Healthcare climate spurs practice model options

Dermatologists still can thrive in small private practices - even in this healthcare environment, where bigger is arguably better.

Physicians are jumping the solo practice ship. Like all doctors, dermatologists in private practice are feeling the heat brought on by rising regulatory and practice administration costs and reimbursement woes. The combination is forcing some clinicians to seek refuge in bigger, more powerful environments.

Forty-four percent of dermatologists were in solo practice in 2005, compared to only 38 percent in 2012, according to figures from the American Academy of Dermatology. Dermatology group, multispecialty and academic practices grew after 2005.

“We are definitely seeing a trend that younger dermatologists are more likely to join established dermatology group practices or multispecialty groups. Some of this may be generational, but the increasing complexities of regulatory compliance have also made it more difficult to run small or solo practices,” says Jack Resneck Jr., M.D., associate professor and vice chairman of dermatology, University of California, San Francisco, School of Medicine.

Unlike many other specialties, though, dermatology stands a chance to survive in private practice amid intense healthcare services integration and consolidation. Why? Dermatologists can supplement or switch to a cash business, which helps them to detach from many of today’s practice burdens.

“For dermatologists, the ability to stay independent as solo practitioners will depend, in part, on how much they rely on health insurance and how much of their practice is cash payments. To the extent that health insurance is not a driving force in the practice, it is easier to maintain independence,” says Alice G. Gosfield, Esq., of Alice G. Gosfield and Associates, Philadelphia.

Changing landscape

Jackson Healthcare’s 2012 Medical Practice and Attitude Report found while 56 percent of the physicians surveyed were in private practice (including solo, single and multispecialty practices), 6 percent claimed to be leaving private practice in 2012, most commonly citing high overhead costs and reimbursement cuts. 

Norman Levine, M.D., who has a private dermatology practice with a part-time associate in Tucson, Ariz., says he was the last dermatologist in the city to have started a solo practice, and that was six and a half years ago.

It’s simple economics, he says.

“Bigger practices can … more efficiently deliver care than private practices can. They can afford to purchase big equipment - expensive equipment - such as lasers, light boxes and what not. Bigger practices can afford to employ people like practice managers, and practice managers can run the business much more effectively,” Dr. Levine says. “Lastly, the rulers of medicine now are the insurance carriers, in the sense that a patient will go to a doctor who is contracted with his insurance company, in many cases. There are many insurance carriers who would prefer to deal with larger practices.”

Dr. Levine plans to practice privately for the rest of his career, because, he says, he can deliver high-quality care in a personal way, and that makes patients happy. But when asked if he thinks solo or small practices will survive, he says no.

“If you’re in solo practice you might as well remain and enjoy your life. I don’t see a reason to necessarily change that unless the financial realities, regulatory realities and all the other things start to impinge on your practice,” Dr. Levine says. “For people going into practice, I wouldn’t recommend that they start in solo private practice.”

Rather, Dr. Levine says, larger groups have the financial clout, size and business know-how needed to power through today’s healthcare environment. Unfortunately, that’s at the cost of freedom and autonomy, he says.

It is what it is

Staying in private practice might require an adjustment, as Deborah S. Sarnoff, M.D., discovered. Dr. Sarnoff, a clinical professor of dermatology at NYU Langone Medical Center, is changing the emphasis of her New York practice from Mohs surgery to cosmetic.

The shift is bittersweet, she says.

“The landscape is most definitely changing … and to survive, I believe it has been necessary for me to change with the times,” Dr. Sarnoff says. “Once upon a time, my practice was literally the first and only office on Long Island dedicated exclusively to Mohs surgery. Our referrals came primarily from other dermatologists from a 120-mile stretch, from Queens to Montauk Point. Slowly but surely, many Long Island dermatology groups hired their own itinerant Mohs surgeons. Needless to say, the number of Mohs referrals decreased.”

She opened a Park Avenue practice, specializing in Mohs surgery and cosmetic dermatology. While she would have liked to keep the medical and cosmetic sides of practice thriving, cosmetic dermatology won out.

