Physicians Post-PPACA: Not Going Bust At The Healthcare Buffet (Conclusion)

By David W Hilgers, Esq. and Sidney S. Welch, Esq.

The passage of the Patient Protection and Accountable Care Act (“PPACA”)[1] has already had a substantial impact on American medicine. Whatever repeals, reformations, defundings, or modifications lie in the future for healthcare reform, the concepts and trends represented by this legislation and its progeny clearly will have an enormous impact on healthcare delivery and the entire healthcare industry.

(Editor’s note: Part one of this series examined several factors leading to PPACA, including declining physician reimbursement, as well as PPACA provisions directly impacting physicians such as anti-kickback reforms, Stark laws and the False Claims Act.)

Indirect Implications of PPACA for the Physician Industry

One of the major new initiatives legislated in PPACA is payment methodology reforms and incentives to create new types of integrated delivery organizations, such as ACOs.[2] Except for ACOs, the statute does not describe in detail what these organizations will look like. However, an examination of the various proposed structures leaves little doubt that these innovations will drive the healthcare industry in general and physicians in particular to significant integration.

Medicare Shared Savings Program

PPACA’s ACO program is called the “Medicare Shared Savings Program” or “MSSP”. Generally speaking, an ACO is an organization of physicians and other healthcare providers held accountable for the overall quality and cost of care delivered to a defined population of traditional fee-for-service Medicare beneficiaries, who are assigned by CMS to an ACO.[3] The theory behind the ACO concept is that coordination of care (and thus cost-savings) is difficult to achieve without integration among the providers that deliver patient care. Therefore, ACOs are incented, in the form of “shared savings” discussed herein, to manage care in a manner that results in cost savings.[4] The ACO also holds providers accountable for clinical outcomes by required clinical outcomes reporting and other performance measures.[5]

While extremely similar to the players in the alphabet soup of managed care players in the 1990s – the independent physician associations (“IPAs”), the physician-hospital organizations (“PHOs”), and the HMO[6] – ACOs differ significantly in that the accountability rests with the providers, rather than the insurers; no health plan intermediary is required to contract with the provider organization; ACOs have great flexibility in their provider composition; and ACOs allow for payment under a fee-for-service arrangement.

The ACO Shared Savings concept gets heightened attention under PPACA. PPACA established an ACO program for Medicare, which is scheduled to begin in 2012.[7] While the MSSP applies only to Medicare, many anticipate that third party payors likely will follow this trend.[8] In fact, PPACA allows for preferential participation in the Medicare ACO program for organizations that have ACO arrangements with third party payors.[9]

One of the other initiatives created by PPACA was legislative direction to the Secretary of HHS to create and begin operation of the Center for Medicare & Medicaid Innovation (“CMI”) no later than January 1, 2011.[10] PPACA charges CMI with testing innovative payment and service delivery models to reduce program expenditures under Medicare and Medicaid while preserving or enhancing the quality of care. In selecting such models, HHS must give preference to models that also improve the coordination, quality, and efficiency of healthcare services furnished to Medicare or Medicaid beneficiaries or beneficiaries of both programs. PPACA also gives HHS the authority to waive certain laws such as the AKS and Stark law while testing payment models.

National Pilot Program on Payment Bundling

PPACA calls for the Secretary to establish a pilot program for integrated care, using episodic payments centered around hospitalization.[11] This pilot program will be available to entities comprised of providers of services and suppliers including a hospital, a physician group, a skilled nursing facility, and a home health agency. These entities will be required to submit an application to the Secretary of HHS to provide applicable services. The Secretary is authorized to develop various payment methods for these pilot programs.[12] Those payment methods can include bundled payments and bids from entities for episodes of care.

Family Medical Homes

The federal government has participated in family medical home pilot projects for several years, as noted below. PPACA authorizes HHS to provide grants or contract directly with states to establish community-based interdisciplinary, interprofessional teams to support primary care practices.[13] These teams must agree to provide services to eligible individuals with chronic conditions.

PPACA sets out a number of requirements for a family medical home. Since these entities are not hospital centric, they require personal physicians to lead other health providers in caring for the patients. It is assumed that care will be coordinated through all of the providers using integrated healthcare technology, which some argue must be updated to meet the new demands.[14] Interestingly, it has a requirement that payments recognize the primary care value and should reflect both physician and non-physician value, including non-face-to-face visits in care management.

