Bill Sonn


In November 2002, the CEOs of five sizeable Massachusetts medical practices - normally competitors for patients and managed-care contracts - got together to talk about business. As Harvard Vanguard Medical Associates CEO Kenneth Paulus recalls, all were looking for ways to manage what had become a “very difficult and complex healthcare market. We were meeting to see what we could do to survive, basically.” 

Eighteen months later, Harvard Vanguard and three other groups merged to form one of the largest multispecialty physician groups in the eastern Massachusetts market. And Paulus is in a position to navigate instead of being pushed by the flow. 

Thanks to troubling business issues that all practices face - rising costs, limited access to capital, failing negotiating clout with health plans, and uncertain reimbursement levels - Paulus thinks more practices will soon be following Harvard Vanguard’s lead. Forming larger multispecialty practices, he says, is going to become an emerging trend. 

Large group mergers, notes Ryan O’Connor, vice president of membership for the American Medical Group Association, based in Alexandria, Va., have been rare in recent years. “We haven’t seen this trend [to large, multispecialty practices] as active as it was in the late ’90s,” he says. 

The reasons have been cultural, not economic. As practice management companies acquired and combined practices, operations tended to flounder when they reached somewhere around 200 physicians. “The culture of group practice is very tough,” O’Connor points out. It can be undermined by a disconnect that often occurs between professional managers - who become indispensable as practices grow - and physicians. 

While physicians are concerned about delivering care, managers, by necessity, focus on operational controls. The two interests can and do conflict. Then, too, there are compensation issues in multispecialty practices. A primary-care provider in a large practice might not make as much as a specialist; resentments can fester. 

The most successful multispecialty practices, Paulus says, have deliberately collaborative cultures. O’Connor likens it to “the symphony orchestra versus the bowling team. On the bowling team,” he says, “everybody wears the same color shirt, but everyone is really bowling for their individual, highest possible score. In an orchestra, everyone’s working for the greater good of the group.” Orchestras, he adds, are significantly harder to operate than bowling teams, and not a few orchestral practices have given up in recent years. 

So while many practices “are still very much in a growth mode, they’re usually looking to grow by one or two physicians at a time,” says O’Connor. 

But by 2002, Harvard Vanguard and its three new partners - formerly known as South Shore Medical Center, Southboro Medical Group, and Dedham Medical Associates - decided they needed to pick up the pace. 

“It was more of a compilation of pressures that every single physicians’ group operates under: increasing malpractice rates, low reimbursements, the increasing costs of doing business, and the need to invest in new technology,” Paulus says. 

“When you put all that together,” merging began to make sense to the prospective partners. 

Executives from five physician groups met in part “to get to know each other” and in part, says Paulus, “to consider what, if anything, we could do together to put our groups in a better place.” As talks heated up, one group dropped out, deciding they were “not ready to … change their organizational structure and independence,” according to Paulus. 

Harvard Vanguard itself had a long history of aggressively changing shape as market conditions changed. Founded as Harvard Community Health Plan in 1969, it merged with Pilgrim Health Care to form the largest HMO in New England in 1995. Two years later, it reorganized as a separate nonprofit with a new name, Harvard Vanguard, to run 14 multispecialty health centers. In the years since, it has refashioned itself to own and operate pharmacies in order to negotiate directly with pharmaceutical companies for the best prices. 


Getting the best managed-care contract, supply, and insurance prices, it turned out, also seemed to demand size. And for the smaller practices and for Harvard Vanguard itself, equipment demands remained high. One of the partners - Dedham Medical Associates, an 80-provider practice, estimated it would need to spend $7 million during the next seven years to implement an electronic medical records system on its own. 

Coming up with that kind of money is a challenge, to say the least. Most businesses, of course, borrow to finance big purchases, using their inventories, accounts receivable, and assets as collateral. Physician practices, however, usually have no inventories to borrow against, their receivables are often subject to the vagaries of reimbursement policies, and their biggest assets (usually real estate) are often held in the names of individual partners, not the practice. 

 Banks do loan money to groups, but usually only up to the individual physician’s credit limit or enough to buy something tangible, like real estate - not quickly depreciating software. 

Until recently, capital for expansion often came from nonbank sources. In the late ’90s, physician management companies provided it, but when the management companies collapsed, small practices’ ability to borrow money dried up. 

Before that, hospitals provided some capital, or even technology, as they acquired and tried to integrate medical practices into their systems. But that model, Paulus says, “didn’t work. [Hospitals and physician practices] are two different lines of business. Each is very important to the healthcare system. But they don’t need to own each other.” 

