By J.C., on September 11th, 2008
I’ve mentioned several times before that doctors are not good businesspeople and that the current state of the health reimbursement system is a mess. One reason it is so messy is that it is all about business and not about care. In this country, the basic teaching of medicine is that “continuous care” is the gold standard. This essentially means that when you see one doctor they are your doctor who knows you and they are the doctor that you will continue to see (if you are happy with your care). This patient-doctor relationship is the rewarding one that allows a physician to see you grow from a child into an adult into an elder. Similarly, it allows the patient to have that one person who they can trust to govern their health. The only thing that could end such a relationship was either the patient or the doctor ending it. Most typically, it lasts until the patient either passes away or the doctor retires and sells his practice to another doctor.
Enter the enemy – the insurance company. Nowadays, that type of relationship is almost non-existent. It is the insurance company who works on the patient’s behalf to enter into the patient-doctor relationship. If your doctor does not have a contract to provide care to that insurance company’s patients, then you cannot see that doctor unless you switch insurance companies. Thus in some respects the insurance company holds the patient hostage. The insurance company owns the patient, and the doctor can only see the patient if the insurance company allows this.
Recently, a doctor in the area was ill and needed to take 2 months off of work. He wanted other doctors to cover his patients and see them while he was gone. Unfortunately, all of those patients had one type of insurance that few doctors had a contract with. Thus those patients could not be cared for.
You don’t have to be a rocket scientist to see how messed up the whole thing is. Curiously, they are still teaching “continuity of care” in medical school. Soon they will be replacing that class with Economics 101 for dummies.
By J.C., on September 9th, 2008
Recently I was aboard an international flight when they asked if a doctor or healthcare professional was on board. It was in the middle of a 12-hour flight, and the cabin was dim, and nearly everyone was asleep. I happened to hear the overhead call that a healthcare professional was needed and, per usual, hesitated for a few minutes to see if anybody was getting up. As I did not see anyone get up, I got out of my seat and informed the stewardess that I was a doctor and could help.
They had not found a healthcare professional yet and asked me to see a passenger in the back cabin. Luckily the passenger was merely having a bout of food poisoning. She had some diarrhea and vomiting while onboard the flight and had stomach pain. She appeared stable with good pulses and had abdominal discomfort. She had no history of prior surgeries and had never had her appendix removed. She made it through the flight with some discomfort until the paramedics greeted her at the gate.
This is not an often occurrence for me. However, these things do happen to doctors everyday. Although there are laws that protect us from malpractice, called “Good Samaritan Laws,” whenever I hear that call for help, my initial reaction is to do nothing. Then I feel guilty that I am doing nothing and someone may be dying or in serious medical need.
Everyday doctors are faced with internal struggle about how best to manage patients and their situations. Although we are all capable of being first responders, we do not necessarily have to be first responders. What we should do is always direct people to emergency responders and to places where they can get their definitive care. When there is a patient who needs emergent medical care, but we are not prepared to give it, we must direct them to someone who can.
Non-medical people might not understand how a doctor can sit by and not get engaged in an emergency situation. If this were the case, then we would not need emergency personnel or paramedics. The emergency response system is there for a reason. If I get into an accident, I certainly would not want some random doctor not trained in emergency care to look after me.
By J.C., on August 21st, 2008
In any small business, including running a physician’s office, the most valuable piece of your business is the real estate. Most people have heard the McDonald’s story of founder Ray Kroc, who believed that the most valuable aspect of McDonald’s was the real estate underneath each restaurant. For small business owners including physicians, getting a piece of the dirt underneath their business is essential.
As I have mentioned in other posts about physician’s offices, the top two expenses in running a business are payroll/benefits and overhead. The most costly part of overhead is rent or leasing of space to run your business. Thus, aside from cutting staff to reduce payroll and benefits, the best thing you can do for your business is to negotiate a better lease or to purchase your office space and pay it off over time. Most retail businesses must choose the best location for their business that generates high traffic and lots of willing customers. Similarly, physicians must also choose locations that are either part of existing hospital medical complexes or are close to large populations and ancillary facilities. Physician’s must also ensure that their offices are accessible to public transportation as many patients must use public transportation to travel.
Many physicians starting out cannot afford to purchase their own space. Thus they must lease space until they have the means to purchase. If you choose not to own your space, then in order to build some wealth you need to invest your income and savings wisely. For when that day comes that you must shut down your practice or your business, it will be the only thing you have to show for all of those years of hard work. If you are able to sell your practice or your business then that is a big bonus. But unlike other retail businesses, most physician’s practices are not sold for much.