Presently, there are estimated 26 ongoing medical home pilots encompassing more than 14,000 physicians in over 4,500 practices, treating five million patients.[15] So far, the results have been mixed. Overall, not all physicians and other providers adapt quickly to this change in their practice. Further, many times patients do not perceive this change to be beneficial. In particular, the use of nurse practitioners and paraprofessionals often are perceived by the patients to be a restriction on their access to care. However, data does suggest that patient outcomes improve and costs become lower with use of a medical home, but it requires substantial investment in technologies and infrastructure to obtain this success.[16]

Other Programs

PPACA is a cornucopia of innovative delivery models. These models include demonstration projects such as Integrated Hospitalization Care,[17] Medicaid Global Payment Project,[18] and the Pediatric Accountable Care Program.[19] CMI[20] has 20 models listed for testing, including the patient-centered medical home, payment and practice reform in primary care, and direct contracting with providers.[21] PPACA provides six billion dollars of federal money to develop nonprofit, member-run health insurance programs to compete with the existing programs. It authorizes payment changes to hospitals, which would require doctor participation to achieve. These changes include value-based purchasing, reductions in payments for hospital infections, and reductions in payments for hospital re-admissions.

Although these proposed programs may appear, at first, like a helter-skelter fashioning of a lab experiment with the American healthcare system as the guinea pig, most of these proposed programs involve integration among providers in some fashion, whether through legal entities or contractual relationships. These integration efforts will require the ability of participants to develop cross-professional and facility organization that will involve administration and technology. Moreover, most of these programs involve the use of electronic communications of health records among these participants.

These programs also involve reformed payment structures that eschew the fee-for-service model for other joint payments that must be shared by the various providers through some formulaic or other methodology. If these models expand and proliferate, the role of the physician in these models is critical. The current, fragmented physician structure of the industry will have a difficult time positioning to provide this type of integrated care because it cannot generate the necessary capital, nor provide the infrastructure, the leadership, or the operational administration to cope with these requirements without collaboration among themselves.

Options for Physician Roles after Healthcare Reform

Given the current environment and the implication of healthcare reform, what will be the role of the physician in the future? This question is quite different from what should be the role of the physician in the future. The economic difficulties, combined with the policy imperatives embodied in PPACA, create a strong probability for a new reality in the immediate future. Physicians will have to decide whether and how they want to participate in the new delivery models. Some physicians may choose to retire. Others may practice in rural areas that may not be greatly impacted. However, most will be required to change their practices if they are to continue practicing. Physicians may consider the following options available to them:

Remain as Independent, Small Practitioners

As noted above, physicians in small practices are under extreme economic pressure. They are entrapped in a web of the following potentially debilitating circumstances:

1. A fragmented, unaffiliated professional group with no ability to gain market leverage;

2. Highly regulated reimbursement rates in an environment emphasizing cost reductions;

3. Ever increasing layers of regulation directed at reducing their ability to generate supplementary revenue;

4. A highly complex set of regulations demanding costly technology and infrastructure; and

5. A substantial number of impending retirements with young replacement lacking entrepreneurial incentives.

In the face of this harsh environment, it will be difficult for physicians to maintain the existing fragmented practice.

Concierge Medicine

An increasing number of physicians have turned to concierge medicine, also known as retainer or boutique medicine, to retain their individual practices. Physicians providing concierge medicine charge their patients directly, usually on a flat fee basis, for basic primary care medical services. These direct payments from the patients can be used as the sole source of income for the physicians, who take no insurance, or they can be used as supplementary payments to those physicians who take insurance, in addition to the concierge payments.

This business model has several limitations. First, the model typically works best for people in good health, since specialty and hospital care are not covered. Second, this model is harder (though not impossible) to apply to the low-income population. Third, as payment methodologies change from fee-for-service to bundled payments, shared savings, and other payment structures, the fee-for-service model utilized by many concierge doctors as the basic underpinnings of their economic viability may not be available. For example, a concierge physician who takes com­mercial insurance on a fee-for-service basis but receives supplemental payments from the patients will, in many cases, lose the ability to obtain those fee-for-service payments because of provisions in the insurers’ provider contracts prohibiting balance billing.[22] Fourth, the government and private payors may push to preclude concierge medicine, which has been regarded with some disfavor as a model favoring the wealthy. Also, some payors won’t contract with a physician offering concierge medicine since it’s seen as violative of his or her contract. On the other hand, some medical home pilots for chronic patients look much like a concierge model with longer visits and closer attention from the doctor. If the healthcare system continues to integrate, concierge medicine’s role is unclear, although it may become part of the options available.

