BusinessWeek Series Examines Health Care Issues in 2004 Election Campaigns, April 21, 2004

  • "Health Care for All? Not in America"

  • "Why Health Care Has No Wal-Mart"

  • "A Primer on Drug 'Reimporting'"

  • "A Heady Time for HMOs"

  • "How Doctors Manage Managed Care"
  • Health Care for All? Not in America

    Everybody says universal coverage is a good idea, but few can agree on how to get it. And the uninsured are hardly a politically active bloc

    Why can't the richest nation in the world provide health-care coverage to all its people? It's the question that hangs over all debates about medical care and insurance -- particularly in an election year when jobs -- and the employer-based health system that ties insurance to work -- are a key voter concern.

    The answer: It's not that Americans don't want to cover the 41 million uninsured. And the cost, pegged by Kaiser Commission on Medicaid & the Uninsured at less than $69 billion a year, isn't insurmountable, adding just 6% to annual health spending.

    It's just that no consensus exists -- in the public, among politicians, or in the health industries -- about how best to get the job done. And because the vast majority of voters have health insurance (85% of the population is insured, but 92% of those who participated in the 2000 election were covered), political leaders have little incentive to overcome that impasse.

    TURNING TO HYBRIDS.  "Most Americans think that the wealthiest nation in the world should wipe this problem out," says Robert J. Blendon, an expert on polling and public attitudes on health care at the Harvard University School of Public Health. "But there's no single plan for universal coverage that more than one-quarter of the nation thinks is a good idea." And each of the leading alternatives has substantial and obvious trade-offs -- in cost, freedom, quality, and economic growth -- that make it hard for voters and politicians to rally around a second-choice plan.

    So the most likely course toward expanded coverage will involve what Blendon calls "hybrid plans" -- a mix of state-run Medicaid programs to extend coverage to currently uninsured groups, enhanced incentives for employers to make insurance affordable for low-wage workers, and personal tax breaks to encourage individuals to buy coverage.

    The truth is, Americans have long rejected sweeping attempts to solve the problems of health coverage by creating a single seamless system. President Harry S. Truman proposed a universal health plan in the late 1940s, only to be soundly beaten. The next steps were incremental: Lyndon B. Johnson won government-run coverage for the elderly (Medicare) and poor (Medicaid).

    A SIMPLER PAST.  The last Democratic attempt to overhaul the entire system -- President Bill Clinton's reform drive in 1993 -- was shot down in partisan warfare that led to Republican control of Congress in the 1994 election. In the decade since, changes have once again been incremental -- adding more children to Medicaid, offering prescription-drug coverage through Medicare, and pursuing the conservative vision of individual insurance through tax-favored Medical Savings Accounts.

    "In most countries, one political party had a vision for a health system, and when they took power, they put it in place," Blendon notes. But that was a lot easier in parliamentary systems, where the same party controls the legislature and the executive, and in post-World War II boom days, when health care was simpler, costs and expectations were much lower, and voters were willing to redirect their heavy tax burden from warfare to health care.

    Now, most Americans have a strong vested interest in their employer-based insurance, even though they complain about cutbacks in coverage and higher costs. And when only a small, politically inactive slice of the public is uninsured, it takes an economic upheaval to raise enough fear about losing coverage to prompt political action.

    LOWER PRIORITY.  Compare public concerns today with the fears following the 1991 recession -- the first "jobless recovery." Back then, more than 50% of respondents told Harris pollsters that health care was one of the two most important issues for government to address. But last December, in the midst of a seven-month string of weak employment reports, only 16% of respondents ranked health care in that league, far behind the economy and jobs (40%) and war and defense (32%). (One explanation: The jobs figures have been weak because of a lack of new hiring, rather than layoffs, which have remained low. So, current workers have less reason to fear losing their insurance.)

    That's not to say Americans don't wish that health care was available to all. Some 62% support universal coverage, according to an October, 2003, Washington Post/ABC News Poll. But that's not their top concern: A poll for the Harvard School of Public Health and the Robert Wood Johnson Foundation last December found that dealing with the uninsured was only the third-most important health-related issue. The cost of health care (36%) and Medicare's problems (26%) outstripped helping the uninsured, which tied with prescription-drug costs at 21%.

