Understand the medical economics of a primary care practice

If we are going to make rational decisions about health care reform, it helps to understand the medical economics of a primary care practice.

I was ten years out of medical school by the time I joined Narragansett Bay Pediatrics, a group practice in southern Rhode Island, and I was earning a salary of $48,000 for my “part-time” position. I worked in the office 24 hours per week, and covered nights and weekends. The hours on call were long and exhausting, but generated very little income.

A pediatrician could stay up all night answering phone calls, and not earn a dime. Or she could trek into the ER at 2 AM to see a worrisome child who turned out only to have a cold, and have the reimbursement denied because of the final diagnosis; colds shouldn’t be seen in the ER. Or that pediatrician, the Rodney Dangerfield of medicine, could spend a half hour doing a spinal tap on a sick infant in the middle of the night and get paid $40 for it, as opposed to her husband, the neurologist, who could do an elective spinal tap in his office in a regularly scheduled time slot and get paid $120 for it, because his patient was an adult.

I understood that the more money the practice made, the more my salary would increase. The key was in finding ways to be more efficient without compromising patient care. How much emphasis a doctor puts on either side of this seesaw shapes her practice as much as her expertise will.

Shortly after I joined the practice so did a young infant of a drug-addicted mother. Josh’s foster mother brought him in, along with a room full of her own children. I was confused when I looked for the names of the siblings in the chart. None were listed.

“Oh, that’s because they aren’t seen here.” Mom started her explanation matter-of-factly, but grew more uncertain as she went on, as if the callousness of the situation hadn’t occurred to her until she described it out loud. “They see Dr. X, in East Greenwich, but, well, he doesn’t take Medicaid, so I have to bring Josh here.” Perhaps the stunned look on my face helped move her thought processes along. In any event, the entire family of children eventually transferred over to our practice.

The best way to make money as a pediatrician is to see as many outpatients with really good insurance as possible. Obviously, to see a lot of patients, you have to see them quickly. The easiest way to do that would be to give the parents exactly what they think they want – often antibiotics. That means writing the prescription for the over-priced broad-spectrum antibiotic before Mom has even settled in to her chair, congratulating her for bringing her child in so soon.

“That ear drum looked like it was about to burst!” Doctor to the rescue.

It means treating any unexplained ache or fatigue as Lyme disease.

“Fortunately, we caught it so early.”

“Oh, thank you doctor,” gushes Mom, ushered out of the room six minutes after the doctor swooped in, relieved at the decisive action. A deeper conversation to tease out the vague symptoms and a recommendation for watchful waiting would have taken much longer, and, in all likelihood, a much less satisfied mom would be making her way to the check out window.

Quick patient turnover means telling stressed out nursing moms to just switch to formula.

“You’ve done everything you could. Some women just can’t breastfeed. Let’s get you a free sample case of formula.”

What else is good for rapid patient turnover? Vitamins as the quick solution for a picky eater, cough syrup with codeine for colds and knee jerk Ritalin for out of control kids. The child’s condition will follow its natural course mostly unaffected by the intervention, and eroding reimbursement rates will be more than offset by the healthy volume of well-insured patients. On top of the financial disincentives to doing the job right, no one should underestimate the pressure pediatricians feel not to disappoint parents, or how seductive it is for a pediatrician to be seen as coming to the rescue.

Being conscientious has its price.

“This is a viral infection. You need to understand why antibiotics won’t help, and may actually cause resistance…” or

“We have a lot of experience with Lyme disease here, and I don’t think this is it. Why don’t we follow this closely over the next few days. Call me if…” or

“Why don’t you go ahead and breast feed your baby now, so I can get a firsthand look at how he’s doing….”

Insurance companies don’t pay for “…,” and there is the very real risk that parents will leave the office quite annoyed that they wasted their time and money. Practicing good pediatrics is a moment-by-moment struggle. Most of the heroics in modern pediatrics are found not in the delivery room or the ER, but go unnoticed, and unrewarded, in the tiny little decisions of everyday care.

Maggie Kozel is the author of The Color of Atmosphere: One Doctor’s Journey In and Out of Medicine and blogs at Barkingdoc’s Blog.

