Doctors: Don’t be ashamed about going bankrupt

Doctors: Dont be ashamed about going bankruptAre doctors really going broke?

According to this piece from CNN Money, some are: “Doctors list shrinking insurance reimbursements, changing regulations, rising business and drug costs among the factors preventing them from keeping their practices afloat. But some experts counter that doctors’ lack of business acumen is also to blame.”

That’s all entirely true.

Pressure on reimbursement, combined with a lack of business savvy on the part of physicians, are both reasons.

But the part where I did a double take was at the opening of the piece: “Doctors are harboring an embarrassing secret.”  Indeed, according to a hospital executive,

“Many are too proud to admit that they are on the verge of bankruptcy,” she said. “These physicians see no way out of the downward spiral of reimbursement, escalating costs of treating patients and insurance companies deciding when and how much they will pay them.”

Well, it shouldn’t be secret any more. Private practice medicine is running a small business. And if it’s managed poorly, it will go bankrupt, like any other business.

Consider the anecdote of the cardiology practice who has to take out loans to make payroll:

Dr. William Pentz, 47, a cardiologist with a Philadelphia private practice, and his partners had to tap into their personal assets to make payroll for employees last year. “And we still barely made payroll last paycheck,” he said. “Many of us are also skimping on our own pay.”

Pentz said recent steep 35% to 40% cuts in Medicare reimbursements for key cardiovascular services, such as stress tests and echocardiograms, have taken a substantial toll on revenue. “Our total revenue was down about 9% last year compared to 2010,” he said.

Is it any wonder why private practice medicine is dying? Or that more are willing to sell their practice for the security of a hospital-owned environment?

Physicians today continue to be vilified for being “rich,” but the reality is anything but. We need to tell stories of these dying small practices and how the pressure of running a business will soon interfere with patient care:

Dr. Neil Barth is that oncologist. He has been in the top 10% of oncologists in his region, according to U.S. News Top Doctors’ ranking. Still, he is contemplating personal bankruptcy.

That move could shutter his 31-year-old clinical practice and force 6,000 cancer patients to look for a new doctor.

So, physicians, speak up. I’d be happy to post your story on KevinMD.com so you can be heard.

It’s time to change the narrative.

 is an internal medicine physician and on the Board of Contributors at USA Today.  He is founder and editor of KevinMD.com, also on FacebookTwitterGoogle+, and LinkedIn.

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  • http://twitter.com/Hootsbudy John Ballard

    I’m just an observer but have followed healthcare reform for four or five years. One of several sources of confusion is that few people seem to know the difference between professional compensation and corporate profitability, two exactly opposite features of any balance sheet. All business managers know that compensation (wages) is an expense that by definition diminishes profits. I’m afraid too many doctors are better at healing than running a business. 

    Successful entrepreneurs always operate growing businesses that typically absorb others or are themselves bought by larger operations. Mergers and acquisitions are the lifeblood of the economy. It’s amazing to me that the cottage industry model has lasted as long as it has with medical practices. An economy of scale drives growth. A well-organized staff can manage two hundred as easily as ten. And I came across something that surprised me but makes sense, that liability insurance is more affordable for a large group.  

    • Anonymous

      @John … economy of scale works only so far.   Economy of scale helps make best use of indirect fixed resource excess capacity … but if the direct non-fixed cost of providing clinical service exceeds reimbursement for that service then something has to change.   You got to change the deliverable … or stop production.  

      Probablem too with your economy of scale doesn’t consider what happens if the resources are consolidated in the next big town … 50 miles away.  

      @Kevin … you didn’t address the line:  “But some experts counter that doctors’ lack of business acumen is also to blame.”

      The CNN story probably cited some academic business school perspective (I’ll just be too lazy to check) … but regardless of whether the business model failed or not or was poorly directed … at the end of the day healthcare capacity goes down with private practice bankruptcy.  That isn’t a good thing regardless of whether the business model didn’t work.

    • Anonymous

      As stated elsewhere, there are no economies of scale in medicine.

      Large practices do better than small practices only by virtue of their ability to get paid 200-300% more for the same service, even when it is of lesser quality. 

      • http://pulse.yahoo.com/_2LRZNHDZS6DU45WQ567LPQ7CMI ninguem

        southerndoc…..do you feel like you’re talking to the wall sometime?

