Perspective
When Ends Don't Meet
By Rich Kirkpatrick, M.D.
A primary care physician presents the rationale for getting into ancillary services.
Editor's Note
Last May, the Wall Street Journal published the article “Own Image: MRI and CT Centers Offer Doctors Way to Profit on Scans,” which reported that MRI and CT scanning was one of health care’s fastest-growing sectors not only because of the machines’ ability to detect health problems but also because they offer doctors a new source of revenue. The article quoted lawyers who spoke to the illegalities of self-referral and kickbacks and insurance executives who said utilization soared when physicians have a financial stake in providing imaging tests. All this prompted Longview, Washington, internist Rich Kirkpatrick, M.D., to write a letter to the story’s author, David Armstrong, explaining why physicians might turn to ancillary business to help make ends meet. In it, he reveals details about the numbers he and his colleagues struggle with in a financial equation that never quite adds up. Kirkpatrick’s letter never made it into print in the Journal. It did find its way into the e-mail in-box of his old friend Minnesota Medicine editor in chief Charles Meyer, M.D. The letter offers insight into the financial difficulties that many primary care clinics face today.
I have been a general internist in private practice in Longview, Washington, since completing my residency at Mayo Clinic in 1976. For the past 10 years, the increasing costs associated with running a practice, combined with flat or declining reimbursement rates have made keeping the bottom line in the black a real challenge. So like many other clinics, we’ve continually sought ways to increase revenue and cut costs.
I’d like to explain why this has become so difficult (sharing details rather than lamenting generally) and why providing ancillary services formerly done only by hospitals and radiologists appears to be the only real solution to our economic problems—that is, unless national health care reform leads to a revaluing of the services of general internists and family physicians. According to Medical Group Management Association (MGMA) statistics, generalists earn less than half of what subspecialty internists, OB/GYNs, surgeons, radiologists, pathologists, and physician executives make.
Our group of nine doctors and two half-time nurse practitioners treats about 22,000 patients. We are a small, independent clinic that cares for a large percentage of our area’s “unwanted” patients, namely those with chronic illnesses or anxiety, or both. Our case load is 75 percent Medicare/Medicaid, 20 percent privately insured, and 5 percent cash or uncompensated care. Kaiser Permanente insures 40,000 lives in our county, mainly healthy working people and their families. The regional health care company that owns the hospital and employs most of the area’s subspecialists provides primary care for about 10,000 adults, and almost all of the 20,000 kids in the area are treated by two independent pediatric clinics.
Medicare’s fee schedule is approximately 55 percent of that of the private insurers around here. And we’re about fifth from the bottom nationally in terms of Medicare reimbursement. Medicaid pays 45 percent of what insurers pay. These government-sponsored patients actually bring us about the same amount of money because Medicare pays only 80 percent of its fee schedule, and we are hard-pressed to collect the other 20 percent from patients who usually have no money for secondary insurance. To put it into concrete terms, a Medicare or Medicaid patient is going to bring in $45 on a $100 bill. With a privately insured patient, the amount we receive is about $95. This has a huge effect on our bottom line. In addition, the chronically ill Medicare/Medicaid patients are older and sicker and more anxious, so they require more time and energy from our entire team.
The High Cost of Overhead
Rent is $1.25 per square foot, plus taxes, utilities, and insurance. The total is $150,000 annually, or $15,000 per provider (nine full-time physicians and two half-time nurse practitioners). Medical malpractice comes to $13,000 per full-time provider per year. Health insurance is another $10,000 annually per provider. Continuing medical education costs about $50 per hour, and 45 hours are required for continued licensure, so the total cost is $2,250 each. Miscellaneous medical and clerical supplies cost $150,000 last year, or $15,000 per provider.
Receptionists make $30,160 per year including benefits, and we have one for every two providers, adding $15,080 per provider annually in terms of overhead. Medical assistants make $33,280 annually in salaries and benefits, and each provider has one. Our R.N.s make $56,160 per year, and with one for every three providers, this adds overhead of about $18,720 per provider. Transcription expenses are $100,000 a year or $10,000 per provider per year.
Because today’s doctors aren’t interested in the business of medicine and are so pressed for clinical time, we have an administrator and an operations manager. Their salaries amount to $150,000 or $15,000 per provider. They’re underpaid for the market, but they value the flexibility we offer. They keep the 70 employees functioning, negotiate with all sorts of vendors and payers, stay abreast of the latest developments in the business world, deal with banks, and hobnob in the community.
Next comes the cost of collecting money from patients or payers. Billing staff make approximately $20 per hour, and we need one for every three providers, given the complexities of our reimbursement systems. That adds another $13,350 per provider.