All of which has left physician groups without ready sources of money for expansion. “More and more,” O’Connor points out, “medical groups are struggling to get access to capital.” 

The Boston groups ultimately determined that getting bigger - this time by combining with other physicians, not necessarily hospitals or management companies - would help. 

So far, the strategy seems to be working. In the first three months after the merger was announced - in April 2004 -Paulus reports, “we’ve lowered our malpractice costs by pooling across a larger population of physicians. We’ve been able to control some administrative costs by sharing them, and have moved forward with sharing [information technology] costs. On the contracting front, we can more closely mirror the marketplace [for managed-care services].” 

Paulus is confident he can avoid some of the “bowling team” problems that have afflicted other multispecialty practices. 

“We haven’t had the [compensation] problem yet. C ompensation here is based on a productivity model, so the structure is transparent to all. And, look, specialists make more money,” says Paulus. 

Weaving the combined practice together, he adds, will take time and effort. But he says he’s certain the combination gives his physicians powerful tools not only to deflect accelerating market pressures, but to achieve a more rewarding professional life. 

This article originally appeared in the October 2004 issue of 

Articles

Forming larger multispecialty practices is going to become an emerging trend.

Merging for Success


Staff salaries at physician offices rose again last year, several studies show, and unless something radical changes, they will keep climbing faster than the inflation rate for the near future.

Physicians are paying employees more in part because they are more dependent on them than ever before, says Gary Alexander, president of OfficeWorksRx, which places nonclinical staffers in physician offices in a number of cities across the country.

“A lot of practices are small businesses, where, technically, the doctor is the CEO,” he explains. “But he’s not always a CEO who’s focusing on the business. He’s seeing 30 or 40 patients a day. So you become more and more dependent on your personnel. If you don’t have stellar personnel, you’re dead.” (For more, see the article on hiring an office manager, page 41.)

Even slight changes in pay tend to have a big impact on a practice’s bottom line, notes Jeff Denning of Practice Performance Group, a management consulting group based in La Jolla, Calif. “For most, staff wages are about half their expenses,” he says. “Rent is number two, and it is a distant second. So an increase of 2 percent to 4 percent [in compensation] is a big deal.”

In all, medical office clerical staffers’ wages increased an average of 9 percent last year, the Professional Association of Health Care Office Management (PAHCOM) reports. (Wages for all U.S. workers, by comparison, rose a little more than 2 percent, according to the U.S. Dept. of Labor). Managerial-level medical office staffers’ salaries also rose.

Group practice administrators - often the highest-level nonphysicians in the office - enjoyed substantial raises, averaging 15 percent at small offices and almost 4 percent at large offices, according to the Medical Group Management Association’s (MGMA) “Management Compensation Survey: 2003 Report Based on 2002 Data.”

And with revenues increasing far more slowly than salaries, most of the increased cost of doing business comes directly out of the practice partners’ pockets. The trend leaves physicians needing to find creative ways to recruit and keep their best workers. The best physician-CEOs, various observers say, often find nonmonetary ways to keep their staffers, even as other businesses can offer more money. 

Salaries have been rising faster than revenues for years now. “The trends in healthcare have been reduced reimbursements and increased costs,” says David Gans, MGMA’s director of practice management resources. “The incentive [for the practice] therefore is to constrain costs and increase productivity [and thus their net margins].”

Paradoxically, that often means spending more money on, say, technology or human resources. That’s easier said than done when money and time are tight. For one thing, the competition for good workers can be fierce. People qualified to work in a physician’s office can often make more money working in other settings.

“The person in the doctor’s billing office could just as easily work in a hospital or health plan billing office,” Gans points out. “A hospital, because of its size, has a different pay scale than a practice.” And when it comes to benefits and salaries, of course, hospitals and larger employers simply have more to offer. And many of your employees’ skills are transferable to other industries that may be in better shape financially than healthcare, adds Alexander. To hire or retain them, you’ll need to offer fair market wages. (See charts of average wages, page 70).

All of this leaves practices at a disadvantage in getting and paying for good employees. But there is some good news: nonmonetary issues may be even more important than monetary ones in rewarding staff. “In every labor survey ever done, salary is never the number-one reason for retention,” Alexander says. “You really have to go beyond salary.”

Indeed, some practices “can get away with paying a little bit lower wage [than hospitals] because they can offer a little better working environment,” Gans reports. “There’s less anonymity. The hours are better. It is more intimate.”

You still have to pay a “competitive” wage, he adds, or else lose staff to businesses that do. But good recruiting means more than just money - it also means paying attention to human resources management principles like continuously improving working conditions at the office, supporting staffers’ ambitions, and maintaining sound business practices that, at first blush, would not look like they are related to salary issues at all.