One strategy some physicians utilize is to buy larger space than they typically utilize. Then they rent out space to other physicians. This is an excellent strategy for those physicians who have the means to do this. In some respects it turns the physician into a real estate investor rather than just a business owner. Thus for smart doctors who think in advance and invest in their practices, they will have a lasting asset that goes beyond the life of their practice.
By J.C., on August 19th, 2008
We’ve been talking a lot here about physicians and the business of running a medical practice. Lately, I have been seeing a growing number of physicians advertise on television. This makes me wonder – Should physicians advertise for their services?
In some circles many feel that it is unethical for physicians to advertise. It is sort of like ambulance chasing attorneys. More and more I am seeing cheesy ads by Plastic Surgeons on TV. They brag about how you can get a breast augmentation and how no one will even know. They talk about how they stand out above all other plastic surgeons. It all seems so tacky to me, kind of like the lawyers who advertise on TV.
Everybody knows that when you look for a lawyer you don’t find one from a TV ad. In general you find one by word of mouth and referral. The same goes for doctors. If you want to find a good specialist, you see your primary care physician who refers you to who they think is a good specialist. That is the way insurance companies want the business to work. Your primary care physician is the “gatekeeper” who handles and approves the referrals.
Television advertising does appeal to mass populations. However, most lay persons do not know who is a good doctor and who is a bad doctor. Although there are websites out there that now provide patient feedback and opinion on doctors, the truth is that only people who work closely with that doctor know how good they are. Thus one good way to find a doctor is to get in touch with your doctor friends and people who work in the healthcare industry. They will give you the skinny on that doctor you are considering seeing.
So what is the deal with physicians and advertising? Well you will find that physicians who advertise do so because they are in a lucrative field and want to drive up their business. Alternatively it may be the medical center or hospital they work at who would like to advertise a special “center” where that doctor works. For example, a regional cardiac center may want to brag that they have the best heart specialists. Thus they will put up a billboard or TV spot advertising their center with the faces and names of their heart doctors.
In general I believe doctors have the right to advertise their business, but I am not a big fan of it because I don’t believe it places physicians in a good light.
By J.C., on August 16th, 2008
I’ve posted twice now on the topic of the business of private practice medicine. Once about how being a solo practitioner is not a good business and a second post about the group practice model of medicine. There are other models and this time I will address the corporate partnership model of physician practice. This is a model used widely by physicians in Emergency Medicine and Anaesthesia as well as Radiology. In this model, the founding physician or group of physicians run their practice like a corporation and hire young physicians as employees.
This is a desirable model of business because the revenue per employee exceeds the cost of the employee. Thus the group can add more physicians as long as they have the work for these employees. In essence, the founding partners are more like “rainmakers” that must win business for the group. This type of practice is much like a law firm where associates and junior partners must climb the ladder for several years before becoming partner or manager.
One reason why this is possible in the fields of anaesthesia, emergency medicine, and radiology is that these physicians only provide care to patients under a contract basis. Additionally, these physicians contract with other physicians or hospitals. Essentially, the doctors in these fields of medicine work on other doctors’ patients or on patients that belong to the hospital.
For example, an anaesthesiologist typically does not have a medical practice where he sees patients. His specialty is to provide anaesthesia for surgeons who do surgery. Thus in order for him to get cases to do anaesthesia he must be invited by a surgeon or be hired by the hospital or surgery center to do anaesthesia. Thus he can sign a contract for his firm of anaesthesiologists to do anaesthesia for any of those entities.
Similarly, a hospital Emergency Department can either hire ED physicians separately or may go ahead and contract with a group of Emergency Department physicians to provide care for the ED for a certain number of hours or a certain number of patients. In this manner the firm of ED physicians may hire young ED docs to work.
As you can see, the contract side of medicine is a good business to be in and is more of a corporate model of physician practice. What is different about this type of medical practice is that the founding partners actually practice little medicine because they are busy winning contracts or are busy running the firm. They make a lot more money but they typically end up being the “business partner” in the firm.
By J.C., on August 14th, 2008
In most professions you get paid the more senior you become. An attorney typically bills hourly and as he becomes more an expert in his field and within his firm, his hourly rate continues to increase. Similarly in business, as you climb the corporate ladder, your salary increases. Medical doctors have an unusual situation. Once you become a doctor, you get paid per office visit, per consultation, per procedure, or per surgery the same as whether you have been doing it for 30 years.