    As Blendon noted, none of the major alternatives for reaching universal coverage commands anything close to universal support. The leading choice is further expansion of Medicaid, favored as a top pick by a mere 22% of respondents in the Harvard/Johnson poll. That's closely followed by a mandate on employers requiring them to offer insurance, the top pick of 21%. But after that, none of the likely ideas -- mandates for families to buy insurance, tax breaks for individual coverage, universal Medicare, or its close cousin, a government-run single-payer plan -- is the clear choice of more than 14% of the public.

    NO URGENCY.  Furthermore, when the drawbacks are pointed out, support for any alternative drops sharply. A separate 2003 Harvard School of Public Health poll of Massachusetts adults found that 82% of the public generally supports expanded Medicaid -- but only 55% like the idea when they're told taxes might rise to pay for it. Similarly, support for an employer mandate falls by more than half, from 76% to 35%, when respondents are told that the cost of insurance might force businesses to lay off workers.

    Blendon sees little on the health-care or political scene that's likely to change this picture. "There's no American Association of Uninsured Persons issuing report cards on candidates or holding feet to the fire," he notes. "President [George W.] Bush knew he couldn't run for reelection without passing a drug plan for the elderly. No one thinks he faces that same urgency on taking care of the uninsured." Until that changes, America will at best nibble away at the problem of ensuring that all its people are covered.



    By Mike McNamee, deputy Washington bureau chief
    Edited by Douglas Harbrecht


    Why Health Care Has No Wal-Mart

    Instead of the powerful market forces that drive retail costs down, insurance, inefficiency, and soaring demand create ever-higher prices

    In recent years, Americans have enjoyed the glories of falling consumer prices. It's commonly called the Wal-Mart (WMT ) effect: Huge retailers use their buying power to force suppliers to cut costs, then the retailers pass some of those savings on to their customers. Forced to stay competitive, other retailers follow suit. The result: The price of, say, a DVD player, plunges from $1,000 to $50 in just a few years. It is, for consumers at least, the sort of virtuous cycle that economists dream about.

    And it has worked for everything from gizmos to food. But it hasn't worked in one corner of the market -- health care, which accounts for 15% of the U.S. economy and is growing. Why don't the same market forces that drive price competition for DVD players keep health costs from rising at double-digit rates?

    BALLOONING PAYMENTS.  To start, it's important to remember that two very different things are going on in health-care spending. The first has to do with the price of what the health-care industry calls "an individual unit of care" -- that one visit to the doctor's office or that bottle of pills. In 2003, unit-of-care prices rose by more than 3.5% -- twice as much as overall inflation.

    The other issue is what's happening to total health-care costs, which rose by about 8% last year. Much of that increase results from more people using more care, not because the cost of each individual procedure is going up. Over the past decade, the amount each American spends on medical care has ballooned from about $3,400 per year to nearly $6,000.

    In some cases, more care is used because the treatments are now easier. For instance, the number of cataract surgeries has exploded in the past decade, while the cost of the procedure has been stable. But instead of having major surgery and spending three days recovering in the hospital, you can have cataracts removed and be home in just a few hours. As a result, total spending for cataract surgery has boomed.

    WHO'S PAYING?  Sometimes, however, Americans use more care because they think it's free, or almost free. And that's one big reason why health care hasn't become Wal-Mart-ized. When you buy that DVD player, you whip out your credit card and pay with your own money. That makes you want to comparison shop for the best deal. But when it comes to buying drugs, consumers have little incentive to shop around. If you have good insurance, you're going to pay the same $10 or $15 whether you need the most expensive drugs or not.

    A recent study that looked at drugs used to treat arthritis pain provides some insight. Arthritis sufferers can buy relatively inexpensive over-the-counter treatments, such as Motrin or similar generics, or much more costly prescription medications called cox-2 inhibitors, such as Celebrex or Vioxx. Both kinds provide equal pain relief, but the cox-2 drugs may reduce the chances of stomach bleeding or ulcers.

