Physicians selling their practices

In 1994, when Dr. Louis McIntyre joined Westchester Orthopedic Associates in Westchester County, N.Y., the 3,000-square-foot office had nine employees, including four orthopedic surgeons. The following year, the practice spent $500,000 to move into an office that was twice as big, to accommodate workers newly hired to handle the clerical demands of managed-care insurance plans, such as insurance verification and pre-authorizations.

 In 1995, the practice needed only one employee to verify and authorize treatment. It quickly grew to one employee for every doctor to complete those tasks. The annual cost of malpractice insurance for each doctor rose from $40,000 in 1994 to $110,000 in 2010. The practice unsuccessfully tried to negotiate increased insurance reimbursement rates to offset the rising costs. It formed a network of orthopedic surgeons to attempt to improve the economic power of private practices, but was stymied by antitrust laws.

Westchester Orthopedic decided to meet these challenges head-on with aggressive expansion. It added more physicians and ancillary services to boost revenue. It bought a Magnetic Resonance Imaging (MRI) machine. It spent $500,000 for an electronic medical records (EMR) system. It spent $5 million to build an ambulatory surgery center adjacent to its office.

All told, Westchester Orthopedic spent $6.5 million. It grew revenue from $2 million in 1994 to $5.4 million in 2007, and employed nearly 50 people by that year. The surgeons did this despite the fact that reimbursement rates were falling. The American Academy of Orthopaedic Surgeons (AAOS) estimated that orthopedic surgeons’ Medicare reimbursement decreased 28 percent from 1992 to 2007. Commercial insurance reimbursement fell similarly. Then came the American Recovery and Reinvestment Act of 2009, which required an EMR upgrade to satisfy “meaningful use” criteria. The following year brought the Affordable Care Act (ACA), with its quality-reporting requirements and risk-based reimbursement.

 In 2012, Westchester Orthopedic threw in the towel and sold its practice to White Plains Hospital. According to the AAOS, hospital employment of orthopedic surgeons tripled from 2004 to 2010.

A study by the Medical Society for the State of New York in 2009 showed that the private practice of medicine was the fifth-largest employer in Westchester County, second among business establishments, third in paying personal income tax, and seventh in paying corporate sales taxes. With the acquisition by a nonprofit hospital, the federal and state corporate and sales taxes paid by Westchester Orthopedic vanished.

 McIntyre said, “The combination of decreased reimbursement, increased reporting requirements, the need for huge outlays for technology improvements and uncertainty about future earning potential is driving private-practice physicians to seek employed positions.”

 Dallas family physician Darrel Jordan, who closed his practice in July 2012, wrote a letter to his patients saying, “… the changes by the Affordable Care Act (i.e. Obamacare) are designed to add additional stressors and expenses to small doctor practices. This will make small physician offices unlikely to remain open past 2015.”

Jordan said the economics of a solo physician practice simply do not work anymore. He said his reimbursement had declined 30 to 40 percent from 3 to 5 years ago as practice expenses continued to rise. He said two physicians in neighboring offices were quitting their practices as well.

“I am on the cutting edge of change for all of us (solo physicians),” he said. “We are in one of three stages: those of us who are changing our careers now, those planning to change their careers, or those who are in denial.”

 

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