The main reason that physician pay does not increase according to seniority is because the payer is usually Medicare or an insurance company that pegs their reimbursement to Medicare rates. When your payer is the government, they don’t care whether you are the best in the field or you have been doing it for 20 years. They don’t care whether you take 1 hour or 10 hours to do the surgery or see the patient. The pay is still the same. Thus in many ways, medicine is sort of an “all you can eat” type of service. You only get paid once, but you must provide complete service.
While the pay increase from resident to attending physician is a typically a huge jump, doctors hit a ceiling early on after they become fully fledged physicians. One reason for this equality in pay among doctors of all levels is that when dealing with human life, it is expected that all doctors provide the best possible care. Differentiating one physician from another or one surgeon from another is very difficult. Additionally, seniority does not necessarily mean that the product or service is better.
Although the pay per service does not increase the more senior you become, in reality the more senior you become the faster you typically perform a service. Thus in some sense pay does increase but this is due to the physician working faster and more efficiently. In practice this is not necessarily always a good thing because some physicians tend to rush or hurry through their patients or procedures. Sometimes this results in poor care or mistakes.
For the physicians who operate non-PAR or take cash payments such as plastic surgeons or dermatologists, they may be able to charge more given their experience or reputation. However, the competitive landscape in any city usually caps levels to cater to what is reasonable for individuals.
By J.C., on August 9th, 2008
My post about solo practice medicine brought along some interesting comments and trackbacks. In addition to traditional solo practice medicine, there are other models of medicine that are more economically efficient. One such model is the group model of medicine. In this model, several solo practitioners band together to form a “group” to share costs of overhead such as office space, assistants, equipment, and other services.
The group model is attractive for many practitioners because they get to save money on costs. The model is more economically efficient than a solo practice because office space and personnel are always being utilized. For example, a solo practitioner may choose to take one half day or one full day off from work. However during this time, his employees and overhead are still being paid. Thus, the office is not “closed” but is still open and is generating revenue. Banding together with other practitioners allows full utilization of staff and space.
One great benefit of group practice is also the built-in referral base among group practitioners. Typically in a specialty group, all or most of the solo practitioners have a different specialty interest. Thus they can refer patients to each other. This concept is particularly attractive for those fields in medicine who rely on referral from primary care and other practitioners.
An additional benefit may be more purchasing power by belonging to a group. For example, the group may save money on supplies and may negotiate service contracts. Similarly, a group may purchase their equipment and office space because they can pool together the finances of all members of the group.
However, despite all of the benefits of the group practice model of medicine, at the end of the day each doctor is a solo practitioner – essentially their solo practice within a larger group. Thus, the analogies I made in my previous post about solo medicine not being a good business model still ring true – without the key physician employee, there is no revenue.
By J.C., on August 5th, 2008
It seems almost every other day I hear about some young college kids starting up a new business. Perhaps it is a dot com or social networking business or something unique. What everyone always wants to know is this – what is the business model?
This has got me thinking about the business model of medicine and in particular the business model of a private practice. I’ve come to the conclusion that being a doctor in private practice is not a good business model. Here’s why:
In this great country of America, the cost of running a business is very expensive. The main cost is labor and payroll. Here in America we are over-educated and over-paid. We expect great benefits and time off. We want the good life, no matter what rung of the economic ladder we sit on. This cultural phenomenon of entitlement is evident in the fact that payroll benefit costs run about one-third of actual salary costs. Thus it costs about $30 in benefits for every $100 you pay an employee. (No wonder why everyone wants to outsource to India or China these days.)
For most small business owners, the productivity of each employee increases revenue. Whether the product is a widget or a hot-dog or computer software, the general concept of employee productivity is that employees increase revenue and the more revenue per employee the better. Thus as sales escalate to the point of needing another employee, the revenue from that person’s productivity more than covers his cost. Thus scaleable businesses typically have desirable business models.
In private practice medicine, revenue is dependent on the productivity of one person – the doctor. Hiring more employees does not increase his productivity. The only thing that can increase revenue is for the doctor to work harder and faster to see more patients or do more procedures. He is the rate-limiting step in the business model. This is the reason why your trips to the doctor’s office get shorter and shorter.
Most businesses are based on a scaleable model of sales. However the product of a doctors office can only be created by the doctor and delivered by the doctor. In essence, it is a one employee enterprise and everyone else in the office is ancillary staff. In fact, it could be argued that the doctor actually works for the employees and not the other way around. He has to see patients and do surgeries to pay his staff’s salaries. Thus the incentive of the doctor is to actually hire underqualified staff to pay lower salaries and cut costs.
If you were an investor looking for small businesses to invest in, you definitely would not want to invest in a doctor’s office. If that doctor got sick or tired (or old) then he would not make money. Since he is not an employee, he actually loses money when he takes vacation. Not only does he not earn income, he still has to pay his staff.