    The study concluded that people with good drug insurance were twice as likely to get the more expensive drugs than those without insurance, whether they were at risk for bleeding or not. If someone else -- the insurance company -- is paying, price doesn't matter.

    18TH CENTURY TECH.  Another reason why the Wal-Marts of the world can keep retail prices down -- but the government and big companies can't on health care -- is technology. This is a truly strange situation. You'd probably think about a big boxy store as being technologically backward -- just a bunch of stuff piled up in a huge building, right? But in fact, modern retailers use very sophisticated information technology to maintain inventories. And their suppliers use high-tech gear to make the products the retailers sell.

    Hospitals may appear to be centers of the slickest technology imaginable. But in the critical links with patients, many hospitals are stuck firmly in the 18th century. Think about it: paper charts hanging from the end of a bed, prescriptions written on scraps of paper that are carried by hand to the hospital pharmacy. Only slowly are doctors using devices such as personal digital assistants.

    This unwillingness to adopt advanced IT is hugely expensive, and in some cases leads to unnecessary deaths. The result is huge added expenses that are, sooner or later, built into the price.

    THE X FACTOR.  That's not all. For example, there's no real link between quality and price in large swaths of health care. There's no mechanism to comparison-shop. Even if you wanted to find the best price, no one would tell you. And don't forget the emotional X factor: Americans equate the best care with the most care, despite the absence of evidence that the two have much of a link. These are all very tough problems to solve.

    Modern health care is many wonderful things. But it isn't a market. And until it becomes one, consumers will have little chance to enjoy the same benefits of price competition they get at their local Wal-Mart.



    By Howard Gleckman in Washington, D.C.
    Edited by Douglas Harbrecht



    A Primer on Drug "Reimporting"

    How's it done? Is it legal? Safe? Why do drug companies object? Here are the answers to many questions swirling around the practice

    You don't have to be an accomplished cybersurfer to know that plenty of Internet operations do a brisk trade selling drugs. And it's not just Viagra, Oxycontin, and steroids that are being peddled online. Many legitimate Web pharmacies have evolved into popular money-saving options for retirees, state and city workers, and the uninsured who need prescription drugs.

    One of the industry's fastest growing segments is so-called reimportation sites, which allow people to buy essential pharmaceuticals at lower prices from foreign countries. By some estimates, this year Americans will buy more than $1 billion in drugs from pharmacies in Canada alone. And sales from Canadian pharmacies account for only 20% of all reimported drugs.

    The issue has become a political hot button. While federal and state regulators watch growing online pharmacy sales warily, politicians from both parties are listening to their constituents, many of whom are angry at Big Pharma over high drugs prices in the U.S., where much of the industry's revenue comes from. Instead of siding with regulators, several members of Congress have introduced bills that would ease restrictions on reimportation.

    Some lawmakers are even providing lists of Web sites and other programs that will connect people to non-U.S. pharmacies. In its defense, the drug industry contends that high prices in the U.S. are necessary to pay for research into new drugs.

    Here's a look at the status of cross-border buying and selling of prescription drugs, and the controversy over the issue:

    What is reimportation, exactly?
    The way the drug market works, big pharmaceutical companies make the bulk of their profits by selling drugs at higher prices in the U.S. to a wealthier customer base. In recent years, however, reimportation has revealed a major crack in the U.S. health-care system. Millions of Americans can't afford the out-of-pocket cost of prescription drugs (43 million have no health insurance, according to the 2000 U.S. census). So, many have resorted to buying their medicines from outfits in foreign countries, which typically charge prices that are between 30% and 70% lower than in the U.S.

    How many people are doing it?
    The practice has become quite widespread. Market researcher IMS Health estimates that $695 million worth of drugs were bought in Canada alone in 2003, up from $414 million in 2002. The rise of the Internet in the late 1990s made buying drugs from abroad easier. At first, people seeking painkillers and "lifestyle" drugs like Viagra were the main buyers. In the last several years, however, more and more people have flocked to sites that promise lower prices for drugs to treat chronic conditions.