        • Anonymous

          LOL.

          Talking to insurers has given me a lot of practice at that.

          Actual conversation with insurance doc-whore today, in attempt to get procedure approved:

          He: Tell me about this patient and why you feel they need this.

          Me: My staff has given your staff all the necessary information 3 times, and faxed complete medical records twice.

          He: But I haven’t read any of that.

          Me: I’ll sit on the phone and trim my nails while you read it. I could use a little down time. I assume you know how to read?

          He: (immediately) Procedure approved.

          • http://pulse.yahoo.com/_2LRZNHDZS6DU45WQ567LPQ7CMI ninguem

            southerndoc sounds like my long-lost twin.

            except I’m in the wet Northwest.

            “……there are no economies of scale in medicine……..Large
            practices do better than small practices only by virtue of their
            ability to get paid 200-300% more for the same service, even when it is
            of lesser quality……”

            That is exactly right, and I’ve seen example after example of this.

            The MGMA says a primary care doc should have 4.5 employees per primary care doc. Find a primary care doc in a small practice with 4.5 employees per doc.

            I have three, and one of those three is Mrs Ninguem running the billing and office business. In fact, at least for primary care, there’s an inherent efficiency in smaller practices. Get over a certain size, you need a real-live MBA-type business manager, and significantly increased overhead.

            Any “economy of scale”, if there’s any at all, might maybe be reached at a small group practice level……two, three, four docs. Maybe.

            Now hey, I’m speaking for primary care. I’ll stipulate there might maybe be a different matter in some specialty practices.

            But as stated, the only efficiency I see from the big practices is ability to extract higher payment for the same service.

             

          • Anonymous

            Ninguem, Do you have an example or two of this?  You don’t have to name names.  It seems to me that excess revenue extraction (Ie, economic rent) might be the answer to the question of why we work so hard and yet fail to prosper in small practices. 
            I used to work at a large health system in the Midwest before moving west.  The money was pretty damn good.  The practice experience was intolerable.
            Layers and layers of slow-thinking but avaricious suits who added no discernible value.  (To this day I must restrain myself from physically assaulting people in business suits, but I digress….) Perhaps their “value” was in organizing and maintaining monopoly.
            Bad for us docs, bad for the American people.

          • http://pulse.yahoo.com/_2LRZNHDZS6DU45WQ567LPQ7CMI ninguem

            How’s this for a start
            http://www.boston.com/news/specials/healthcare_spotlight/

            Peruse the articles and the links.

            I believe this has been covered on this blog in the past.
            http://www.kevinmd.com/blog/2008/11/how-bostons-top-hospitals-are-paid-much.html

          • Anonymous

            Massachusetts in 2008  Ok.  But what about now in your area? I guess it would be interesting to know if 200-300% payment differentials are common or are akin the “welfare queen” canard back in the day, rare as hens’ teeth but attention-grabbing.  Know what I mean?
            I really have no idea how prevalent and large payment differentials are.

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

    John,
    There is no indication that there are any economies of scales when everything is added up. Whatever gets saved in fixed costs is negated by additional bureaucracy layers. Small practices don’t have executive directors and all sorts of managers. There is no savings realized by eliminating two $13 per hour billers and hiring a director of revenue management at $50 an hour.
    That said, large groups and systems do better financially, but this is only because they can negotiate higher reimbursement  rates and because they do indeed run the practice “like a business”, which means no needy cases, careful balance of the “payor mix” (i.e no Medicaid or low paying plans), sending folks to collections regardless of circumstances, pay in advance or no service, add ancillary services and machines that get quite a bit of traction….

    They are not more efficient. Their special advantage is in maximizing the top line, and they are costing us a fortune. The larger they are, the worse it gets.

    Is this what we want? Do we really want health care to be run like a business?

    • Anonymous

      Very interesting comment indeed in terms of maximizing the top line, not minimizing expenses.  Ninguem and southerndoc below say the same thing.   Do you have some examples of this?  I’d be appreciative. Perhaps inadequate revenue was really the key to my hamsterwheelish experiences in practice in Oregon.