Given the above thoughts, it is not a suprise that doctors are not typically great entrepreneurs. To boot, they are often considered some of the dumbest investors around!
By J.C., on July 21st, 2008
If you haven’t read Alvin Toffler’s book, Powershift, you probably have no idea what has happened to us in the last decade with regards to the information era. In this historic book, Toffler talks about the “Powershift” which is the information era and how knowledge and information will be the most valuable currency in the world. While traditional economic transformation progressed from agrarian to industrialized societies, the next wave was the information era. “Third World” economies could actually leapfrog the industrialized economy from a rural/agrarian one to an informational society with the advent of computer networks and the internet.
In the healthcare system, such a “powershift” is occurring within the walls of hospitals. Archaic hospital systems are using paper charts and paper prescriptions. Physicians must hand sign an order book which then gets faxed to the pharmacy. A courier then runs up the medicine to the patient’s room. All charting is done on paper and record keeping rooms are enormous. Medical transcriptions are done on a typewriter and placed in the patient’s paper chart.
In the second wave of medical informatics, the electronic network came about. Orders were allowed to be filled electronically. Medical transcriptions of dictations were outsourced to transcription companies who typed these out and they appeared electronically. Physicians could edit, verify, and sign electronic records and transcriptions. Computerized vending machines on the hospital floors could electronically document the use of supplies for the indicated patient. The second wave of medical informatics cuts costs and dramatically improved things and brought us out of the dark ages.
It appears that we are starting the third wave of medical informatics. “Going Live” is the concept where the electronic record is completely “live” and “online” and always being edited. Laboratory and diagnostic results appear real-time; doctors dictations, nurses notes, medical orders, and prescriptions are all done online and appear real-time. Transcription software allows the physician to dictate his note which uses voice recognition and speech transcriptions software to transcribe the note instantaneously where the physician can edit. If he so desires the doctor can electronically type his notes if he likes. There is no paper chart.
“Going Live” is the third wave of medical informations. Gone are the outsourced medical transcription companies. Gone are the paper charts. Gone are the electronic notes that indicate that a dictated note is “pending.” There are no gaps in the care or documentation of the care of the patient. The laptop or PDA-toting physician is here to stay.
As in the global powershift, hospitals and healthcare systems who “Go Live” early on will win more business and thrive. They will be more profitable and be more efficient and thus more effective in the delivery of healthcare.
If you’re interested in other works by Alvin Toffler, read Greg Beatty’s review of Revolutionary Wealth: How It Will Be Created and How It Will Change Our Lives by Alvin and Heidi Toffler.
By J.C., on July 19th, 2008
I previously wrote about how I feel like we are in the “Era of Ancillary Services” for the physician. The New York Times recently ran an interesting article about cardiologists and the unnecessary CT-angiography scan. At the heart of the issue is that among cardiologists the CT-angiography scan (basically a 3-dimensional X-ray of the heart showing how much vessels are occluded) is controversial in its actual preventive utility.
Medicare, in its effort to cut costs, has balked at reimbursing for these scans. However, many cardiologists continue to order these tests because they make money (up to half of the income of some cardiologists) and patients demand the scans. Last year 150,000 of these scans were done at a cost of more than $100 million. All data trends indicate that their use is increasing significantly.
In the best case, having a CT-angiography that reveals significant occlusion of vessels may indicate the need to increase medications or undergo a procedure to unblock coronary arteries. In the worst case, having a CT-angiography can reveal that there are no blockages in a healthy and asymptomatic patient.
What is interesting about this issue is that the economic and political lobby for CT-angiography is extremely strong and was able to get Medicare to back down from their coverage reversal. Obviously, cardiologists, who may own the machines or have a financial interest in the machines, are going to fight all they can to keep this industry alive. Some people feel that the lobby is driven by capitalism under the guise of “improving patient care.” It is the rare cardiologist that refuses to order scans, own scans, or have financial interests in scanning facilities. Most other cardiologists feel that they might as well own or else they will be leaving money on the table.
At the heart of the issue though is whether these scans affect the actual outcome of the patient. There is very little evidence to suggest that it affects or does not affect patient outcomes. There are many patients in whom asymptomatic disease has been detected. There are also symptomatic patients where the scan confirms what previously was a sound clinical diagnosis based on history and examination.
It does not appear that CT-angiography is going away. The demand is just too high from patients and the lobby is too strong. This is yet again another example where the utilization of healthcare and the discovery of medical advancement are incongruent with the payment and reimbursement mechanism in this country.
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