    How does one go about reimporting?
    Today, the predominant method has become ordering through Web sites or storefronts, which often, but not always, require patients to fax a copy of a physician's prescription. Of course, it's hard to know for certain what happens once the order leaves the fax machine, but many sites promise that licensed pharmacists in their country then check that the prescription is legit. After a money-order or credit-card payment for the drug and shipping fees is received, the prescription usually arrives on your doorstep within a few days.

    Even with the Internet, many people still physically travel to foreign countries to buy prescription drugs on the cheap, however.

    Is reimporting safe?
    That's hard to say. The FDA has been consistent in saying that people shouldn't do it. Bill Hubbard, the agency's associate commissioner for policy and planning, points out that the FDA "can't stand behind those drugs" since it can't track where they've been or how they are stored. Still, reported cases of harm caused by prescriptions filled abroad are "fairly limited," Hubbard admits. "We have no mechanism to know how many people are being harmed. We don't expect people to drop dead, but we would expect diseases are not being properly treated."

    Is it legal?
    It's legal for individuals to personally import a drug supply of less than three months for their own use (the "personal-use exemption" that many of the U.S. storefronts and Canadian phamacies are exploiting).

    Otherwise, it's illegal for Americans to buy drugs that are not manufactured at an FDA-approved facility. (Proponents of reimporting point out that drugs bought through pharmacies in certain countries, particularly Canada, were likely made in government-inspected facilities.) However, the FDA has done little to enforce the law. "We have never attempted to arrest or take away drugs from anyone," Hubbard says. The same is true of any packages sent through the mail.

    Still, the agency has been vigorously going after commercial operators. Late last year, the FDA shut down Rx Depot, a popular Oklahoma-based Internet pharmacy that helped people get prescriptions filled from Canada. The FDA is also talking to package carriers like FedEx (FDX ) and to credit-card companies about how they might help in tracking large amounts of prescription-drug imports from Canada.

    Aren't some states and cities trying to help people buy drugs through Canadian pharmacies?
    Yes. Budget-strapped states and cities say they can save money if employees and retirees use pharmacies in Canada or elsewhere. The Canadian drug-purchasing program set up in Springfield, Mass., for example, could save the city as much as $4 million depending on how many of its 900,000 workers and former workers use the program.

    Four states -- Minnesota, Wisconsin, North Dakota, and New Hampshire -- have set up Web sites or other programs to encourage and help its state workers buy drugs through non-U.S. pharmacies. Cities with similar efforts to Springfield's include Burlington, Vt., and Montgomery, Ala. North Carolina's Caldwell County has a site, and Boston and the state of West Virginia may set up programs by this summer.

    If it's illegal to reimport drugs, why do local and state governments enable people to do it?
    The increase of elderly and uninsured people resorting to illegal and potentially unsafe drugs to save money on medicines is a heart-tugger for politicians. "Obviously there's lots of political appeal to make drugs less expensive," says lawyer Al Lorman, a partner at Mayer, Brown, Rowe & Maw LLP, in Washington, D.C. In February, with public encouragement from the mayor of Chicago, an elderly Illinois couple filed a suit against the federal government for "limiting their access to medical choices."

    In situations where states and cites are enabling reimportation, "we have warned them that it is illegal and urged them not to do it," says the FDA's Hubbard. So far, the agency hasn't prosecuted the states and cities, though down the road it "may have to ask a federal judge to mediate."

    Could reimportation become legal this year?
    Not likely, although the issue will certainly get a lot of attention on Capitol Hill. As part of the Medicare bill that was passed last December, the Health & Human Services Dept. must present a report to Congress by yearend that looks at whether and how reimportation could be done safely.

    Several bills are in the works. In early April, Senator Charles Grassley (R-Iowa) unveiled legislation that would legalize importing of drugs from Canada and create a 90-day deadline for the FDA to set up a system to register and inspect Canadian suppliers. After two years, the bill would allow Australia, Japan, and European Union countries to participate.

    Senators Byron Dorgan (D-N.D.), Judd Gregg (R-N.H.), John McCain (R-Ariz.), and Olympia Snowe (R-Me.) are all working on various reimportation bills.