Large Medical Groups

Another possible structure for physicians in this new reform world is the large physician-owned medical group. These groups may be single-specialty or multi-specialty. If this group is large enough, it will be able to use its leverage in the market to partner with hospitals in the development of an integrated delivery system. Their ability to deliver large numbers of physicians to an integrated system in a coherent and organized fashion will make them an attractive partner for hospitals seeking to develop large delivery systems. Because of this value to the integrated delivery system, these larger medical groups should be able to negotiate better economic positions for them in the system as well as greater roles in the ownership and governance of these systems, although the regulatory limitations for this kind of partnership is unclear and depends largely on the Secretary of HHS and her action or inaction on the authority granted to her regarding waivers of the AKS and antitrust laws.[23]

However, large medical groups are not without challenges. Over the last few decades, physicians have resisted self-governed integrated organizations. These opportunities include chances for dissension and disagreement between the personalities owning the group over compensation and control, particularly if the group is multi-specialty. To keep pace with the other players, the group will require access to capital. Physician organizations have been unable to develop internal capital and have no methods to obtain outside investor capital. Finally, the rapid integration of a fragmented medical community into a large medical group requires extraordinary leadership. Physicians have not been trained to provide that type of leadership, and natural-born physician leaders are too few to develop many of these organizations in a short period of time. As a result, either the concept of physician leadership in the healthcare market will need to be redefined based on new models of organization or potentially only those large medical groups already in existence will be able to pursue this option.[24]

Management or Service Line Companies

Another model for physicians involves using management or service line companies with adjunct medical groups.[25] Many large specialty groups today, particularly hospital-based physicians, have organized and compete against each other for hospital contracts. Many hospitals find it very simple to contract with a group that will do a turn-key job and provide all of the outsourced medical and related administrative services for the hospital on a contract basis, as opposed to developing its own hospital-based group. These groups may contract on a regional basis or even develop into a standard corporate structure without substantial physician ownership. Rather, they will be run much like their hospital clients, with limited physician input. These groups will need to be able to manage physicians and provide effective medical services, which historically they have failed to do.

Options for Rural Physicians

While rural physicians must overcome the difficulties inherent in being small independent practitioners, rural physicians may be strong players in their locale. Because of the rural hospitals’ need for physicians, those physicians, if united, even outside a single medical group, can exert enormous pressure on a hospital. Consequently, rural physicians may be able to continue in small groups with the hospital as the only coalescing entity in the community. The hospital’s role will be increasingly complicated as it receives payments in a bundled or short-shared savings form but has to pay physicians in a standard fee-for-service mode. While frustrating for hospital administrators, this scenario may be the only one in which they likely are able to retain their present business model of the independent practice. This model is not without antitrust, AKS, and Stark concerns since it relies on payments by the hospital in order to maintain the physician’s practice. However, the extreme need in these communities will require either policy changes or more lenient prosecution at some point.

Hospital Employees

By far, the quickest method of creating integrated delivery systems is the hospital employment of physicians. An increasing number of physicians are looking for employment from hospitals as a stop-gap measure against reduced compensation. Hospitals are comfortable with the employer-employee relationship and believe that they will be better able to position themselves in a changing marketplace and control physicians as employees rather than as partners or contracted physicians.[26] Additionally, physician employment reduces many of the complexities of the AKS and Stark laws.[27] Clearly, under Stark the compensation for the physicians would still have to be measured by fair market value. However, this model eliminates such complicating concerns as ancillary service income, stand-in-the-shoes restrictions, and physician ownership of facilities.

What the employment model does not do is eliminate a potential future fraud and abuse concern. Specifically, as reimbursement continues to decline for physicians, many hospital-employed physicians may not be profitable individually. It may cost more to hire them and to pay their expenses than the amount of revenue they generate in their practices. In effect, the hospital would have to subsidize the physician’s practice. At least one federal prosecutor has taken the position that a payment to a doctor that would put the physician’s medical practice in a losing posture is automatically a violation of the Stark law.[28] This conundrum may evaporate as healthcare reform progresses and the Secretary grants waivers to the Stark law and AKS. However, in the interim, this problem is a real concern for rural hospitals in particular because the reimbursement for physicians in rural areas is largely low-paying Medicare and Medicaid. Therefore, in order to attract physicians to rural areas, hospitals often need to subsidize the physician practice. Stark and anti-kickback issues create obstacles to those subsidies when the doctor is unable to generate enough revenue to support his or her own salary. The question becomes “Why is the hospital paying the doctor more than he can earn?” One assumes that the hospital needs the doctor to refer to the hospital. The problem with this answer in a world with Stark and anti-kickback laws is obvious.