Because we’re in competition for patients with two huge health care companies, we have to do some marketing. Advertising in the phone book is incredibly expensive—$30,000 per year, or $3,000 per provider. In lieu of buying ads on television and radio, or in the newspaper, we spend $2,500 per provider a year to sponsor concerts, youth sports teams, and a Trumpet Guild for teenagers. These “advertising” expenses come to $5,500 per provider per year, bringing our subtotal for expenses to $166,180 per provider.
The average internist in the United States makes $140,000 a year, according to MGMA data. We pay $109,000 to doctors with four years of college, four years of medical school, and three to four years of residency. The city manager and the superintendent of schools in Longview make more than this, and so do many attorneys and accountants. Even by paying our doctors about three-quarters of what they could earn elsewhere, we’ve arrived at a total cost of doing business of $275,180 per doctor.
Getting Reimbursed
We primarily use five ICD-9 codes to bill for our services: 99211 (nurse visit to check blood pressure, take out stitches, etc.), 99212 (healthy person with minor illness or injury), 99213 (chronically ill patient with minor illness), 99214 (chronically ill patient with multiple medical problems needing re-evaluation), and 99215 (complete re-evaluation of a chronically ill patient’s health).
The Medicare fee schedule for these visits is $21.20, $38, $51.90, $81.41, and $118.49, respectively. Again, because Medicare pays 80 percent of these amounts, we’re left to try to collect the remainder. In short, we bill an average of $66 per patient encounter and receive 80 percent of that or $53.
If you take our total overhead and salary costs per physician—$275,180—and divide it by $53 per visit, each doctor is going to need to see 5,192 patients annually to recoup expenses. A doctor with 16 days of vacation and a four-day workweek must accomplish this in 192 working days, which means seeing 27 patients a day. With a one-hour lunch, this means the doctor gets about 16 minutes to interview, examine, assess, inform, and counsel the patient, plus review outside consultations and lab/imaging results, and chart and dictate.
If we paid our doctors the national rate of $140,000 per year, then the total cost of overhead would rise to $306,180 per physician, and our doctors would have to see 5,777 patients a year, or about 30 patients a day. Time per visit would shrink to approximately 14 minutes with this adjustment of salary.
Inasmuch as I grew up here and have practiced here for 30 years, I have a good feel for the history and concerns of many of our 22,000 patients, and I can see 30 patients a day. My colleagues, however, each of whom was a chief medical resident while training, are hard-pressed to see 15 to 18 a day. Consequently, they end up spending a lot of extra time in the office.
Weighing the Alternatives
I see only three ways for physicians like us to improve our economic situation—again, assuming there’s no national revaluation of the disparity of incomes among doctors:
- Skim the cream off the patient pool; eliminate Medicare and welfare patients and you will collect an extra $40 to $50 per visit. This would double our income, but we think it’s unethical.
- Go to work for a health care company. For many of us, this is untenable because we feel it conflicts with our primary allegiance to patients; we don’t want business people telling us to use less efficacious treatments, to refer patients to consultants who are favored by business interests, to prescribe older drugs, or to order fewer (or more) tests.
- Get into the ancillaries. Clearly, to many physicians, option No. 3 holds the most appeal.
But people cry “foul” and “conflict of interest” when doctors own ancillary equipment, such as MRI or CT scanners. I agree with those concerns. There is surely a potential conflict of interest when X-rays, lab work, ultrasounds, MRIs, or CTs are done “in house.” Surely doctors could lose track of their oath to the patient in favor of making more money (or making the same money with less effort).
Currently, ancillary services are billed “globally”; that is, the bill is divided into a “technical fee” and an “interpretation fee.” Historically, hospitals and radiology groups have been the owners of ancillary equipment and services. Why? Hospitals have needed to provide these services to their hospitalized patients. Now, however, all do outpatient business as well. Radiologists once worked in hospitals; but now, many have their own free-standing facilities, thanks to their wealth and entrepreneurial sense. Some states have granted franchise monopolies to these large entities through a certificate-of-need or other process.
Many primary care groups are now deciding to lease or purchase MRI and CT scanners in order to make profits on the technical component of the bill; they then contract with radiologists to interpret the studies.
Many primary care clinics such as ours have offered convenient low-profit ancillaries, such as ECGs, lab tests, and X-rays, for years. Generally, our charges are much lower than those of the hospital outpatient facilities, stand-alone radiology facilities, or outside labs. And because we are closer to our patients than corporate entities, we provide many of these services for free. Maybe if we had MRI/CT capabilities, the prices for those services in our town would fall (as they have in New York).
Conclusion
Many primary care doctors are leaving the profession to become subspecialists or hospitalists or to retire prematurely. Some are sacrificing their standards by speeding up their office visits. Some are selling their clinical independence by joining large companies. All are frustrated.
Joining our cardiology, radiology, pathology, gastroenterology, and OB/GYN colleagues in providing ancillary services is one potential and palatable solution to the problems caused by a system in which primary care doctors earn a fraction of what their specialist colleagues make. MM
Rich Kirkpatrick is an internist in Longview, Washington.