    What would the impact be of making imports legal? Would it ultimately drive down drug costs?
    Increased competition could certainly cause a dramatic fall in prices in the short run, says Joshua Cohen, senior research fellow at Tufts Center for the Study of Drug Development Research. But critics point out that allowing regulated drug imports in Europe was no panacea. A study by Panos Kanavos and other economists at the London School of Economics provided evidence that savings to insurers and patients were modest. And supply shortages became common in countries where the cheapest drugs were available.

    "Reimporting is skirmishing around the edges of the problem," says Alan Sager, professor at Boston University's School of Public Health and co-director of the school's health-reform program. "The real problem is getting affordable medications for all Americans while enhancing research for breakthrough drugs."

    How are the drug companies reacting to this?
    This much is certain: The drug industry won't give up its fight to keep reimportation from becoming legal. Drugmakers contend that lower prices (and lower profits) would limit the incentive to invest in their new-product pipelines.

    Given that the drug industry has been built on constant innovation, however, reimportation isn't likely to seriously crimp companies' incentive to come up with new, lifesaving drugs. Boston University's Sager argues that lower prices resulting from reimportation would be more than offset by the sharp rise in volume of new prescriptions for people who couldn't previously afford the drugs at all.

    What about the bigger issue of making drugs more affordable? How might that get fixed?
    Unlike most developed countries around the world, Washington doesn't set price caps on drugs. However, the U.S. market could see an effect similar to having price caps in the next couple of years. In 2006, when the Medicare drug benefit kicks in, the country's largest insurer "could use its sheer-volume clout to reduce the price of drugs," Cohen says. That will likely create a powerful -- and lasting -- downward push on U.S. drug prices.



    By Amy Tsao in New York
    Edited by Douglas Harbrecht

    A Heady Time for HMOs

    They're doing surprisingly well, thanks to innovation, cost-cutting, and flexible plans. But investors better brace for political fireworks

    The last two years may have been a struggle for the economy, but they've been surprisingly strong for managed-care stocks. Since the New Millennium, most outfits in the sector have increased prices on their products and services, while their costs have been falling. The result is improved profit margins, and in 2003, earnings for the group rose 32%.

    Yes, lost jobs and layoffs during the downturn resulted in HMO membership losses, but managed-care companies have found many ways to offset the lower subscriber rolls. The biggest gains have come from technology improvements and better designed plans that encourage consumers to be more thrifty. That's why HMO costs were lower than expected in 2003 and will likely decline again in 2004. And it explains why the Standard & Poor's Managed Health Index rose 64% since January 2003, compared with a 23% gain for S&P 500-stock index.

    Analysts are starting to have doubts that 2005 will be so robust, however. "Costs are still moving down, but not as quickly as before. And pricing is not rising as much," says Brandon Carl, health-care analyst at BB&T Asset Management. The outlook is solid, but blowout results aren't likely, particularly as new-job creation remains lackluster and opportunities for lowering costs become fewer.

    UNREALISTIC EXPECTATIONS?  The stocks could be due for a break as a result. Signs of a pause are already appearing. In recent weeks, fear of rising rates have driven many investors from HMOs into drug stocks, which historically have done well during periods when interest rates are on the upswing, Carl says. "We've been positive on managed care, but we believe the magnitude of trends is declining, and we want to reduce exposure," he says.

    A few large-cap names should continue to post gains, despite the short-term uncertainties. UnitedHealth (UNH ), the nation's largest HMO, is "probably the best from a growth perspective," says Carl. (United is a holding in BB&T's growth funds.) The stock, at $64, recently lost some ground as investors were disappointed that the outlook for new membership growth wasn't stronger. Kris Jenner, health-care analyst at T. Rowe Price, says "there's nothing fundamentally wrong with United," although he's concerned that the market's expectations have become somewhat unrealistic. (Jenner owns United Health stock personally.)

    Still, United has an anchor: A large part of its business lies in providing to large, self-insured corporations services like claims administration and management of mental-health benefits (see The BW50, 4/5/04, "Vim and Vigor at UnitedHealth"). Higher medical costs don't affect these services, which account for the majority of United's operating income, says Robert Mains, analyst at Advest in Hartford, Conn. And continued improvements with information technology will also save administrative costs over the next year or so, Mains says. He recently raised his 12-month price target on UnitedHealth to $71. (Mains doesn't personally own managed-care stocks.)