The best-staffed practices - and, typically, most profitable - do that. In general, Gans adds, the physician practices that perform well financially, regardless of size, “have a better culture. They’re better places to work.” 

What makes a practice a good place to work? Mostly, it’s a matter of respect, and the experts say physicians have a long way to go when it comes to respecting employees on a professional level. “I’m going to get in trouble for saying this, but physicians do not respect the work of the people who work for them,” Denning asserts. “To them, everything looks easy compared to what they do. But competent, intelligent workers won’t put up with that.”

Alexander agrees. “Physicians sometimes do not value the kind of specialized knowledge” it takes to run a practice well. Staffers need to understand HIPAA, reimbursement, compliance, coding, and customer relations. They also often need at least a cursory understanding of clinical language and issues.

The best practices “treat a person as having a career.” They provide advancement and learning opportunities, and aggressively recognize clerical and administrative staffers as central to the practice’s success. 

“You’d be surprised about how much a ‘good job’ and a certificate will do” to earn a worker’s loyalty and improve performance,” Alexander says. “Movie tickets, flowers; they’re meaningful. I’ve seen cases where people would compete harder to get a bouquet of flowers at the end of the month than to get a $500 bonus.”

Robyn Levy, an Atlanta allergist, believes quarterly performance reviews - as opposed to annual reviews - also are very effective ways to reinforce the individual staffer’s importance in the group, set expectations, keep employees involved in reaching the group’s goals, and recognize good performance.

The most stable practices are “constantly looking for ways to reward their staffs in small ways, to let them know they’re appreciated,” says Roger Landers, executive director of Florida-based PAHCOM, which boasts 3,400 members.

Receptionists, for example, often are among practices’ lowest-paid and most junior staff members, earning an average of $23,412 a year, according to PAHCOM’s annual staff salary survey. Yet when PAHCOM asked practices to name the position they find hardest to fill, Landers reports that, “invariably, that’s the receptionist. In some people’s opinion, that’s the most important [administrative] position in the practice. It’s the face of the practice.” But it is also a high-turnover position. Physicians have named it their “next position we plan to fill” for the past three years. (See chart, page 68.)

To make it more stable and attract better people, some physicians “are in subtle ways trying to upgrade the prestige of that position,” Landers reports. New receptionist titles like “patient coordinator” and “patient specialist” are cropping up in the PAHCOM survey. (Their average wages, however, fell by almost 2 percent from 2002 to 2003. Landers does not know if the improved titles and decreased salary levels were related.)

Still other perks recommended in seminars about employee relations: frequent thank-you notes, facials and massages, birthdays off, and awarding staffers the frequent-flyer miles that accumulate in using the company credit card to order office supplies.

Alexander has found that “another big factor in employee satisfaction is the commute. I’ve seen people take pay cuts to cut down their commutes, especially if you’re dealing with single parents and people who have educational commitments. With gas prices climbing, that’s another reason to want to shorten commuting.

There is always higher turnover when a candidate has to commute more than 30 minutes, so in their recruiting [physicians] should pay attention to how far a candidate has to travel.”

Moreover, consultants say that a practice’s general management directly influences employee costs. Haphazard management causes all the things that drive good employees away, regardless of what they are paid. For example, an inefficient scheduling system or an inadequately trained scheduler typically causes long wait times that drive patients away. An understaffed front desk often leaves callers on hold for long periods, and leads to patient and employee dissatisfaction. No one likes apologizing all day long.

Turnover - with all its attendant costs for advertising, interviewing, training, and the loss of institutional memory - is expensive. 

Needless to say, “the [practice] workload has risen over the last 10 years,” Denning says. Yet practices are “not hiring enough people, so it becomes a high-stress job and it’s hard to get people to stay.”

The costs of hiring and keeping talented people, Alexander says, are usually lower than the costs of having unskilled or uninterested people on staff. He notes that a receptionist who fails to collect a $10 copay ultimately forces the practice to spend $7 to $8 in posting, billing, and collecting the money. A physician seeing eight patients an hour would thus be losing about $500 a day in revenue. “Why not pay someone $15 an hour to avoid losing $500 a day?” Alexander asks.

Similarly, he contends that poor or understaffed physician business offices are responsible for many practices’ troubled revenue collections. Some practices collect only 55 percent of the revenues they earn. Even the best performers collect only 85 percent. “What other industry would put up with getting only 85 percent of what they’ve earned?” he wonders. Yet the billers and collectors who drive the practice’s revenue side are among medical offices’ lowest-paid staffers. Close to 9 percent of the industry’s crucial billing jobs remain vacant at any one time.