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  • elmo

    Dr Kozel:
    Almost every specialty, with isolated exceptions, takes call for no pay and sees patients in the ER for no pay. This is not a limited to peds. A fair system would be sometype of low hourly level for being “oncall” with a bump for actually getting called in. That is how it works in every “oncall” job outside of medicine. But that will never happen. The options are to drop your ER coverage or continue as is.

    • http://barkingdoc.com maggie kozel, MD

      I agree. Its hard to imagine on call work getting reimbursed. But I don’t think I implied that Peds was the only specialty where this happened. I was just restricting my comments to the specialty I have direct experience with. It is true that Peds reimbursements tend to run much lower than for other specialties.
      On the other hand, dropping ER coverage is usually not an option in our area if you want hospital privileges.

      • I’m a Family Doctor

        Dear Kozel,

        You are certainly in a predicament if the ER call panel is a financial drain, yet you cannot drop the ER panel if you want hospital privileges. YET, don’t you & your Peds collegues collaborate with the hospital to maintain this egregious & exploitative arrangement? The hospital is BANKING on all of you accepting this arrangement without complaint. If all of the Peds in your area came to the hospital admin & said “pay us for being on call or we are gone”, guess what? You would win & at least make some money for the call. Although this wouldn’t change medicaids reinbursement rate, the call money would help. You deserve the money.

        Yes, I know, I’m being unreasonably & delusionally logical. Primary care docs are taken advantage of, no doubt about it. Yet, out of kindness, generosity, & compassion we in primary care collude with society in maintaining the abuse. Society will not change. But neither will doctors. Our kindness, generosity, & compassion are killing primary care. And ultimately in a paradoxical way, hurting the very society we so deeply care about.


  • Vox Rusticus

    I can’t speak for pediatric practices, but the hard reality of being in a private practice that must keep itself afloat or close extends broadly to all private docs. In my specialty, the state Medicaid agency and its contractors have a nearly-criminal record of not paying claims. Having dealt with them for over two years, seeing all kinds of patients under their many plans, I washed my hands of them and their fellow-travelers entirely. The cost of doing business with them is prohibitive, from a regulatory, payment and day-to-day operations standpoint. They are government-sponsored fraudsters when they don’t pay legitimate claims.

    I agree about the patient expectations of antibiotics, but you forgot to mention the annoyed post-visit phone call from the patient whose one-day freebie sample now has to be replaced by the real-deal prescription that isn’t free.

    • I’m a Family Doctor

      I agree with everything you wrote. But I fortunately learned about Medicaid just before I opened my practice so I have never accepted it. If I had, I would have filed for bankruptcy about 3 yrs ago.

      I have also never accepted samples from drug reps, probably because I refuse to see them. So it has saved me the headache of dealing with the “annoyed post-visit from the patient”. In general, & if possible, I prescribe generics. It also saves me time from interacting with the drug reps. My day is busy enough.

      Please don’t feel like I’m certainly doing everything right, making a mint, or criticizing you. I enjoy reading your posts & you are always spot-on. And I’m leaving primary care cause the pay is horrible. I used to think I was just doing something wrong, but now I know it’s low reinbursement. And that’s not changing.


      • http://barkingdoc.com maggie kozel, MD

        I completely sympathize with your predicament. It is not acceptable to me that insurers reimburse in a way that systematically places a conscientious doctor in a constant tug-of-war between the patient and having to pay the rent. Good luck to you.

  • Dr. Kene Mezue

    …this is the result you get when you commercialize medicine…a profession of honour has become dishonorable and fraught with lack of integrity…I wonder which antibiotics we’ll be using in the next twenty years when all our present antibiotics would have become resistant and our pharmaceutical companies aren’t inventing new ones….

  • family practitioner

    And if I try to encourage the patient to not start antibitoics, they will just go somewhere else like an urgicare and get them. Then they think I missed a diagnosis (“The urgicare doc said I had pneumonia and could not believe that my regular doctor did not want to give antibitoics!”). It’s a lose-lose.

  • http://onhealthtech.blogspot.com/ Margalit Gur-Arie

    This is a great post, but I would like to ask an honest question and not just regarding peds. It’s not a rhetorical or trick question, although I do have my own theories, but I’d like to hear what real docs think about this.

