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Friday, March 11, 2011

Threading the needle

It is hard to actually assess the pace of change in health care. We tend to focus on issues such as technological change in the form of new drugs or devices. Some of these agents change the diagnostic or therapeutic paradigm for selected patient populations while many add little value to patients while driving costs higher. We also note that health care has become much like airline travel, both being increasingly just commodities.

However much we think health care has changed, I am convinced we have seen nothing compared to the transformation we are likely to see in the next decade. I am always leery about putting timetables to predictions, particularly to changes anticipated in the health care environment. I recall my mentors making dire predictions over 30 years ago regarding the economics of health care, many of which I believe were spot on, just in the wrong time frames.

Whether state driven health care reform is the primary driver or not, payment reform is going to change the business of health care in a fundamental way and I predict it will happen soon. How it plays out is where it will get very interesting because it will involve a more fundamental change in what health care providers are incentivized to do. At this point in time, most physicians (who do most of the provider billing) are paid for activity. Whether through their own small businesses or via corporate incentive programs, the mantra is do more and get paid more. At my own institution, we tally both dollars and RVUs and benchmark them against other similar practitioners. The biggest RVU pop is when we do procedural things to our patients and bill for these things. What is not counted is counselling, reflection, and prudent non-intervention. Such "worthless"  activities don't pay the bills.

There is a great deal of talk about how we will adapt to a world where we will be held accountable for efficiency, that being health outcomes per dollar spent. We are still in the talk stage. My incentive program for the coming year is still based upon keeping the click rate up. I realize if we are to stop exploding health care costs, this will need to change. Outside of the increasingly isolated MD community, there is a growing consensus that continued growth of health care costs is at odds with the financial health and stability of the country.

It is a challenge to even think about how we adapt to circumstances where our rainmakers become the source of our worst financial hemorrhaging. Much of health care is a capital intensive and low margin business. In this world, small changes in payments induce huge changes in the bottom line and big bets made at one time where the fundamentals looked good can quickly turn into really bad bets. The push now is to consolidate, grab market share, and optimize your position to build lean and focused shops. To survive in a not paid by the click world, those who will be employed by these entities will need to be salaried and their success will be measured by how well they husband resources, not by how much they do. I would hope that there will be some sort of patient outcome which can be measured as well.  I suspect that there will be a rapid transition from billing/collections as a measure to dollars spent. However, I simply cannot figure out how this transition happens?

Will we thread the needle and have a bumpy but bloodless transition, or will there be a blood bath? I suspect the latter. One option is to say no to the third party payment model.   For major players with substantial sunk costs in buildings and equipment, and business models based upon expensive interventions that few patients can pay, saying no to insurance will not be an option. They will simply have to cut costs and re-engineer how they do business or die, and many will die. Many physicians are fleeing to the safety of large health care networks and seeking employee status. This might give them brief refuge but the corporate world is not notable for safety and guaranteed employment. When big companies which cannot raise prices start to lose money, they lay off people, the most expensive ones first.

I also think that those who can practice in a low overhead environment independent or semi-independent of insurance will increasingly take the risk and derive payment from those who receive services. There are lots of models out there now such as SimpleCare ( or a variety of concierge care options. I think this is where the action will be. This will be where creative destruction will give rise to the future of health care, where entrepreneurial ambitions will play out. They will build a patient responsive industry because they will derive their resources directly from patients.

Many megahealth care entities will simply not make it. No one in the middle portion of the 20th century could imagine that the great industrial enterprises in Detroit, Cleveland, and Buffalo would be abandoned as rusted hulks by the end of the 20th century. Those industries who survived in the US became lean, focused, and efficient, and competed successfully by delivering value. It is a lesson well worth learning.


  1. Thanks for the post. I find it disheartening and depressing (even if true) to read that the future of healthcare--and the success of physicians--lies in entrepreneurship. While I agree that the third party payment system inflates prices and puts incentives in the wrong places, I have been hoping that the salaried physician as a member of a multispecialty group or HMO would provide a viable alternative.

    But as you point out, an employee can easily be fired.

    While I have no objection to physicians who use the concierge model (they do provide a service that consumers/patients are willing to pay for), it requires a component of entrepreneurship and self-promotion (e.g. through advertising) that many, including myself, would find difficult.

  2. entrepreneurship


    Capacity and willingness to undertake conception, organization, and management of a productive venture with all attendant risks, while seeking profit as a reward.

    What part of entrepreneurship is disheartening? Is it the risk part? Promotion does not always mean self promotion.

  3. Entrepreneurship is not itself disheartening or bad; many of our country's successes have come from entrepreneurship. However, I think that many who embark on a career in medicine do not consider themselves entrepreneurs and perceive the risks of "going it alone" in practice to be great. Even those whose personal temperaments allow them to handle the risk don't necessarily want to devote much time and energy to the "business side" of medicine. And while promotion does not always mean self-promotion, it seems to me that the concierge model requires some level of self-promotion. How else to enlist clients?

  4. I'm one of those physicians, specifically a dermatologist, who does not participate in commercial insurance plans and is a Medicare provider in a non-par status. I practice in a medium size community, see mostly patients with more serious diseases and skin cancer and do a negligible amount of cosmetic procedures. I do no advertising. The self-promotion that I engage in is I hope the quality of care that I provide that results in word-of-mouth referrals. Probably 60% of my patients have family members who are also patients and the principal source of my business. By the definition above I am clearly an entrepreneur and I can tell you that the risks are great. While most dermatologist's schedules are filled months in advance there are holes in mine every week. My income varies considerably from year to year. But those holes however allow me to see patients with urgent problems that others refuse because they are perturbations to the practice mill model that predominates in my specialty. And the additional time I have has allowed me to expand my competency in areas where my colleagues skill have stagnated or dwindled. I profit from my practice but, as is inherent in the definition above of entrepreneurship, that profit comes from a productive venture in this case the practicing medicine with the sickest patients first and foremost in mind. And enough patients are willing to pay disproportionately for what they believe is higher quality care. Profit is exactly as definitionally indicated also—a reward, not a goal. As Peter Drucker repeated in multiple tomes on management over literally seven decades, profit is merely a byproduct of innovation, effective management and leadership.

  5. Thank you, CAM, for your post. First, let me express my admiration for the risks that you have taken and for the rewards that you have reaped in terms of ability to see patients with urgent problems, to expand your competency in various areas, and, in general, to practice medicine with the sickest patients first and foremost in mind. Were this not an anonymous blog, I would love to learn more about your practice model, as I too will be a dermatologist in the coming years.

    However, some general points may be relevant even in an anonymous forum. I wonder whether and to what extent your ability to practice the way that you do depends on your particular specialty, your particular geographic location, and your particular financial needs. Do you practice in an area with many HMO's or multispecialty groups? My understanding is that solo practitioners (whether they use the concierge model or not) find it difficult to "break in" to such environments simply because patients are already involved with existing groups. You also mentioned that your income varies significantly from year to year. This in and of itself would not be anxiety-provoking for me as long as I could be reasonably sure that even in "weak" years I'd be able to feed, provide a home, and good educational opportunities for my children. These expenses vary significantly by geographic region...I wonder what your general take on this is.

    The prospect of reaping the rewards that you described--rather than being a member of a standard "mill"--is certainly enticing. I'd like to learn more about whether it would be applicable to me.