“Over the past year, hospitals and multidisciplinary groups on Long Island have been ‘purchasing’ or ‘partnering’ with dermatologists,” Dr. Sarnoff says. “With declining reimbursements from managed care companies, general dermatologists are tempted to align themselves with a hospital or large multispecialty group in order to receive better-negotiated contracts and better reimbursement for their procedures. [But] once affiliated with a larger group, general dermatologists are limited as to where they may refer their patients. For example, to prevent ‘leakage,’ they may no longer be permitted to refer a basal cell on the nose to a Mohs surgeon outside their group.”

Group practice pros, cons

There are good reasons to be in a larger, integrated group practice, says Todd A. Rodriguez, Esq., partner and co-chairman of the health law group Fox Rothschild, Exton, Pa.

“Certainly there are … opportunities to improve the delivery and quality of care because you have a larger patient population, and you can share information among doctors in the group practice. You can analyze patient statistics and see what kinds of treatment modalities work better than others. And you can do all that in an integrated basis … that’s one of the big pushes for health care reform … to integrate the delivery system,” Mr. Rodriguez says.

From cost and administrative standpoints, being in a larger practice allows dermatologists to share financial risks and practice burdens.

“So, if you have to buy a half million-dollar electronic medical record system and you spread that over 20 doctors, it’s certainly a lot more tolerable than bearing that cost yourself or sharing it with two or three doctors,” Mr. Rodriguez says. “You can generally hire more expensive advisers ... You may be able to hire people who specifically focus on compliance within the practice. Smaller practices can’t afford a compliance officer, for example.”

Whether it’s better to go with a single specialty or multispecialty group is a matter of preference.

“The common thinking with multispecialty is that you have a built-in referral base,” Mr. Rodriguez says. “On the other hand, all the other primary care doctors in the community may not want to refer to you because they are afraid of losing their patients to your partners who are in primary care.”

According to Mr. Rodriguez, multispecialty practices often struggle with income division issues because some specialties are more labor intensive and don’t generate as much revenue as other specialties.

“I have seen situations where there can be some contention over how different specialties in a group practice should share in practice profits,” Mr. Rodriguez says.

Joel Schlessinger, M.D., a dermatologist and dermatologic cosmetic surgeon in Omaha, Neb., who has been in solo practice for 20 years, says multispecialty groups suffer from a prevailing jealousy of dermatology.

“Many specialties and physicians don’t understand the pressures and challenges that dermatologists face on a daily basis and/or the rewards that they earn through running an efficient practice,” Dr. Schlessinger says.

Employment option

When physicians sell their solo practices, it’s typically to hospitals, according to Mr. Rodriguez. Sellers will likely get a cookie-cutter employment arrangement, with a limited term (maybe two or five years), until they have to renegotiate the contract terms.

Working for a hospital can stabilize a dermatologist’s income at a reasonable level for a period of time, while the employer assumes much of the work and cost associated with running the practice.

But whether an employment relationship with a hospital is truly secure is up for debate. Ms. Gosfield says many healthcare experts warn that hospitals are promising physicians more money than they’ll be able to pay them.

Why? Among the reasons, she says: hospitals are looking at across-the-board cuts, no payment for preventable 30 day readmission, no payment for hospital-acquired conditions and value-based payment modifiers (so the lower-performing hospitals are going to get less than the higher-performing hospitals). In addition, in a quality-driven environment where community-based care better manages chronic diseases, hospitals might lose some of those admissions, according to Ms. Gosfield.

Hospitals, she says, “are standing on a burning platform.”

Another issue is whether dermatologists can find suitable hospital buyers. Dermatology isn’t a first pick for hospitals; it’s among the last.

