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How doctors manage managed care

Everyone is affected by rising health-care costs, including doctors. BusinessWeek talks with one doctor about what he's doing to get by.
/ Source: Business Week

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 percent.

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 percent 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.