    If instead of being paid the way you are paid now, you would be paid a capitated amount per patient (a decent amount + some “quality” measures attached), what would be your drivers now for visit length, visit frequency, antibiotics, on-call, ER, etc.? Would it change anything, and if so, how?

    • I’m a Family Doctor

      I’m board certified in Family Medicine & in solo practice.

      What would be the “driver” for the measures you listed?
      It’s hard to answer. See, I’m sorta in that situation already. I’m already paid a captitated amount plus a small bonus for meeting some “core quality” measures. It’s called an HMO contract.

      And guess what? I’m going under & leaving primary care.

      So it’s hard for me to answer your hypothetical question cuz I feel I nearly do that now.

      Do you actually think that sometime in the future, society will pay primary care what it needs or what it’s worth? Medicare is going broke. Our current federal fiscal debt is the worse this country has ever seen. Society is more polarized than ever- do you recall S. Palin & her cries of death panels?

      What I see “driving” healthcare now & in the future is a continued decline in medical students entering into a primary care residency & those of us currently in practice, leaving to do something else or retiring early.

      Society WONT pay “a decent amount” in order to prevent the death of primary care nor improve it’s delivery. So it’s impossible to answer your question.

    • MedPeds Doc

      I think the answer, if primary care is to survive, is to move toward the retainer medicine practices that are becoming more popular. Patients (or the employer or insurer) pays the FP, IM, or Peds MD a monthly retainer ($125-150/month). Practices are limited to 300-500 patients at most. Longer visit times with more quality care provided. I could easily reduce referrals to specialists (Ortho, Derm, etc.) 50% (and maybe more) if I could spend 30-60 minutes per visit with a patient. Everyone’s satisfaction goes up. It just boils down to who pays the monthly fee.

      • http://barkingdoc.com maggie kozel, MD

        Great questions and ideas. My own perspective is to move towards a healthcare system that would pay for more effective team work approach, with salaried nonphysicians providing much of the educational and supportive care that is needed, and well-paid primary care doctors using their more expensive, hard-earned skills to do what they were trained for, to monitor the quality of care of the team, and to provide the team constant CME. Is this a crazy fantasy?

        • I’m a Family Doctor

          It sounds great. Even in brevity, it is logical & well presented.

          Except for the “well-paid” primary care doctors part. Neither society, nor the federal government, nor the private insurers will/can allow “well-paid” to occur. Without the “well-paid” component, the individuals going into primary care will continue to decline.

          So yes, it’s a crazy fantasy. Maybe a well meaning crazy fantasy, but still crazy.

          But really Dr Kozel, do you see anything that suggests in the next 20-30 years primary care reinbursement will improve? I’m happy to discuss that with you further.


          • http://barkingdoc.com maggie kozel, MD

            I am not sure what I see down the line in the next 20-30 years. When people ask me what approach would make sense to me, this is what I tell them. It goes back to my basic idea about health care reform. We need a national conversation about what we want out of our health care delivery system. If good primary care is at the top of that list, than primary care doc’s are more likely to be seen as requiring attractive compensation. If we just keep shouting at each other about socialism or entitlements, or whatever the rhetoric of the day is, primary care will continue to dwindle.

      • pcp

        I don’t think it has to be this complicated.

        Telling primary care docs the only way they can make a living is to go retainer, while other specialties can make a very good living within the fee-for-service world, is not addressing the basic problem.

        Just double the RVUs for primary care E&M codes. Problem solved. The AMA’s RUC is the major force killing primary care.

        Check out the website “Replace the RUC.”

        • jsmith

          And the winner is….pcp.
          Yup, you got it. More money for the same work. All else is futile. Next case.

    • CSmith MD

      I’m in internal medicine. If I received $15-$20/ mo. for a young healthy patient and $50- $125 / mo for a medicare patient adjusted for comorbidities I could change my practice as follows:
      (1) Retain a panel of 1200-1500 patients
      (2) Email communication and online scheduling/portal etc.
      (3) EMR adoption and quality indicator reporting (even though we have a poor idea of how to measure performance at this point)
      (4)Truly manage my panel of patients by identifying patients who need more intensive management or those who may be nonadherent or not at the goals specified by the quality indicators
      (5) Coordinate team care and manage “coaching/education/monitoring” for vulnerable patients

      • http://onhealthtech.blogspot.com/ Margalit Gur-Arie

        These numbers don’t seem excessive to me. The only question in my mind is about the ability to have such small panels. Wouldn’t it leave a lot of folks without a PCP?