    HOT ON THE STRIP.  Another large-cap favorite is Anthem (ATH ), which recently announced plans to buy rival WellPoint (WLP ). The $16.4 billion merger will make Anthem the country's largest Blue Cross/Blue Shield insurer. "There is broad-based revenue opportunity that didn't exist when each company was on its own," Jenner says. At Anthem's current price of $88, it's trading at just under 12 times his estimated 2005 earnings per share of $7.50, while the broader stock market is trading at a forward p-e ratio of 17. For the long-term, the merged company should increase earnings at about 15% annually, says Jenner.

    Among smaller companies, Sierra Health Services (SIE ) is the top pick of BB&T's Carl. It has been shedding peripheral businesses to "really focus on the core business, which is providing traditional managed-care services to mid-market companies," Carl says. It's the biggest player in the burgeoning Las Vegas area and one of a few small-cap, publicly traded managed-care companies remaining in the industry. (Sierra is also a holding in BB&T's growth funds.)

    That it hasn't yet been scooped up by a larger company makes Sierra an attractive holding. "It won't be a stand-alone company in a couple years," Carl predicts, offering much bigger outfits a quick and easy way to grow through acquisition. Its dominance in an attractive market and cheap valuation -- $36, or 12 times 2005 EPS -- make it a promising long-term investment.

    ESCAPING CRITICISM.  As consumers pay more for health care, the fundamentals for these companies should remain solid. "The industry will not lose as long as people are coming into the workforce," says Phil Seligman, analyst at S&P. A profitable, efficiently run managed-care industry is good for consumers in the long run, he says. "If you didn't have the incentive to keep costs down, you would end up paying a lot more for health care."

    Managed care has also escaped the brunt of criticism for soaring health-care costs, which has fallen mostly on drug companies. The industry has deftly made its rules more flexible for patients to choose doctors and other services, offsetting ire about higher out-of-pocket expenses. "People certainly hate HMOs," says Mains. "But the realization is that we have to pay for services, and HMOs are just the middleman."

    Still, in an election year where rising health-care costs are a focal point, HMOs could come for renewed criticism by campaigning pols. "I'd be surprised if it didn't become something of an issue," says Mains, especially as the profits of many managed-care providers continue to be strong while Jane and Joe Worker pay more across the board for premiums and co-pays. Already, Democratic Presidential candidate John Kerry vows not to allow seniors to be "forced into HMOs" in order to get prescription drugs.

    Investors in the sector should probably anticipate volatility in the coming months, although the negative political attention probably won't be enough to send the industry back to its early days. At least not yet.



    By Amy Tsao in New York
    Edited by Douglas Harbrecht


    How Doctors Manage Managed Care

    A physician talks about the few things his practice can do: Increase patient volume, take pay cuts, and lean on insurers

    Everyone is affected by the rise in health-care costs. Individuals covered by Medicare continue to struggle to pay for prescriptions. Medicaid recipients are finding services cut or curtailed. And the price of employer-sponsored insurance, which covers some two-thirds of the population, has been rising well beyond the rate of inflation.

    Doctors, too, are feeling the pinch, as large insurers use their weight to limit how much physicians are reimbursed. "Managed care is being managed to maximize profits [for the insurers]," says Dr. Ronald Ruden, a primary-care physician with New York City-based Yaffe Ruden & Associates.

    Ruden says financial pressures have become an everyday reality for physicians as they attempt to provide quality care and stay in the black. "Most doctors are caught in this situation," he says. His practice has increased its volume of patients to bring in more revenues, but he and his partner have had to take drastic pay cuts to keep the practice above water.

    A breaking point in the health-care system is coming, Ruden says, and physicians will have to take the lead in making sure that insurers keep patient care, rather than financial concerns, at the forefront. "What's going to happen is that providers are going to become savvier about how to negotiate with the insurers," he predicts. His practice has just wrangled price increases from the insurers it works with and is making information-technology upgrades it hopes will pay off.