Denning concludes that physicians “cannot hire Burger King-level workers, except at their own peril.”

That message about raising staff expenditures, he concedes, is not an easy one to deliver or for physicians to hear. “It’s hard for us consultants to say, ‘It’s not what you can afford; it’s what you have to invest.’” 

Yet the rewards of investing in staff members and in providing a good working environment for them pay off handsomely.   

After its annual nationwide staff salary survey, for instance, MGMA identifies “the practices with the best financial performances, and then we interview them,” Gans says. “The theme that we’ll hear is that ‘we reward our long-term staff with better wages, but we have higher expectations.’ The better the [practice’s] financial performance, the lower the turnover.&rdquo 

Staff salaries at physician offices rose again last year, several studies show, and unless something radical changes, they will keep climbing faster than the inflation rate for the near future.

Staff Salaries Climbing

Last September, Denver internist Brent Cohen sent his patients an unusual, carefully worded letter. 

He wrote that he was thinking of switching to an emerging kind of medical practice where his patients would get highly personalized, 24-hour-a-day care in return for a $3,000 annual payment. 

"I should make it clear," he emphasized in the letter, "that I have not yet made a decision" to start one of the new concierge [also known as "boutique" or "retainer-based"] medical practices. But, in deciding, he wanted to know what his patients thought. 

It was a big decision. Cohen had considered switching to a boutique practice before, but found himself confronting what he felt were some truly difficult financial, legal, professional, and ethical issues. Unable to resolve them by the time a prospective partner needed a commitment from him, Cohen had put the idea aside 
temporarily.

Yet his professional life remained "not that great." In practice for 11 years, he occasionally felt frustrated and overburdened. He was seeing 25 patients a day. Workweeks could be a blur of exams, office hours, referrals, hospital duties, reimbursement worries, staff management, forms, and more. Worse yet, the pace was escalating. With reimbursements "going down and down and down," he might soon need to see another three or four patients a day just to keep his income steady. 

By contrast, concierge doctors, he had heard, had reasonable workloads and managed to make money while practicing good medicine. They saw only six or seven patients a day, and spent about an hour with each. Many raved about the sheer professional pleasure and long-forgotten luxury of being able to concentrate at length on each patient's needs, habits, continuum of care, and compliance. 

So he decided to reconsider boutique medicine. 

His were the same reasons why many physicians nationwide -- no one knows exactly how many -- have switched to this type of practice. In them, doctors radically limit the number of patients they will see, and then charge an up-front fee -- anywhere from $15 a month to $125 per visit to $13,000 a year -- over and above what the physician gets in reimbursements. Patients, in turn, get what in the managed-care world looks like red-carpet service: quick or same-day appointments, real communication through e-mail, telephone, and in-person access to their doctors, an end to waiting room vigils and, perhaps most importantly, the promise of coordinated care.

Perhaps as a result, announcements of new concierge practices have come almost weekly during the past year in Ohio, Massachusetts, Virginia, Florida, Illinois, Texas, Maryland, California, Washington, and Colorado, among other places. 

So Cohen went ahead and mailed the letter to his patients. Several weeks later he left for vacation to consider the responses and, with his wife and three kids, ponder his financial, legal and, ultimately, ethical concerns. His questions were the same that every physician would have to answer.

Financially, Cohen concedes, it was "hard to know what to expect" if he left his current practice, especially for an essentially new business model. He was unsure insurance companies would continue to contract with him as a retainer-based physician. Some payer contracts require a certain level of access -- requirements that would be violated if he refused to see patients that wouldn't pay the fee.

Legally, various regulatory and legislative bodies have been fitfully hostile. Regulators in Washington and Florida have challenged the model. Washington contended that, by accepting retainers, physicians were accepting risk without having the insurance licenses to do so. Florida investigated discrimination against patients who could not afford medical retainers. Massachusetts legislators introduced a bill in 2003 that would require insurers to prohibit their network doctors from accepting retainers. 

Nationally, Medicare has forbidden patients from using its funds to pay up-front physician fees. Congress last year debated bills to prohibit retainer-based physicians from contracting with Medicare at all. (As of this writing, none of the state or federal bills has become law.)

John R. Marquis, a Grand Rapids, Mich., healthcare attorney who also heads the American Society of Concierge Physicians, likens the current environment to "looking down a road through a light fog. You can see through it, but you don't know exactly what's developing very far down the road." Are state insurance commissioners going to impose a toll? Will the legislature wave you ahead, or forbid you to go any farther? 