        Family Doctor, are your capitation numbers anywhere close to these? How about the panel?

        pcp, if you crunch the dollar amounts suggested by CSmith (with some panel assumptions), wouldn’t that be right about double the current rates?
        Would people reduce panel size anyway if FFS rates for E&M were doubled?

        • CSmith MD

          Using the above scenario I could spend $50-75,000 / yr on disease management personnel (shared with other docs) and easily make over $300,000 / yr. That kind of income and the release from the hamster wheel of fee-for-service care would entice a significant percentage of new docs to choose primary care. The problem with PCMHs is I can’t build rapport with 5,000 patients, and without rapport I don’t want to do primary care.

          • MedPeds Doc

            I concur. If you reimburse primary care well and get us out of the hamster wheel or off of the daily treadmill, you will attract more than enough people into the field.

            PCP…I am afraid the government and insurers are not ever going to pay primary care what we are worth and certainly not at the expense of specilaists’ salaries, so we have to become creative in how we are to be reimbursed. Retainer medicine is the best way I can think of to re-establish our autonomy.

        • I’m a Family Doctor

          My cap rates are $15/month for all patients under 65.
          $65/m for seniors. I’m the most highly paid pcp in my area from what I can tell from polling my collegues (I could be wrong?) You can maybe get a bit higher, but these are HMO contracts (IPA’s) with TRAIN WRECK patients needing very frequent MD visits, undermining the revenue captured, so I have stayed away from those IPA’s.

          What kills you is the folks between 40-65 y/o, from any HMO. They aren’t completely “young” anymore. This is when they get diabetes, HTN, & other chronic illnesses & need frequent visits for medical management & supervision. $15-20/month works if they only come once or twice, but you really can’t expect this as I said, they aren’t young. So at $15/month per “young” patient & $65/month for seniors, i’m not making it.

          If I could get higher cap fees in general & better cap fees for the 40-65 y/o crowd, then yes, I could maybe do it. Maybe… Regarding panel size: I suspect that might be too many seniors to manage well (1500). Yet, you need them as they provide the highest monthly cap rate. You need as many as possible.

          Question for all PCP’s: how many seniors could you take care of WELL in a practice that was 100% seniors? I really don’t know. I have significantly cut back on my office practice as it is failing financially & I’m doing consultant work to pay my bills.

  • max

    Should all be time based like lawyers. After hours in 15 min blocks billed to insurance companies.

  • soloFP

    Capitation failed in the 1990s. In my area fewer than 5 plans still have capitation and roster signups. The goal with capitation is not to see the patient more than one time a year to meet basic care requirements. If you have a thousand capitated patients at $10 each a month, you get $10,000 a month without seeing the patient. You depanel the patients who come in too often and keep the healthy patients. Docs learned to be efficient under capitation in the 1990s, so most insurance plans have switched back to fee for service with my local plans averaging $56 for a 15 minute visit.

  • jsmith

    Most primary care docs who think about it objectively and unemotionally will come to the realization that private practice primary care is often (not always) simply a bad business model. Excellent profession, does a lot of good, but a bad business.
    Incidentally, we are not alone. Commercial airlines also provide a useful service to the world but have been bad business for the owners. Warren Buffett has humorously commented on this fact.
    And of course American society will be quite happy to allow us to continue in our relatively unprofitable field for as long as we wish to do so.

    • http://barkingdoc.com maggie kozel, MD

      Very interesting way to put it. Peds must be the southwest airlines of medicine.

  • t petrusick

    I am a Ped I love it . Have made a living wage taking all comers medicaid included, now at 55% of visits and 40% of income. Inpatient care oncall er etc generates only slightly more than 5% of practice income. The state legistlature republican and newly elected republican governor are taking an ax to the state budget medicaid included so we will take a 10% cut at least this year. We will get by . New people will be elected after the severe cuts cause the inevitable train wreck they are sure to cause.

