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Health Care

Medical Practices Merging To Survive

By Ken Little, posted Mar 18, 2011

The prognosis is guarded for private physician practices in the Wilmington area.

Reduced Medicaid reimbursement, increased overhead, spiraling insurance costs and a multitude of new regulations that include electronic record-keeping all combine to give doctors in smaller practices a big headache.

Combined with a nationwide trend of medical group mergers and acquisition by hospital systems, the future of the traditional family physician is uncertain.

The healthcare system is in the midst of a “vertical integration” spurred in large part by federal reforms enacted last year, said Dr. Michael Moulton, an emergency room physician at New Hanover Regional Medical Center and a former president of the New Hanover-Pender Medical Society.

“They give you a set amount of money to take care of the patients. That’s what’s driving the physicians into groups,” Moulton said.

“Care for the patients under one roof – that’s the driving force.”

A ‘hostile environment’

Dr. Robert Monteiro, president-elect of the 12,000-member N.C. Medical Society, was affiliated with a New Bern medical group,

Eastern Carolina Internal Medicine, for 16 years. The group, formed in 1971, was purchased late last year by CarolinaEast Medical Center and became part of the hospital system Jan. 1.

“With an increasingly hostile environment in private practice, it would have been difficult to practice as we did,” said Monteiro, whose medical group included about 40 healthcare providers and 200 employees.

Closer to home, two area cardiology practices merged last month and joined the New Hanover Regional Medical Center Physician Group, as Cape Fear Heart Associates.

The practices that merged, formerly Wilmington Cardiology and Coastal Cardiology, total 16 doctors and seven mid-level providers who specialize in comprehensive cardiac care.

“With the changing healthcare landscape and continuous financial pressures, many physicians and hospitals are proactively evaluating how we can work together more effectively,” said John Gizdic, NHRMC vice president of strategic planning and business development.

Strengthening relationships with doctors through partnerships and affiliations help hospital systems like New Hanover Regional Medical Center “provide the highest level of care” for patients and members of the community, Gizdic said.

Mergers and acquisitions are happening with increased regularity across the country, said Robert W. Seligson, executive vice president and CEO of the N.C. Medical Society.

“Maintaining a small practice is incredibly difficult in these times,” Seligson said. “Hospitals have more reserves and are flexible to do more things than a solo practice can do.”

It’s a challenge for everyone practicing medicine, but factors such as decreasing reimbursement for Medicare and Medicaid, the increased cost of overhead and new federal regulations add up to tough times for many smaller practices, he said.

Just converting to electronic record-keeping “is a complicated process that requires an incredible amount of capital,” Seligson said.

Unfortunate events

For Monteiro and doctors at the former East Carolina Internal Medicine group, several events last summer gave group members cause to consider affiliation with their regional hospital, CarolinaEast Medical Center.

First, Medicare withheld payments for two weeks, then “slowly paid (the practice) back at a corrected rate.”

Meanwhile, the internal medicine practice was chosen for a Recovery Audit Contractor audit.

An RAC went through the medical group’s books in an effort to see if any overpayments were made to providers for Medicare and Medicaid services.

About 30 percent of the practice was comprised of Medicare recipients.

“Basically, they take money away from money you already have,” Monteiro said. “A 30-year business was being affected without any control.”

Doctors had to consider the 200 employees the business provided for, and make decisions to “avoid vulnerability.”

One solution for some medical groups is to stop accepting Medicare and Medicaid patients.

“We did not want to do that. We have a commitment to the community,” Monteiro said.

The solution “was to get with someone who could withstand a lack of cash flow situation and that was the local hospital,” he said.

“To me, it’s been great not to lose sleep at night worrying whether the government is going to cut (funding),” Monteiro said.
The other side of the healthcare reform coin is loss of autonomy.

“You have a say but you don’t have the final decision,” he said. “You’re making life and death decisions every day. What I’m seeing more and more now is more people trying to get into that decision-making process.”

