 Report to Congress on Medicare Payment Policy.
And in 2011, that difference translated into $1.5 billion in higher bills for the Medicare program and beneficiaries than if they’d been billed as physician office services, MedPAC reports.
Known as a facility fee, it’s been called a windfall for hospitals, said Alwyn Cassil of the Center for Studying Health System Change, a nonpartisan think tank in Washington, D.C.
“It’s potentially a huge issue,” she said. “But in some markets, they are using the fact that they’re not charging facility fees as a marketing tool to attract patients.”
Permitted by Medicare, facility fees help hospitals maintain their revenue streams in a changing reimbursement environment, said Dr. Angelo Sinopoli, vice president of clinical integration and chief medical officer at Greenville Health System.
“Hospitals are trying to do what they can to support themselves during that transition,” he said. “But I think (those fees) will go away in the next year or two. Medicare is already talking about changing that differential so there would be no difference between hospital and office.”
MedPAC expressed concern that those higher payments might give hospitals incentive to acquire physician practices, and it recommended equalizing payment rates so “hospitals would not be rewarded purely for changes in corporate structure that do not change patient care.”
GHS uses these charges in limited settings where services are typically provided in a hospital, such as infusion clinics and labs, said Lynn Waters, executive director of revenue cycle. But these fees aren’t charged at more than 90 percent of its free-standing physician practices, she said.
St. Francis CEO Mark Nantz said the hospital charges facility fees for some outpatient services, such as cancer care. But those services were developed as outpatient departments to begin with, he said, adding that he’s not aware of any facility fees being charged at physician practices the hospital has affiliated with.
“There might be some short-term financial gain to be gotten, but we didn’t think that would put us in a better position,” he said. “Also, there could be a backlash of patients if it’s more expensive. And at some point, we will compete on price competitiveness.”
Another way the practice of hiring physicians could drive up health care costs, MedPAC said, is that larger institutions have more bargaining clout with insurers.
“The acquisition of physicians in principle would make it easier to integrate those physicians to coordinate care for the patients, and that should have positive impacts on quality. But there’s no guarantee that happens,” Cassil said.
“The flip side is that it’s a consolidation of providers,” she added. “And when you join hospitals and doctors together, you create even more negotiating levers to exert over payers and purchasers ... it gives you a lot of negotiation clout to get higher payment rates.”
Columbia health care consultant Lynn Bailey told GreenvilleOnline.com that another reason hospitals are employing more physicians is to get their referrals. And that having the physicians as well as home health agencies, transportation, rehabilitation, medical equipment and other services makes hospitals the dominant provider in an area.
“Generally speaking, we have not found in U.S. economic history that to be a beneficial relationship for the consumer,” she said. “You end up with above competitive market pricing.”
Sinopoli said that GHS does “try to get the best deals we can get.” But it’s also involved in projects to reduce costs and improve outcomes, such as a partnership with Blue Choice Medicaid to cut rates up front by 15 percent, he said.
And Nantz said St. Francis has no more leverage because of employed physicians.
“I only have a third market share,” he said. “Where that may make some sense is where you have communities that have one sole provider and all physicians are employed by that provider — a take it or leave it situation. I don’t think you have that in Greenville because you have two large players.”
Moreover, he said, large insurers have the same market leverage.
A new environment
GHS has been hiring physicians for years, typically in specialties that it sees as inadequately covered, such as urology and primary care, Sinopoli said. But it has no goal in terms of numbers.
“We are looking to hire some (gastroenterologists) ... and a few more neurologists. We are filling in particular needs here and there,” he said. “What we are doing at this point ... is trying to right-size it around the idea that we are going to be in a managed-care environment.”
Managed care, a more highly controlled payment and provider strategy typified by HMOs, was the big idea in the 1980s to control health care costs. But it had little impact on the nation’s ever-spiraling medical tab.
Sinopoli said GHS believes that government, insurers and businesses are increasingly looking at paying a capitated rate — or a set payment per person no matter how much health services he uses — to provide care for a population, such as employees and Medicare beneficiaries. And that’s what’s driving the hospital’s decision to hire more physicians and operate other services, like home care, in a network of clinically integrated providers, which he said should result in a more efficient, and therefore, less costly product.