Employment will result in a transformation of the physician’s practice. Physicians will clearly have less control over their office operations and clinical methods. On the other hand, they will no longer be saddled with the administrative and operational duties of running the practice. Essentially, the physician looks more like part of the labor force that must negotiate with its employer for compensation changes.

Employed physicians also face the significant question of what roles they play in governance of the hospital. Most of the highly respected integrated systems in the country have developed from physician-centric organizations, and physicians presently retain a substantial role in the governance of those delivery systems. However, hospital-centric organizations have not developed that type of physician participation and governance. Of course, they have their medical directors and public relations doctors. Nonetheless, the medical staffs have been the core of the physician leadership. In integrated delivery systems, many physicians are not involved in the hospital at all but perform strictly outpatient roles. In hospital-employment situations, physicians will have a hard time negotiating meaningful leadership roles in the delivery systems unless the hospital administration is receptive. Perhaps changing payment methodologies will convince hospital administration that physicians have to take an important role. However, more likely, those changes may exacerbate tensions and hospital administrators will continue to operate their top-down organizational structures, expecting physicians to perform as employees.

Partnering with Health Insurers

Recently, several of the large health insurance companies have ventured into the acquisitions of providers. United Healthcare acquired Monarch, a large physician network in California. Humana acquired Concentra, a large provider of worker’s compensation care nationally. Cigna has acquired a medical group in Phoenix and a large physician management organization, HealthSmart, in the South and Southeast. Meanwhile, Blue Cross Blue Shield in Pennsylvania and West Virginia has acquired a six-hospital system.

This new trend creates possible options for physicians. Obviously, insurers are at least experimenting with the idea that they can better control costs if they control the physician through employment or other mechanisms. Thus, a possible option is to partner with an insurance company through employment or other contractual means. In some cases, this may be a very positive option for physicians. However, it should be noted that in the 1970s and 1980s, Prudential was a major player in healthcare through its subsidiary, PruCare. PruCare had associated medical groups, which were exclusive to PruCare, in many of its markets. This ultimately was a failed model and should be studied to make sure that it does not occur again.

Insurance CO?OPs

One of the more obscure provisions in PPACA was the funding of so-called insurance CO?OPs, which enable communities to set up insurers locally. PPACA also provided substantial funding to allow these CO-OPs to organize. Presently, these seem to be developing in the Midwest as local communities struggle to find competitors in their insurance markets. Although these organizations cannot be controlled by providers, certainly physicians could take a major role in organization of these CO-OPs and provide services to the members of these organizations.[29]

Caveats

Physician Shortages

A major unknown in this portrait of American medicine’s future is the impact of the impending physician shortage. The United States is beginning to experience a dramatic shortage of physicians. Presently, the United States has 352,908 primary care physicians, and the Association of American Medical Colleges estimates that 45,000 more will be needed by 2020.[30] Recently, the Association of American Medical Colleges projected that nationwide physician shortages would rise to 62,900 doctors in five years and 91,500 by 2020.[31]

These shortages are not only in primary care. A national survey conducted by the National Association of Children’s Hospitals and Related Institutions found that the top pediatric specialist shortages were in neurology, developmental-behavioral pediatrics, gastroenterology, general surgery, and pulmonology.[32] Moreover, this shortage will be exacerbated by the increase in demand. To some degree this physician shortage may be moderated by the use of physician extenders. Also, some people argue that a reduction in specialists will be a good development as unnecessary procedures will be reduced. However, with the increased demand and already existing shortage, doctors will be at a premium in many locations.

The impact of this shortage on the physician landscape after reform is hard to project. This shortage likely would increase the leverage of physicians in securing positions. However, the present regulatory scheme may create limitations on this economic pressure. Presently, compensation of physicians is limited to fair market value. The fair market value is determined by consultants who look at compensation for similar physicians in the same region. If that present compensation has been depressed because of regulatory limitations on reimbursement, no clear mechanism will allow higher compensation to be paid to a new physician than is already paid in the market. No doubt, the government and/or the valuation consultants will eventually articulate a methodology that will allow this increase, but it may be delayed. Further, this physician shortage likely will not change the overall trend toward hospital employment of physicians rather than partnership between hospitals and physicians, because many of the factors discussed earlier which lead to a resurgence of physician employment still remain. The physician shortage will most likely eventually result in stabilizing and, perhaps even increasing physician compensation, but it will probably not change the trend toward integration of the providers into large delivery systems.

