Adaptability: The Business of Medicine

Health care reimbursement is undergoing a fundamental change from volume-driven to value-driven care. The Patient Protection and Affordable Care Act of 2008 has marshaled this transformation in the dominant payment model. This legislation, as yet unproven in its benefits, has placed disproportionate burdens on medical practices, challenging the business models on which they are built.

This new practice stressor is compounded by the continued roll-out of reporting metrics, electronic medical record requirements, and a windfall of power granted to hospitals by accountable care organizations, which are population risk vehicles that have driven hospital consolidation into mega–health care systems to mitigate this risk. Physicians, faced with little to no ability to compete in this space, quickly became hospital employees: primary care physicians first, followed by high-revenue subspecialists (oncologists, cardiologists, orthopedists), who all have recently seen their outpatient procedure reimbursement gutted, destroying the business models that had sustained them for years. The hospital strategy is to create seamless care models over wide geographic areas and to manage risk by serving large populations while controlling and directing physicians’ care, with the hope of linking this to higher care quality and therefore higher value.

Although one may quibble over the details or the wisdom of this approach, given how the Patient Protection and Affordable Care Act is constructed, this scenario is rapidly gaining ground.

What does this mean for nephrologists? How can we respond? Do we have a strategic advantage over our hapless colleagues? Maybe.

Nephrology practices have had an advantage in that the majority of our income has not been linked to hospital care. Rather, ESRD care and medical director reimbursement have contributed up to 60 percent of nephrologists’ total compensation, as reported in the 2013 Renal Physicians Association benchmark survey. This fact not only has made us less attractive to hospitals but has created a potential opportunity for continued independence and success. To accomplish this, practices will be required to get serious about how they greet this opportunity.

First, practice leadership must accept and manage their “practice” as a business and treat it as such. Our product (commodity) is “care” that has a defined payment, eroded directly and indirectly for years. In the past, as reimbursement for the “commodity” was eroded we responded by increasing the volume of care. Not only is this unsustainable, not focused on quality, and inconsistent with the new payment models, but also practices rarely even knew the price of providing the commodity they were marketing. Additionally, practices were rarely focused on business processes and less rarely performed those business processes professionally. Revenue cycle management, contract negotiation, coding and billing, credentialing, personnel management, and related activities consumed disproportionate resources and revenue, were performed by nonprofessionals, and had little or no structure. Hospitals often touted as a major selling point their ability to provide these services at scale and to alleviate physicians’ distraction.

Nephrology practices—regardless of their size—should look carefully at what practice services they require to remain competitive, what these services actually cost, and what value is delivered. The economy of scale for providing services in large practices (>25 physicians) cannot be delivered by smaller practices. This is one of the more basic business decisions to make: do I “build it or buy it?” For practices with fewer than 25 physicians, look to buy services. Professional management companies have reported practice savings of up to 30 percent.

Once you get your house (business) in order, you can focus on remaining competitive in our current environment.

The next step is to seek out partners that enhance your presence in the market. For nephrologists, like it or not, I am talking about dialysis providers. We like to tout that we are independent, and we are to some extent, but realistically we serve as medical directors, use facility services for our patients, and may participate in joint ventures or real estate ownership. Let’s call it co-dependency. We need one another. Given that the Centers for Medicare & Medicaid Services has publicly stated that 50 percent of reimbursement will be value driven by 2017 and 70 percent by 2020, developing a partnership is critical to our continued survival. Partnership with dialysis providers is a natural step because we already have a business relationship. Given that dialysis providers cannot and do not practice medicine, and for the most part nephrologists no longer own or operate dialysis facilities, the smart move is obvious.

Understand how care must evolve in the population you serve. Identify the problem, such as chronic kidney disease, and manage it with the intent of slowing progression to ESRD. If ESRD is not avoidable, focus on preemptive transplantation. If not transplantation, then appropriate education and preparation for home modalities, arteriovenous fistula placement, and other such measures will be expected during this transition.

Your practice operations must also evolve. Do you have protocols for avoiding use of the emergency department? Are patients with health problems routed from dialysis facilities to the emergency department or to your offices? Are you using physician extenders to free you up for physician-centric care? Is your practice capable of seeing hospitalized patients within 72 hours of discharge?

I know what you are thinking: only large practices can do this. True: they can and often do, without much assistance. Smaller practices can too, with strategic partnerships with local or regional larger practices, in collaboration with dialysis providers, or in other business vehicles such as independent practice associations.

In conclusion:

  1. Your practice is a business; treat it as such.
  2. The environment your business must compete in has changed and is changing drastically.
  3. Get you house in order—make sure your business operation services are maximizing your return. If you are unsure, get a professional practice assessment.
  4. Seek out strategic partnerships, given the expectations of payors and patients.
  5. Educate yourself; how can you retool practice operations? How can you better manage the costs of care?

There is no reason you cannot remain independent providers of renal care if you take a breath, seek out expert advice, remain open-minded, and are open to trying things out of your comfort zone.