He points to Kaiser Permanente, an integrated managed-care organization in California that’s been operating for decades, as an example of such a system. Businesses pay a set fee for their employees to get health care from Kaiser Permanente’s employed providers. And that’s kept premium growth down, he said.
But those savings don’t happen overnight, he said. There are up-front expenses, such as hiring physicians, which makes it more expensive initially than if nothing had been done, he said. Eventually, he said, the system works to keep premiums in that market low.
“You make an investment up front to effect a change down the road,” he said. “It will drive (costs) up initially. Long term, costs will go down.”
Nantz also is building “a full continuum of care” from the preventative to the acute to prepare for capitation.
“We think it’s coming down to population health management — either government or business giving a fee to handle a population of people — and you take the risk for it or share the savings,” he said. “We think we’ll reduce waste, duplication of tests, and facilitate communication between providers. And if we have a clinical pathway that everyone follows based on evidence-based medicine, quality of care is improved.”
St. Francis’ parent, Bon Secours, has a plan for 60,000 Medicare patients — about 20,000 in the Upstate — called Good Help that uses the same fee-for-service reimbursement system, but commits to hold down costs through controlled utilization, reduced unnecessary care and duplication of services, and better outcomes, Nantz said.
“Now, the math tells us the cost will go up 5 percent for the same beneficiaries over the next three years. If we can bend that to 2.5 percent, then we and Medicare will split the savings,” he said. “It’s not about rationing care or keeping beneficiaries from something they need. But about not wasting, and not duplicating, and maybe being more preventative to keep the diabetic out of the hospital.”
A different time
Other incentives have helped reduce costs and improve quality too, Sinopoli said. For example, inpatient mortality has dropped because of efforts to reduce hospital-acquired infections, and that cuts expenditures as well. And a push from Medicare to not pay for certain readmissions led to significant declines in those rates.
But attempts have been made before to control medical spending, and the nation’s health care bill is $2.9 trillion now.
Is the new approach any more likely to work?
“Now the economy is worse and driving it more,” Sinopoli said. “The continued rise in health care costs is a bigger and bigger line item for employers and government. Things are different now than in the past. The economic pressure to do this is greater than it’s ever been.”
Nantz said St. Francis’ readmission rate dropped 50 percent in the past three to five years, which helped to keep the rate of increase down.
“Given enough time to transform our system into a value-based system from a volume-based system, it can work,” he said. “But the incentives have to be aligned. Revenue and expense still have to balance. And you can’t do it overnight.”
Cassil said there have been many efforts at the national level to place more of an emphasis on primary care, and on greater coordination across settings and providers to reduce costs.
“But until you send strong economic signals to health care providers that they will prosper financially when they coordinate and pay more attention to patients needs,” she said, “then you’ll have change.”
Bailey said the nation is struggling to figure out whether more competition or more collaboration will improve quality and control costs, though consolidation tends to result in more expensive care, and less choice for consumers.
“For a reform that is looking at being patient-centered, it’s missing on this one,” she said.
Meant to be
Fields says she’s seen a lot of ideas come and go without reducing costs. And some have actually increased costs, she said. So she’s taking a wait-and-see approach.
“Over the years, there have been more and more things that people have decided were good ideas. And they didn’t work out the way they thought,” she said. “So people had to increase the staffs. And insurance companies don’t necessarily increase what they pay you over time. You can take it or leave it, especially if you’re a small practice.”
There were times, she said, when she had trouble keeping her head above water because of the slow reimbursement.
“Payday would come around, and I worried that I’d have enough to make payroll,” she said. “Insurers would make it up later, but that’s not good for cash flow.”
So she found herself longing for the days when she first began to practice.
“At that time, there weren’t as many unpaid things you had to do in the practice, and reimbursement was a little better. I had one fee schedule. My standard office visit was $18,” she said.
“I didn’t have to call a clerk at an insurance company and get permission to send a patient for a test or to see a specialist or prescribe a medication. I didn’t have to file claims. I gave the form to the patients and they sent it in,” she added. “There’s a lot to be said for that kind of freedom.”
Being part of the hospital relieves her of some of those hassles, gives her support services she didn’t have before, and enables her to offer her employees better benefits, she said.
“I already thought it might be a nice thing and I talked to a lot of colleagues who had done the same thing who liked it,” she said. “I guess it was meant to be.”