Executive Session: Tim Coan on independent physicians bucking the trend of hospital employment Podcast - December 9, 2019 Sign in to save Chris Harrop David N. Gans MSHA, FACMPE, SENIOR FELLOW Amid a wave of hospital employment, independent physicians have a strong case for offering value to payers, patients alike The widespread acquisition of physician practices and other provider groups by hospitals and insurers is threatening the continued existence of independent practices. National data points to physician-owners now being a minority of all physicians across the United States,1 and an analysis in early 2019 pointed to further evidence of the changes between July 2016 and January 2018: About 8,000 physician practices were acquired by hospitals, increasing the percentage of hospital-owned practices by 5%.2 About 14,000 physicians left independent practices to work as employed physicians for hospitals.3 In some ways, the trend confirms the concern expressed by some that accountable care organizations (ACOs) — while envisioned as catalysts for improving quality and lowering costs — are partly responsible for pushing providers into larger organizations.4 During this period of consolidation, value-based payment programs from the government and commercial payers have been a hot topic for practice leaders to navigate, investing resources into analytics platforms and staffing to build care coordination resources and report quality metrics with a sizable administrative burden, according to the 2019 MGMA Annual Regulatory Burden Report.5 The effects are also being felt by patients: Federal research presented at the Medicare Payment Advisory Commission (MedPAC) meeting in November points to higher cost-sharing for Medicare beneficiaries as health systems push services into care settings that previously would occur in lower-cost ambulatory locations.6 At the same time, that same research found “no significant impact on cost-sharing for beneficiaries’ costs” from horizontal integration between physician practices.7 What’s not working? While the concept of value-based care sounds beneficial for providers, payers and patients, Tim Coan, founder and chief executive officer, ALN Medical Management, says that the industry is largely only talking about the migration to value-based payment methodologies — such as ACOs and capitation — that are only tools rather than actual outcomes. With fresh eyes, Coan contends, those tools are not doing as good a job as many predicted in bending the cost curve in healthcare. “At the end of the day, when you look at the cost scoreboard, there’s no real evidence that we’ve changed the slope of the line at all,” Coan says. This comes back to how value is being defined and whether it truly aligns to the lofty goals mentioned in recent years by promoters of new payment models. “The truth is, value is not about pricing methodology,” Coan claims. “It’s, ‘did I get more for my dollar?’” With the perspective of working nearly two decades in outsourced revenue cycle management services for independent physician practices, Coan recently authored a provocative whitepaper via ALN’s website, titled “The Case of Independent Physicians,” in which he spells out how health reform presumptions and what he labels as “flawed assumptions” led the industry to push toward integrated delivery systems and employed physician models that have not lowered costs.8 Meanwhile, the headline-grabbing industry disruptors in healthcare — Apple, Walmart, Haven and others — all have taken a different approach. They are building out new organizations to address the increasing cost of health benefits to relieve the worries of “a frustrated, self-funded employer [that] said, ‘This is the only part of my cost structure that is out of control,’” Coan says. While Coan is critical of the state of the industry’s focus on value, he concedes that “we are trying to do the right things” after hearing from the American electorate in 2008 that something needed to change in the realm of healthcare costs to patients and overall spending. Yet, as Coan notes, the Congressional Budget Office (CBO) estimates that federal spending through 2028 will grow 5.5% annually9 — or twice to three times the projected rate of inflation for the same period. Employer-based plans, covering more than half of Americans, are seeing premium increases of about 5% to 6% across the board despite numerous plan design changes — all of which is disconcerting to Coan. With respect to costs, “not only are we not making any progress,” Coan says, “we haven’t appeared to dramatically tap on the brakes.” To some extent, the migration to integrated delivery systems has enabled “monopoly pricing power” rather than economies of scale, Coan says, additionally, employed physicians’ site-of-service differential premium and facility fees are increasing costs, whereas independent physician practices often are largely paid on a professional fee basis. “I think there’s an opportunity for independent physicians … to say, ‘We’re actually leading the parade around value-based care, our costs are lower,’” Coan notes. “If you get your surgery in a physician-owned ambulatory surgical center (ASC) versus a HOPD (hospital outpatient department), the price is lower.” Indeed, a recent report from the Georgetown University Health Policy Institute’s Center on Health Insurance Reforms points to provider consolidation activity adversely affecting the ability of employers to curb rising costs in their provider networks, including: “Empire-building” by hospitals in six markets to boost market share and negotiating leverage Incentives among third-party administrators for self-funded employers to inflate overall plan costs Limited impact from anti-trust policies “to limit the ill-effects of consolidation.”10 The major healthcare provider in a community can charge whatever the market will bear or may be focused on short-term decisions to maximize revenue through higher prices. Such organizations size themselves appropriate to the consumption of resources so they remain profitable, but the cost per unit doesn’t necessarily go down.” “This idea that value is now limited in healthcare to a specific subset of unique, complicated and not-yet-figured-out pricing methodologies is actually not the way economics works,” Coan asserts. “Economics works when the consumer says, ‘I got more than what I paid.’ That’s our opportunity.” The case for independent physicians While independent physicians might feel “chagrined” about still being largely in a FFS model, Coan suggests that true value “is not about pricing methodology.” Independent physicians “have a pretty strong case to stand up proudly and say, ‘We’re actually the best value in town.’” While there may be a sense in today’s business environment that the playing field is “rigged for the big guys,” Coan points to something that independent physician practices have that larger organizations do not: Agility. “Physicians are used to processing information quickly,” Coan says. The major limiting factor for a physician-owned practice in exercising that agility is governance structure: When the doctor is the revenue producer and time is diverted from decision-making for clinical work, that undercuts the advantage of being nimble, Coan notes. Most independent physician groups “can become laser-focused” around a certain specialty or subspecialty “and build a highly efficient delivery capability that is tailored to maximum value, maximum clinical outcomes, minimized cost and take that to the market,” Coan says, pointing to the success of ASCs in recent decades. “These facilities … deliver great outcomes and they turn cases fast” with dramatically lower prices. As Coan notes in his writing, driving out pricing inefficiencies represent a prime opportunity for independent physician practices, pointing to the Office of the Inspector General’s estimate that Medicare could save $15 billion over about five years by applying ASC rates to low-risk outpatient surgeries performed in hospitals.11 Coan’s paper continues: Price compression is now happening fast. New market entrants, enabled by technology and unencumbered by legacy costs, are attacking pricing inefficiencies with a vengeance. These innovators threaten all incumbents, including physician practices, who do not respond.12 Finding those opportunities to do a few things very well with optimized equipment utilization and high procedure volumes is key to bringing a cost structure down and lower prices while the practice remains financially solvent. The consumerism factor The rise in deductibles in health plans and a greater cost share for healthcare users is frequently cited as part of the rise of patient consumerism, but Coan believes this mindset change among patients to take more control of the healthcare process “represents a tremendous tailwind” for independent physician practices. Independent practices still enjoy certain advantages when it comes to the consumer experience, such as homing in on human connections, ease of access and having a well-developed relationship with their physician or provider. Additionally, the ability to customize care delivery for a specific subset of patients often is easier to achieve in an independent physician practice versus a larger, monolithic system, Coan says. Size matters Coan points to what he sees as a bifurcating of the path to independent practice in American healthcare: Physicians going very small, even into solo practice, minimalizing capital outlays and where there is an ability to build a niche within a market Physician practices growing from only a few doctors to a few dozen providers, in which there is scale to invest in a strong management team of administrators who open the door for physicians to focus primarily on patient care while delegating governance to a board of trusted colleagues. “They’re still fast and nimble compared to the hospital” while being able to afford a robust professional management working on behalf of the physicians, Coan says. For physicians to build a business environment in which they can “function like very active shareholders” while letting a board and management take care of day-to-day accountabilities is a big market on what Coan refers to as the “maturity road map” for physician practices to grow in a sustainable way. Being bold The right leadership and scale are two key elements that Coan lists in building success as an independent physician practice. The third: Boldness. “There are a lot of physicians that are rightfully very frustrated by the system,” Coan says. “They don’t necessarily feel they’re getting a fair shake on the reimbursement side. … I see them, in frustration, throw their hands in the air.” The independent physician is very much an entrepreneur, and the entrepreneurial spirit should help overcome those moments of defeatism, Coan says. “I think it takes the symbiosis of strong physician clinical leadership that is rooted in ownership, with strong executive management that understands the business side, to go together boldly to their market” to find opportunities to make a strong case to payers for better reimbursement and to patients that you provide a better consumer experience in addition to quality care and lower costs. “It means we have to learn to market, we have to learn to sell, we have to learn to tell our story,” Coan says. Doing so will continue what Coan sees as a tide shift in healthcare. “A few years ago, it was forecast that independent physicians would go the way of the dodo bird: Everybody would be employed, there would be 12 to 15 large, regional integrated delivery systems that had an ACO financing stack, and the Kaiser-fication of U.S. healthcare would be complete,” Coan says. Instead, more and more physicians are using their entrepreneurial instincts to stay the course. “I am personally very bullish on the future for independent physicians. ... We’re starting to see the tide shift,” Coan says regarding the employment trend. “If you want to be independent, it’s hard,” Coan says. “But there’s a path, and it’s worth chasing.” Notes: Kane C. “Updated data on physician practice arrangements: For the first time, fewer physicians are owners than employees.” Physician Practice Benchmark Survey. American Medical Association. May 2019. Available from: bit.ly/2CBXZUk. “Updated Physician Practice Acquisition Study: National and regional changes in physician employment 2012-2018.” Physicians Advocacy Institute. February 2019. Available from: bit.ly/36ObQ7Y. Ibid. Kanter GP, Polsky D, Werner RM. “Changes in physician consolidation with the spread of accountable care organizations.” Health Affairs. November 2019. Available from: bit.ly/2CDbTFG. MGMA. Annual Regulatory Burden Report. October 2019. Available from: mgma.com/regburdens19. Brady M. “Patients feel the pain of hospital-physician consolidation.” ModernHealthcare. Nov. 7, 2019. Available from: bit.ly/34SMiot. Ibid. Coan T. “The Case of Independent Physicians.” ALN Medical Management. Available from: bit.ly/33O6Ka9. “The Budget and Economic Outlook: 2018 to 2028.” Congressional Budget Office. April 9, 2018. Available from: bit.ly/2Q8rULT. Corlette S, Hoadley J, Keith K, Hoppe O. “New Georgetown CHIR report finds ability of insurers, employers to respond to provider consolidation is limited.” CHIRblog. Oct. 24, 2019. Available from: bit.ly/2CFn0xT. Office of Inspector General. “Medicare and beneficiaries could save billions if CMS reduces hospital outpatient department payment rates for ambulatory surgical center-approved procedures to ambulatory surgical center payment rates.” U.S. Department of Health & Human Services. April 16, 2014. Available from: bit.ly/2Q9H9Eg. Coan.