    Ruden spoke about these issues with BusinessWeek Online Reporter Amy Tsao on Apr. 7. Edited excerpts of the conversation follow:

    Q: How has the health-care system changed in recent years?
    A:
    The providers, like me, get contracts with the managed-care companies -- companies like Aetna (AET ), Oxford (OHP ), and Cigna (CI ). The revenue received by primary-care physicians is fixed by the managed-care company.

    But the problem is that as costs of running a practice go up -- the rent goes up, the cost of supplies go up, the cost of employee salaries goes up, the cost of paying for health-care insurance for our employees goes up -- the only way the practice can cover these costs is by increasing patient volume.

    Q: Have the insurance company's fees to you increased?
    A:
    We hadn't had a raise for six years from any insurer, and we reached a crisis point in our practice. We've increased patient volume as much as we could. We're seeing more patients, they have to wait longer on the phone.

    In our practice, they can be seen the same day, but nonetheless as you increase volume, you increase all those things which make both the patient unhappy and the doctor more stressed.

    Q: Could you further increase the number of patients you see?
    A:
    Our practice already sees around 1,100 patients a week between seven primary care physicians. We increased patient volume enormously. There's a plateau at which you can no longer see more patients without having to add extra staff or other extra costs. So there is a marginal benefit, with more liability.

    Q: What have you done to offset rising costs?
    A:
    Over the last year, my partner and I up have been taking less salary than our first-year associates because we were unable to increase patient volume enough to cover the costs. The practice wasn't generating enough income to pay for all the salaries and the raises [for our employees]. My salary and my partner's salary are probably cut down by 66%.

    Q: That doesn't seem like a long-term solution. What else have you done to improve the practice's financial position?
    A:
    Several years ago, my partner and I predicted this would happen. We recognized that there were three major areas which we did a lot of referring to other doctors. So we built a space to accommodate part-time employees who would see our patients for dermatology, optometry, and physical therapy.

    We're able to pay these individuals a salary and recoup about 20% of their fee, which would normally be lost to outside referral.

    Q: Have you been able to get any concessions from the insurance companies?
    A:
    We began to negotiate with the insurance companies about six months ago. We're fortunate in that we have some modicum of leverage because we have a large practice.

    We negotiated with the insurers to say, "Well, if you want to keep us, this is what we need." I think the managed-care companies are wise to want to keep us [because we have so many patients]. But many doctors live in fear that if they raise a stink, the managed-care companies will take them off their [rosters].

    We also brought in a new set of accountants to give us the advice and guidance and banking connections that we needed to move ahead.

    Q: Can technology solutions save money?
    A:
    We're going to be entering into the area of electronic medical records so individuals will be able to schedule their own physicals and get access to their records. It costs substantial amount of money. Right now, we have people just coming in the weekend to file this stuff, the volume is so large.

    Hopefully, when this is all electronic, someone just scans it into the machine, and then it gets put away in a data file. Ultimately, we hope that this will save some money, but it's expensive in bringing it to fruition.

    Q: What other IT solutions might help?
    A:
     Some colleagues of mine began a company called Managed Care Advisory Group. We have these brilliant IT guys that have been in the health-care industry for years. We put together a system that allows a doctor to make sure that the managed-care companies are meeting their contractual obligations. The group will be working with the American Medical Assn. and some state societies in the near future.

    Q: Has the constant focus on getting paid affected the way you want to practice medicine?
    A:
    We're reaching a point where there has to be something new. We need to find a way so that primary-care doctors can increase revenue without continually increasing patient flow, which is our only source of revenue. Our practice is currently looking at a voluntary administrative fee to help cover our costs.

    I believe every single doctor in the entire world knows the secret to a successful patient-doctor relationship is maintaining good [communication]. It becomes more difficult when you have many more patients.

    I would rather find a way to make patients feel that I know who they are, that I have their best interests at heart, and that I'll use my skill and judgment in a thoughtful way.



    Edited by Patricia O'Connell




    Copyright 2000-2004, by The McGraw-Hill Companies Inc. All rights reserved.
    Terms of Use   Privacy Notice