By Chelsea Hadaway
chadaway@scbiznews.com
Published May 25, 2009

Facing a cocktail of higher business costs, lower reimbursements and more regulations, doctors are finding it harder than ever to stay in business for themselves.

“You’re seeing more and more fiercely independent doctors become employees,” said Dr. Strait Fairey, president of Lowcountry Medical Associates, a group practice of primary care physicians based in Mount Pleasant.

This fact rang true for him earlier in May when Lowcountry Medical Associates announced it was merging with Roper St. Francis Health Care. This move added 62 Lowcountry Medical Associates physicians and 319 employees to Roper’s Physicians Network, almost doubling the size of the network.

Fairey said that all but one of the Lowcountry Medical Associates physicians voted to join the network, and the one who voted against has since joined.

This latest headline has become symbolic of the current market conditions squeezing private and group practices.

“As time went on, the pressures of the federal government and management issues became more difficult,” Fairey said. “The federal government is making it harder for physicians to stay in private practice.”

Full circle
In the late ’80s and early ’90s, the nation was moving toward health maintenance organizations. Hospitals were advised to devise vertical integration systems — meaning a patient could receive all forms of care, from birth to death, in one health care system, Fairey said.

The system hit some snags, however, and the arrangements started to dissolve in the late ’90s.

“Physicians and hospitals don’t operate the same,” said Chris Darnell, vice president of business development for East Cooper Regional Medical Center. “Hopefully we’ve learned a lot of lessons since then.”

The groups had different business cultures and ways of operating, which led to misunderstandings, Fairey said. “But we’ve recognized this and created a very different structure now.”

The causes
In the past several years, the costs of doing business have increased for physicians in private practice.

Doug Bowling, CEO of Roper’s Physicians Network

“The expense of doing business has gone up 4 to 5% each year, but reimbursement from private payers hasn’t gone up,” said Doug Bowling, CEO of Roper’s Physicians Network. “So they start to look to see how they can protect their income.”

Steve Valerio, CEO of University Medical Associates at the Medical University of South Carolina, said, “This trend has been ongoing for five, six, seven years, but it’s been sustainable over a period of years. But now, as time goes forward, it’s less and less sustainable.”

This especially hits smaller practices that don’t have the economies of scale that larger practices do, Valerio said.

Fairey said that, when he first started practicing in 1974, overhead used to be 50% of total operating costs. That number has shot up to about 70% these days, he said. He has had to hire extra personnel to help fill out additional insurance and patient forms, and that’s something for which the practice doesn’t get reimbursed.

The reimbursement policies have shaped the practice of health care everywhere.
Lowcountry Medical Associates had established a laboratory and a radiology facility for its physicians and patients, but then reimbursement dollars became fewer and fewer, Fairey said.

“Reimbursement for freestanding centers has come down,” Bowling said. “Reimbursement for hospital centers is going up slightly. The government is directing where they want to see that care.”

Doctors say the entry of an insurance company or a governmental insurance agency has driven a wedge into the traditional doctor-patient relationship.

“It becomes not that doctor-patient relationship we so cherish,” Fairey said. “It has the insurance broker or the federal government standing between us. Our old organizational structure just isn’t working anymore.”

In addition, new technology coming down the pike is placing more financial strain on smaller practices.

All the new requirements regarding electronic medical records and e-prescriptions make for substantial financial investments, Bowling said.

“These are very expensive in private practice. A lot of them can’t afford it,” Bowling said. “And the implementation is very difficult.”

The solution
By entering into formal relationships with hospitals, physicians can tap into the larger administrative and support systems, such as billing services, Valerio said. They also gain leverage with insurance companies and gain economies of scale, Darnell said.

Strait Fairey, president of Lowcountry Medical Associates

“I hope it allows me to spend more time with patients and less time worrying about stepping on regulatory lines,” Fairey said.

The hospitals stand to benefit by capturing more patients through these physician relationships.

“If a patient meets with one of our primary-care doctors, they enter through our door and will stay in our system,” Bowling said.

Although the trend has been slower in coming to Charleston than to larger cities, it is starting to unfold here.

“A few months ago, I was at a conference with 50 health care systems. All but one were actively partnering and employing physicians,” he said.

Two years ago, Roper St. Francis started its Physicians Network by buying local practices. It started with five doctors; with the addition of the Lowcountry Medical Associates physicians, the number now comes to 134, Bowling said.

Although East Cooper hasn’t recently acquired any physician practices, it is starting to explore the possibility.

“There’s a lot more dialogue now than two years ago,” Darnell said. “The market is adjusting, and we’ll have to adjust with it.”

Reach Chelsea Hadaway at 843-849-3142.