    • http://barkingdoc.com maggie kozel, MD

      More power to you, t petrusick! I guess we all need to keep screaming about medicare and medicaid cuts until we hopefully come up with a better system.

  • hawk


    the problem with what you suggest is that id devalues everybody’s time and expertise, and does not reward the truly important, time sensitive and critical things which need to be done in medicine.

    Although capitated payments MAY work in a primary care setting, the trick would be to set the payments high enough to attract people who you want to be in medicine.

    the other issue with capitated payments is how do you distribute the payments. for example, a patient who has a PCP is taken to the ED by EMS. he is found to be coding, so has a tube put in and is placed on a breathing machine by the er doc. he codes, and after CPR and resuscitation is sent to cath lab, where the cardio puts in a stent. he then goes to the icu, where a hospitalist and an intensivist manage his vent and post cath care, until he is extubated, and put on a regular medical bed. he has good recovery, but is transfered to rehab, where a PM&R doc makes sure he is back to good function before being sent home. who gets what in that payment model right now, each person is paid for the care they deliver. the ER doc for the initial visit, intubation, resuscitation. the cardio for his work placing the stent. the intensivist and hospitalist for their post cath care. and so on. with a lump sum payment, there are going to be people who are NOT paid well for what they do. which piece of this puzzle is more important, who deserves to be paid more? the ER doc, who does intensive initial work, makes some complex decisions, and saves the life of the patient, but only sees him for an hour or so. the cardio, who places a stent, restores good cardiac blood flow, but again only sees the patient for a few hours. the intensivist or hospitalist, who manage the patient for a long time, but dont really have to make a lot of hard decisions?

    the best anf fairest way is fee for service. unfortunately, it is also expensive, but then again you get what you pay for

    • http://onhealthtech.blogspot.com/ Margalit Gur-Arie

      hawk, I am not suggesting that capitation is a better way. I just want to find out how physicians think about it and the answers here are extremely educational for me.
      Personally, I don’t see anything wrong with fee-for-service other than that the fees are not allocated correctly. I somehow also think that it would be easier to adjust the fees paid for services than to try and figure out how to divvy up a capitated amount as you illustrated above.

      BTW, there is something very bothersome to me in the concept of paying “per head”. I think it devalues the “head” as well as the time and expertise of those “servicing it” (this entire sentence seems hopelessly wrong).

  • http://www.BocaConciergeDoc.com Steven Reznick MD

    Primary care continues to be undervalued. Payment for our services is directly related to a federal Medicare compensation review committee which has four primary care representatives and 19 procedure oriented surgical and medical specialists. Private insurers and others pay as a percentage of that groups recommendations. Until that inequity is fixed, primary care will remain undervalued.
    Patients have been empowered by the media, by the internet, by competing professionals looking to expand their legal scope of practice. Some will continue to believe with no formal training or experience that their condition should improve faster and will seek opinions until they receive the one they wish to hear. All you can do is be honest to yourself and your beliefs and do what is best for your patient

    • pj

      Right on as always, Dr R.

      Another column in KevinMD kept referring to the reimbursement formulas that were designed “by ologists for ologists.” Sounds funny, but sad that it’s true…

  • doctor

    You all have to remember that there are always trade offs with whatever payment method is used. Also, in whatever system is used, the same doctors will always “game” the system better. As for medicaid, the payments are just so ridiculously low that most specialties can’t see the patients in private practice without losing money on each patient, and stories abound of practices closing after agreeing to accept medicaid. The payments usually can’t even cover the rent and clerical services required to see the patients.

  • http://www.healthji.com Mandeep

    There has been lot of discussion in various forums on this topic. I agree with one of the comments about soem doctors trying to game the system, but eventually things like digitization will make the system foolproof.

  • http://leftatrium.blogspot.com SR

    As a medical student planning to go into primary care, this post pretty much has me feeling defeated. Although I’m hopeful that the payment model will change to something more like what Atul Gawande describes in the recent New Yorker article, “The Hot Spotters.” I hope society, insurers, the medical profession and government sees the value of primary care, if not on a qualitative level, then on a financial, quantitative one. Preventative care can help keep our society healthier, more productive and saving money that would be spent on specialists – although I suspect I’m preaching to the choir on this. I hope I don’t have to choose between my passion and my rent.

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