Jackson Healthcare documented in its Trend Watch: Physician Practice Acquisition 2012-2013 that nearly half of the 118 hospital executives it surveyed are on the prowl for physician practice acquisitions. While primary care and internal medicine are primary targets, dermatology is barely on hospitals’ radar screens for possible acquisition. In 2012, Jackson Healthcare didn’t list the specialty, and in 2013, dermatology came after a long list of specialties - lumped in as 2 percent of hospital acquisitions, along with such specialties as critical care medicine, hematology, maternal and fetal medicine, nephrology and occupational medicine.

Solo (or small group) and loving it

Dermatologists who want to start or remain in small private practices should explore a high-end practice model - one not largely dependent or wholly dependent on insurance reimbursement, Mr. Rodriguez says.

“(Try to) situate your practice in a well-to-do area of the country or in a community where people are going to pay out-of-pocket for high-end kinds of care - what’s commonly referred to as concierge,” Mr. Rodriguez says. “This includes cosmetic and greater access to the physician by telephone and email. But you have to be in an area of the country where people are willing to pay for those kinds of things.”

Carolyn Jacob, M.D., director of the Chicago Cosmetic Surgery and Dermatology in Chicago, and co-chair of the Women’s Dermatology Society’s Business Interest Group, has a hybrid small group practice.

“We have one full- time and two part-time derms, a consulting plastic surgeon and consulting oculoplastic surgeon, as well as a PA and an esthetician. We are adding another full-time dermatologist in July,” she says. “I actually started this as a solo practice and have slowly added other providers. I always wanted to work with colleagues who had the same work and patient care philosophy.”

Dr. Jacob, who owns the practice and has been able to maintain both medical and cosmetic dermatology services, says she plans to use this model indefinitely. Having the consulting surgeons aboard is a win-win.

“We actually have a lot of patients who ask us for plastic surgery treatments that we don’t do, so we are a good referral source for them. However, we benefit financially by having them here instead of referring to other plastics who are not part of our office,” Dr. Jacob says.

Dr. Schlessinger is convinced solo practice is here to stay. According to the dermatologist, who practices with two physician assistants, the lure to be in private practice is too strong.

“I think that there is a general desire by dermatologists to do their own thing,” Dr. Schlessinger says. “And given the unique circumstances, which allow dermatologists to be independent of hospitals and other physicians, there exists the ability to continue to be solo.”

Dermatology is naturally suited to be independent, he says.

“There are a few specialties where the practitioners are not as dependent upon other physicians or a hospital affiliation, and dermatology is one of these,” Dr. Schlessinger says. “The insurance companies … have, to some degree, made it nearly impossible to practice without being casually affiliated with a hospital system. But, to my mind, this is the only absolute necessity that drives dermatologists to be aligned with others.”

Generally speaking, he says, hospitals bid on insurance companies’ groups of customers and then allow their affiliated doctors to be in the network. Therefore, dermatologists who do not have hospital affiliations might have a tough time getting on the coveted panels. Dr. Schlessinger has been able to skirt that issue because, he says, local hospitals in his area are interested in having dermatologists on their panels and understand the solo nature of the dermatology practice.

“For that reason, they are generally OK with the thought of (my) being courtesy or adjunct staff, rather than an active participant in the goings on in the hospital,” Dr. Schlessinger says.

He also admits that acquiring the EMR can be daunting for solo practitioners (but he has one).

While the environment has become slanted against the solo practitioner, the practitioner’s motivation and savvy prevail, according to Dr. Schlessinger, who has no plans to make changes.

“The benefits of solo practice and the ability to do those things that I wish to do far outweigh any minor inconveniences, at least for now,” he says.

Empower yourself

To thrive in any kind of practice, become business savvy and tap professional resources when needed, experts say.

Mr. Rodriguez says that while the push for integration may seem all-consuming now, it might not take hold. Rather than try to predict the future, physicians should aim to thrive in whatever climate there might be.

“For any medical practice to survive, no matter what specialty, they have to become more sophisticated,” Mr. Rodriguez says. “They have to learn how to run a business and focus on running a business and running a business profitably, and being able to evolve as the marketplace changes.”