Intractable Management Issues

One of the reasons that it has been so difficult to consolidate physicians is the difficulty of managing them. As early as 2003 studies have shown that lack of cooperation by physicians and lack of leadership rank among the most frequently cited barriers to forming large medical groups.[33] The large, integrated systems like Mayo Clinic, Permanente, and Geisinger are historical anomalies that developed in unique communities under unique circumstances.[34] The industry has already witnessed the debacle of physician management companies efforts to corral physicians into manageable organizations at the end of the century, as most of these companies are now defunct or out of the management business. Hospitals have also made a hash of managing physicians for the most part in the past.

Presently, it appears that hospitals and other non-physician organizations are rushing into ACOs and other integrated entities by trying to capture as many physicians as possible and making hurried decisions to implement the ACO without creating effective management.[35] Some physician-run organizations are being implemented successfully, but those examples are few and far between for the reasons cited above. Not much thought is going into how those organizations can best be organized to ensure the loyalty and cooperation of the physicians. The pressures of change likely will not allow for any cautious contemplation of new organizational structures that will avoid the past problems. For example, should doctor leaders from the acquired groups be given major decision power over the groups? Should the members of the group be able to select their own leaders of the employed group? Does the existing hospital medical staff model have potential application to these medical groups? Should the management group administering the medical group be the boss of the medical group or vice versa? It will take years to develop a new workable model. As usual, the industry likely will try to fix this after the great consolidation slows down. Those entities trying to react to this consolidating imperative should direct some resources to sharply ques­tioning the existing ideas on how to make these groups effective, efficient delivery systems.

The “Quality Conundrum”

Finally, one very important caveat is the push to new “quality” frontiers in medicine. These initiatives range from safety guidelines to hospital infection control to medication error prevention to “quality” profiles and measures. While the country’s current healthcare system clearly needs to strive for improved quality, outcomes, and effi­ciencies, some of the new proposed measures seem geared to drive the industry toward protocol-driven medicine rather than striving for innovation and improvement.[36] Such “cookbook” medicine is con­troversial in medical circles and its contribution to quality is questioned by many.

Conclusion

After implementation of health­care reform, it is difficult to imagine any significant survival of the present fragmented physician industry structure, except in rural areas. The most likely portrait of physician life in the United States 10 years from now will include some large integrated systems in which physicians play an important role as partners. However, the majority of physicians will be employees of these integrated systems without any particular governance role. It remains to be seen how much physicians will participate in those organizations and at what compensation level they will be paid. Likely they will have roles akin to the medical staff in present hospitals. They will be much less entrepreneurial and much more of an employed labor mindset. Organized medicine will have declined substantially, perhaps to be replaced by unions. Depending on how the regulatory scheme develops, concierge medicine may or may not be an important part of the delivery system.

If the delivery systems are able to accommodate this form of healthcare, it may flourish. However, if it is seen as ineffective at reducing costs and providing care, those systems will not survive. All in all, it is hard not to conclude that the age of the fiercely independent, entrepreneurial physician will rapidly decline over the next five years. Whether this is a good or bad thing for the health of the United States is not clear, but it will have a substantial impact on how doctors see themselves and how patients see their doctors.

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David W. Hilgers is a Partner at Brown McCarroll, L.L.P. and is a member of the firm’s Healthcare Law Section. He has practiced law for more than thirty-five years. His primary focus is on healthcare, corporate, and administrative law. Mr. Hilgers represents healthcare providers, including physicians, dentists, health systems, managed care organizations, long-term care facilities, multi-specialty groups, hospitals, hospital districts, and community mental health and mental retardation centers. He can be reached at dhilgers@brownmccarroll.com.

Sidney S. Welch is a Partner with Arnall Golden Gregory LLP’s healthcare practice. Ms. Welch is recognized nationally for representing physicians and physician practices in all legal aspects of their practices. This expertise includes healthcare regulatory, corporate, contractual, administrative and litigation matters.

Ms. Welch currently serves as Chair of the American Bar Association Health Law Section’s Physician Issues Interest Group and Vice Chair of the American Health Lawyers Physicians and Physicians Organization Group. Ms. Welch is a frequent speaker and author on health­care matters, and has been recognized as one of the nation’s top ten physician attorneys by Nightingale News. She can be reached at Sidney.Welch@AGG.com.