Physicians should proceed with caution, says Katherine Harmer, a business adviser who helped set up the new retainer practice of James Benoit, MD, in Colorado. "You need excellent attorneys who understand the healthcare market. If you don't have that, you will run afoul."

Marquis thinks it will take two to four years before there is a clear path to follow. By then, there will be obvious regulatory guidelines and a firm legislative base for the model.

Moral queasiness bothered Cohen more than financial and legal worries. Retainer-based medicine "feels elitist in some way. Some patients who I've had for years, I know would not be able to afford this," he explains.

That has been critics' central objection. "I have a great concern that this is going to provide care to the 'healthy wealthy,' but may limit the access of the rest of the population," says Michael Fleming, MD, president of the American Academy of Family Physicians (AAFP). 

"Nobody" in the concierge movement "likes to use the word 'access'," Marquis cautions. "But if you take a practice that has 4,000 patients and you institute a concierge model and you reduce your practice to 1,000, well, you have 3,000 patients who don't have a physician." In the end, "we have this large body of people who may be displaced" by retainer practices. Even advocates, says Marquis, recognize "that there is an ethical issue involved." 

In six guideline points released last June, the American Medical Association urged physicians who do switch to concierge practices to help patients who decide not to buy retainer contracts to find new caregivers -- and if they can't, to continue caring for them.
A dilemma like Cohen's highlights physicians' simultaneous need to find solutions for their personal lives while feeling a moral imperative to help society as a whole. 

"I'm a practicing physician, and I know exactly how it is to feel the pressure ... to make my practice financially viable," says the AAFP's Fleming. "We have a very sick health system," but opting out of it ignores society's needs. The physician retains a personal responsibility to treat less-wealthy patients. It is, the argument goes, never good social policy to narrow patients' access to care.

Yet funneling 5,000 patients through a single physician often amounts to assembly-line medicine. The pressures are unfair, potentially harmful to the patient, and destructive to the doctor. 

Such pondering aside, some of Cohen's peers have found that concierge models make medicine a joy again.

"Even more so than I imagined, it's changed my life," says Benoit, an internist who left a 9-year-old, traditional pay-per-procedure practice to open a retainer-based practice in Colorado in October 2003. 

"I've gone from getting up in the morning knowing I can't possibly do everything I need to do ... to being a part of [my patient's] life. I can be more active in prevention. I always believed in and tried to be involved in prevention, but you had to deal with the [clinical or operational] matter at hand." 

In his prior practice, he scheduled appointments in 15-minute increments. Of that time, the patient would spend an average of two to six minutes in the waiting room, another five to seven minutes having weight and vital signs read and, finally, two to six minutes with Benoit himself.

The new model has "given me my profession back." He tells of spending 90 minutes with a patient who followed him from his prior office, and finding out for the first time about a number of social factors that might be contributing to her health problems. "Instead of being reactionary, we have time to be proactive."


There are technological opportunities as well. In Boca Raton, Fla., Robert Colton, one of the first and most visible of the concierge physicians, now offers patients DNA profiles that tell how they metabolize certain drugs. Most internists' access to such technology remains minimal at best. Colton's model, however, allows him to use it for patients who want to invest in it. They pay $2,100 for an initial profile, and an annual $250 to update it as they change or take new medications.

And there are personal payoffs. "My family," Benoit says, "loves it. I have coffee with my wife in the morning. I play with the baby, and the older kids have time with me. I see them off to school, and sometimes I'm there when they come home. I feel very, very content."

Brent Cohen got back from vacation with his decision in hand.
The responses to his letter had been encouraging. He'd sent out 3,000 and gotten "about a thousand back," a 33 percent response rate that most direct mailers would consider phenomenal. "I think I had enough patients to do this," he says.

But he won't do it. His reasons are both practical and sentimental.
On the practical side, he was very concerned about concierge medicine's time commitment. "If you're going to be available 24/7, getting away is not an easy thing." 

Other physicians who'd switched told him that during the first three to six months in the program, patients called frequently "to make sure they were getting their money's worth." And although patients called less often after that, "you're still carrying that pager around all the time."

Cohen was also worried about politics. "I have young kids, and what if they legislate against this a couple of years down the road? Then I'd have to come back and start from scratch again." 

"But mostly," he says, "it came down to leaving patients. I've had these relationships for years, and I'd have to let probably 95 percent of them go. And I had to ask myself, 'Do I really want to take care of 300 or 400 wealthy people, and that's it?' I just can't see doing it right now."

This article originally appeared in the February 2004 issue of 

Everyone's talking about concierge care. Learn what one physician decided and what you need to know.

Author | Bill Sonn

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