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

        I’m afraid your Oregon clinic was not large enough to play this game well. I think you need about 75 to 100 multi-specialty groups in a medium to large city (1 to 1.5 million), with a decent percentage of well established, well respected docs to get a good contract from the dominant payor. There are of course exceptions in certain specialties like orthopedics and cardiology, where a small renowned practice can have a lot of power.
        The right number of self pay patients can also help in some instances. I have seen orthopedics claims billed with 10 times allowables, and a nice mix of self pay. Workers’ comp contracts can also be very good.
        Another way is to form a clinically integrated IPAs and negotiate together, but it will depend on location and availability of physicians in the area.
        I cannot, of course quote contractuals, but the differences are blinding.
        The darker characteristic of well to do practices (not all – some Medicaid HMOs pay OK) is the absence of Medicaid patients, and even poorly insured and just poorly folks.
        Finally, particularly in multi-specialty and specialty, there are ancillary services that you can provide if you invest in the equipment, but that too is based on availability of similar services in the area, and it won’t hurt for the top doc to have friendly relationships with the hospital either.
        Top line means that the money is in your hand, not that you billed the payer. You have no idea how much money is left floating around in the claim cycle until it is finally written off, not to mention that payers, if not kept on a short leash, will be more than happy to keep your money an extra month or so. This is worth a fortune to them, and is very detrimental to you. Good, aggressive billers are a must.
        Also on the top line are patient collections. The goal is to not have statements, particularly now with high deductibles. For the remaining charges, it’s three dunning messages and straight to collections.

        BTW, I am not praising these things. Just describing the circumstances. Personally, I find it nauseating.

  • Anonymous

    Quibble: Bankruptcy is a legal term that should not be used loosely.  Not making much money is distinct from bankruptcy. 
    My story is this.  My wife and I are family docs who joined a medical group in southern Oregon in 2003, mainly to be near family.  The doctors were (are) excellent clinicians are very ethical, but they were not great businessmen. The practice expenses were high.  We were on salary the first year. We saw a lot of patients and gave good care and took call every 4th night, admitting our pts, our partners’ pts, and unassigned ER pts.  Our pt population was skewed elderly.  We lost money every month and took a 40k salary cut for year 2.  We lost money every month year 2 and then pulled the plug, going to a new job, where we earn more money and have more time off.  The difference:  low amounts of Medicare/Medicaid and lower expenses. 
    The group that we left will likely never be able to replace us.

  • Anonymous

    Great piece Kevin and exactly the topic of the documentary we are filming;  http://www.idealmedicalcare.org/docs/The-Documentary.pdf   I think viewing doctors on camera breaking down and crying because they can not afford to accept Medicare as an insurance is more powerful than reading about any newspaper statistic. We have filmed primary care docs just coming out of residency with 500K student loans (a couple) and others who have not collected a paycheck in years. One woman is considering working at the bookstore down the street. 

    More importantly the film demonstrates a solution. Physicians are leading town hall meetings across the country; they’re not waiting for politicians, they’re putting their patients in charge of designing clinics that truly serve the community–and the doctor!

    • http://twitter.com/Hootsbudy John Ballard

      Saddling new doctors with quarter million dollars student loan debts is crazy. Something bad wrong with that picture. There needs to be a better way. I’m in favor of having students put skin in the game but that is an invitation to ever more expensive healthcare costs. Looks like the education-industrial complex has infected medical training, too. And my impression is that new doctors are exploited as well in the guise of training, which to those of us looking from the outside looks a lot like hazing.

      • Anonymous

        Yes. These young med students told me how they were “approved!” and shuffled into a room to sign on the dotted line. The banks just taking these humanitarian, caring young souls for the ride of a lifetime. Horrifying.

        • http://pulse.yahoo.com/_2LRZNHDZS6DU45WQ567LPQ7CMI ninguem

          Any Massachusetts docs here? I practiced there in another life once. I seem to recall getting a letter from the Mass Medical Society, asking to contribute to their fund for impoverished physicians. In fact, they had a real-live home for impoverished physicians who were rendered homeless.

          Does the program (or the building) still exist?

        • http://pulse.yahoo.com/_GJCNF5QLKW7ROYAZZGB7HFH57Y jamesp

          Yup- I was one of them- and now that I am boycotting board certification on the grounds it does NOT help me provide better patient care- I am forced to pay the price for that decision. And I was absolutely exploited as a resident.