More Medicaid recipients

The N.C. Medical Society predicts 500,000 additional people will now be eligible for Medicare in the state as a result of health reform.

“Who is going to see them? Many practices are not taking Medicaid, so there’s real problems with that,” Monteiro said. “There’s benefit in being part of a larger entity, but we were a pretty large entity and we couldn’t do it.”

Increasingly complicated federal requirements and paperwork demands make it difficult for all medical practices, including smaller ones, Monteiro said.

“You’re playing the game but you don’t know the rules and you don’t get paid,” he said. “In a one-person practice or a small group, there’s no way they would have that type of ability. It becomes very difficult to practice in that environment. You may not even be aware of what you’re not getting.”

Moulton said many organizations are embracing an Accountable Care Organization model that emphasizes a continuum of care across different institutional settings. It’s what the federal government currently favors as the most cost-effective means of delivering healthcare.

“It’s driving physicians to try to organize in large groups so they can be an ACO,” said Moulton, who is part of a group that contracts with New Hanover Regional Medical Center to provide emergency room care.

A fully integrated medical system may have its advantages, but Seligson isn’t completely sold on the concept.

“I don’t think it’s necessarily good for the healthcare system (if) all doctors and nurses are integrated,” said Seligson, who suggests “a separation of church and state” may result in better quality medical care.

He said the ACO concept doesn’t help smaller practices.

“It’s very difficult for solo or twosie or threesie practices to keep their doors open in the current environment,” Seligson said.
Gizdic acknowledged as much.

“The current operating environment is difficult for practices, especially smaller practices,” he said. “The expenses to run a practice have continued to increase, while reimbursement has declined. This does not mean a smaller independent practice can be successful, but many are evaluating what it will take to be successful long-term and looking at partnerships with other organizations that can help them adjust to the changing healthcare environment.”

Integrated approach best?

Dr. Mark Tillotson is affiliated with Brunswick Surgical Associates and is also president of Novant Medical Group’s Coastal Market Division. Novant operates Brunswick Community Hospital.

Tillotson said the medical staff at Brunswick Community Hospital is made up of physician partners “both in private practice and in medical groups, and the vast majority of our physicians still operate in private practice.”

Some, however, chose to join the Novant Medical Group affiliated with the hospital health system.

“Patients receive better care in an integrated health care system, where physicians partner with one another and with the hospital to provide the best care,” Tillotson said.

There are times, he said, “when a deeper level of integration and cooperation can be achieved with physicians who are in an affiliated medical group.”

Running a private practice is becoming more difficult “and not getting any easier,” Tillotson added.

“Joining a system provides physicians with support and expertise that they may not otherwise have. This allows physicians to focus more time and energy on their patients,” he said.

Resources available to doctors working in affiliated groups include human resources, clinical improvement, managed care contracting, purchasing, billing, and marketing assistance.

“We continue to hear physicians are joining Novant because they want to focus on patients, not business,” Tillotson said.

Some physician practices will continue to operate independently, while others will seek a partner, he said.

“There isn’t one right choice for every practice, but we anticipate this trend to continue over the next few years as there is continued need for integration and continued pressures on independent practices,” Tillotson said.

A challenging outlook

A similar wave of mergers and medical group acquisitions by hospitals occurred about 20 years ago in the United States. The strategy, for the most part, didn’t turn out to be profitable, and hospital systems ultimately backed off. Healthcare evolved into its current state.

“At least with the environment the way it is now, the outlook for small private practices is very bad. I don’t see physicians having the ability to do it,” Monteiro said. “It’s very complex now to go into a private practice. I don’t expect that many people to (do that).”

Monteiro feels fortunate his medical group affiliated with the hospital.

“The things we are able to achieve going into this association was that we are able to continue to provide service to all our patients in the community,” Monteiro said. “We don’t have any restrictions and that’s great.”

Moulton is taking a wait and see attitude.

“I think things go on a cycle and this is just another cycle in health care,” he said.

At present, the private practice doctor “is an endangered species,” Moulton said, but not extinct.

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