Since the beginning of this year (2012), I wanted to write about the current healthcare environment for doctors who have their own practice. In January, I read an article that went viral (with over 11,000 recommends on Facebook) titled Doctors Going Broke. With that many recommends, this article definitely did hit a nerve with the medical community.
Medicare’s Role in the Healthcare Environment
To summarize what the article is saying, doctors of all kinds, from family doctors to cardiologists to oncologists, are struggling to make a profit in their medical practices. Why? Because of Medicare.
For those who don’t know what Medicare is, it is the US national health insurance for people 65 years old and older. Because Medicare is funded by the US government, the reimbursement rate is cents on the dollar. In the article, the oncologist’s reimbursement for drugs was less than the cost of the drugs. He basically lost money taking care of Medicare patients.
And the sad thing is that doctors all across America are losing money as well by treating Medicare patients. Many doctors are refusing to accept new Medicare patients. Some will not accept Medicare patients at all!
More Cases of Broke Doctors
Because the Doctors Going Broke article was so popular among the readers, CNN decided to launch follow-up pieces. One follow-up piece showed 6 cases of physicians in financial distress. I would advise you to take a look because I will be referring to some of them. It is a short read and is also very interesting. In those six cases, I noticed the following common themes that attributed to their monetary demise:
- reliance on insurance companies as third-party payers
- small (and maybe solo) practice with around 5,000 patients or less
- medical specialty of family medicine or general medicine
1. Reliance on Insurance Companies
I listed this one first because it is the biggest reason why the practices failed. In all the cases, each of the practices relied upon insurance companies to pay them. Not surprisingly, they are not being paid competitively nor are they being paid on time.
If you want to deal with insurance companies, your expenses will naturally go up because you have to hire more people. Insurance companies are big, are bureaucratic, and can be a bully (at least in the perspective of many solo practitioners). They do not want to play fairly. They will not part with the money until you have filled out the right paperwork. Even then, they can reject your payment because what your have order is not medically necessary in their eyes.
Hence, you need to hire a full-time support staff to collect money from insurance companies. The amount of papers involved is immense. And once everything is sent, you will have to wait for them to send you the money. That could take months. If it even comes.
Think about it from the insurance companies’ point of view: the more obstacles and paperwork they put in your way, the more they can delay paying you, the more they can deny paying for imaging, the more they can keep in their own pockets. It’s not personal. It’s business. And it is all about profits.
In the fourth case, if you take a look at Dr. Brian Pierce’s situation, even though the money did not yet arrive from the insurance companies, bills and employees’ wages must still be paid. If you do not have enough cash on hand, you will have to borrow. Borrowing money will cost you interest. So that results in even more expenses just to accept money from insurance companies.
2. Small Practice with 5,000 Patients or Less
Basically, if you “only” have 5,000 patients, you are a small fish. Insurance companies are interested in big fishes, not small fishes.
Dr. Raymond Oenbrink from the fifth case succinctly summarized the problem, “As a solo physician, insurers give you a contract that you can’t survive on. Solo physicians will have maybe 5,000 insured patients. So we don’t have any power with insurers to negotiate our rates. But if you join a large group practice with 100,000 insured patients, then insurers become very interested in negotiating with you.”
If you work in a small practice and depend on insurance companies for payment, your income will naturally suffer.
3. Medical Specialty in Family Medicine
For some reason that I do not know, the reimbursement rates for family medicine is lower than other medical specialties. As a result, with higher expenses (from dealing with insurance companies and Medicare) and a lower income, it would be much easier for a family medicine doctor to go broke than a higher-paid specialist.
The Healthcare Environment Today
Doctors going broke is a very real situation in the current healthcare environment. Medicare reimbursements are low. Insurance companies follow the Medicare’s lead and lower their reimbursement rates too. At the same time, expenses have not decreased. (And let’s not forget about the medical student loans.) With lower income and higher expenses, no wonder doctors are going broke.
In today’s healthcare environment, it is very hard to succeed with a small family medicine practice that depends upon insurance companies and Medicare for payments. If you want to maximize your chance for monetary success, I would advise the following:
If you want to accept insurance payments, join a group-based practice so you have a strong collective bargaining power regarding payment rates and terms. If you want a smaller practice, just don’t accept insurance.
As a side note, if the government and insurance companies want so much control on how doctors are going to get paid, they should take more control on paying for the doctors’ medical school education as well. It’s only fair.
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At the very least, check out the book review.
This article is part of the Money in Medicine series. Click on the link if you want all the money-making secrets available to doctors.