          • Anonymous

            Stay true to yourself. Don’t take any abuse. Call me anytime if you need help. We have to stick together.  IdealMedicalCare.org

  • Beau Donegan

    From an earlier post by Dr. Barth quoted in the article:

    Since I am quoted liberally throughout the article written by Ms. Parija Kavilanz, I would like to take the opportunity to set the record straight. The title and the perspective of the article “Doctors Going Broke” is both disingenuous and misrepresents my conversation with the author. I am a practicing cancer doctor for 30 years and have been honored to serve my community and my hospital in every capacity possible including 9 years as a medical staff leader. My understanding of the intended content of this article was an expose’ of the challenges many dedicated medical providers are facing in a difficult economic climate to care for their patients the way they absolutely would love to do, because the cost of providing patient-centric, high value medicine is simply not covering the costs to deliver that care. Hence, many physicians are continuing to subsidize patient care to their own economic detriment. Many are embarrassed to admit their economic failures. This is not because doctors are inept businessmen, but often they are so passionate about what they are trying to do for their patients, that they accept economic risk and overextend their resources for patients in need.

    ‘Healthcare’ is the complex web of insurance companies, pharmaceutical companies, government agencies and other vendor businesses that ride on the back of the physician license. Conversely, ‘Medicine’ is the sanctified relationship between a physician and a patient. U.S. Healthcare is a broken and inefficient system and its reimbursement policies does not promote optimum value for patients. U.S. Medicine on the other hand is alive and delivered daily by good people.

    Frankly in a climate where many people are unemployed, have lost their homes and are unable to care for their families, most would not really care whether doctors are going broke. But because many doctors are unable to sustain the economic burden of their practices, they are leaving medicine and consequently deserving patients may be denied access to needed care. That is the real story that needs to be understood by the public.

    Healthcare reform has begun and will continue because it has to find a sustainable footing, regardless of irresponsible politics. U.S. Doctors have the opportunity to help re-engineer healthcare if they show leadership and speak with the voice of their patients. In addition,the public must demand accountability from congress that will insure an accessible, value based, economically viable and sustainable healthcare system that will continue to deliver great ‘medicine’.
    I spoke to this author in the hope that a thoughtful and socially responsible piece would be written. I would only hope that this comment will strike a truer cord with all us who have a stake in the viability of our healthcare systemshow more

  • Anonymous

    Dr. Barth is a a criminal.   See how much money medicare has paid hiim and look at his billing.  Dr Barth overcharges those with private insurance and he also commits medicare fraud and his billing practice is mediicare abuse.  Open your books to investigators Dr. Barth.

  • Anonymous

    Since the rise of managed care, I have seen first hand doctors’ struggle to keep their practices afloat.  While insurance reimbursements and administrative hassles seem to be one of the first catalysts to the downfall of small private practices, many things as noted in the CNN article contribute.  I fear that it will not get better as we see the rise of ACOs, the need to adopt health information technology (which while necessary is prohibitively expensive to purchase and maintain), decreasing reimbursements from private insurers and the government, and other changes.  We blame doctors for much of what is wrong with the health care system.  When in fact, it is the system that is causing the problems for our health.  I cannot overstate the need to support small private practices and ensure that those who dedicate so much of their lives to caring for us are cared for in return.

  • Anonymous

    Been there, done that, bought the shirt.  One failed psychiatric practice behind me (several years ago.)  Took several years of steep payments to resolve the associated IRS debt.
     
    I’ve been employed since my clinic’s failure, currently by a state system.  Not at all perfect, but much less stress and much greater income stability.
     
    My private practice psychiatric colleagues who succeed now do so by cherry picking populations served, or by increasing volume.  For volume, they run faster on the hamster wheel (20-25 patients daily … I can’t listen that fast), and hire extenders/ancillary clinicians.
     
    Back in the day, the fat cats with the expensive lifestyles kept unmanageably high inpatient loads, accepted plum/token directorships, and did highly paid research for drug companies.  As those revenue streams have dried up I have found, as an employed psychiatrist, that I now earn as much as them (or more), and work many fewer hours.

  • Anonymous

    YIKES! When will we learn that we need to stop seeing healthcare as a business where the bottom line is the only thing that is important. We will loose all of our caring physicians and be stuck with a bunch of MBA’s who know nothing about medicine but a lot about the bottom line. Yuck!

    • Anonymous

      well YOU want to get paid, don’t you?  How can that be done if somebody is not taking in enough money?

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