Why America’s Doctors Are Struggling to Make Ends Meet

Scott Hammond is doing everything modern doctors are supposed to be doing. But now Dr. Hammond is wondering: Is this any way to keep a practice going?

The lanky 59-year-old’s Denver-area clinic has made significant upgrades over the past four years.

His family practice uses electronic health records, calls up patients at home to check on their progress, and coordinates with other specialists and hospitals—all the things that policy makers and insurers say should be done to improve patient care.

But many of these enhancements aren’t reimbursed under traditional insurance contracts that pay mostly for face-to-face visits with patients. What’s more, the practice gave up around $200,000 in revenue from patient visits that Dr. Hammond cut back as he worked to improve the practice.

Westminster Medical Clinic was able to fill the hole only with support from a nonprofit’s program. Last year, the clinic took in $2,115,101 in total revenue and barely inched into the black. In 2010, the practice lost money.

Now, Dr. Hammond frets that he hasn’t seen any concrete offers of new long-term deals from insurers, despite recent high-profile promises of financial support for these so-called “medical home” practices from UnitedHealth Group Inc., WellPoint Inc. and Aetna Inc. The special program—which provided $243,089 last year to defray the cost of added staff and technology—is officially slated to end on May 1, though the nonprofit expects at least some funding beyond that date.

“It is not sustainable under the current payment system,” he says. “There simply is just not enough money to go around to provide the services that we provide.”

It is a dilemma facing practices around the country as the U.S. begins a transition toward new ways of paying for health care. Insurers are increasingly targeting the traditional system that has paid hospitals and doctors for each service provided (rewarding them for more care but not better results). In the past few months, UnitedHealth, WellPoint and Aetna, the three biggest American health insurers, have announced plans to pay practices more if they make efforts like those at Westminster. The new reimbursement designs also can offer doctors significant financial rewards if they hit quality goals and reduce costs.

But to effect these changes, doctors often must make a major financial commitment. That means upgrading their information-technology systems, adding support staff and getting special training to do the kind of outreach and coordination that make a practice a “medical home.”

For a five-doctor practice, the Advisory Board Co., a health-care research firm, projects the total first-year cost at between $126,000 and $346,500, including two added nurses.

The upshot: Doctors fear a squeeze as they try to ramp up changes in tandem with evolving reimbursement schemes. “You’re asking a practice that may be only marginally viable as a business to invest in significant infrastructure,” says Glen Stream, president of the American Academy of Family Physicians. “Is the payment model going to be there to support that?”

Some doctors aren’t waiting to find out. Instead, they’re going to work for hospitals, which have greater financial resources and, because of their leverage with insurers, are also often paid more than small practices for the same services. The consulting firm Accenture projects that, by 2013, only around a third of doctors in all specialties will own their own practices, down from about 43% in 2009 and nearly half in 2005.

Dr. Hammond, who’s been at the Westminster clinic since 1985, is determined to stay independent. He sold the practice to a local hospital in the 1990s, then split off again, partly because he felt like a “zombie” without control of his own operation. Today, he co-owns Westminster with fellow physician Robin Smith, and the practice serves around 6,300 patients.

Several years ago, Dr. Hammond started methodically tracking certain measures of patients’ chronic conditions. He says he was “horrified, shamed, humbled and devastated” by how few were achieving goals like controlled blood pressure in diabetics. The push to modernize into a “medical home” is part of his effort to improve care for such patients, and in many ways it is paying off.

Today Dr. Hammond and the practice’s two other doctors stay in touch with patients via an online portal, and zap all prescriptions to pharmacies digitally.

The practice is now beating the quality targets set by insurers that are participating in the Colorado nonprofit’s primary-care improvement program.

But it has come at a price. Dr. Hammond says he’s been forced to consider asking patients to pay a monthly fee to support the type of intensive services Westminster supplies, as well as others he’d like to add, like visits via Skype, retinal scans for people with diabetes, and hiring more people so he could ease up the practice’s workload and offer new enhancements like house and hospital calls.

With the money from the nonprofit’s medical-home pilot project, Westminster roughly broke even last year, with a profit of $29,261. The practice distributes its profit as bonuses to staff; the result is adjusted to account for the effect of splitting off Westminster from another practice with which it was once merged.

Dr. Hammond says the practice operates on such a thin cash cushion that if a doctor or one of Westminster’s two physician assistants were gone for more than two months, it wouldn’t be able to make its payroll. Also, the clinic hasn’t been able to pay off around $86,000 in long-term debt, though it didn’t borrow to pay for its recent upgrades, including around $100,000 it spent to install the electronic medical records. “Any day, the bottom can drop out,” he says. “We could be bankrupt next month.”

To keep expenses low, Drs. Hammond and Smith added only two new employees to handle the new care coordination and other jobs. The practice doesn’t accept Medicaid, which Dr. Hammond says doesn’t pay enough to cover the cost of care.

Westminster’s staffers do multiple jobs. A health coach who works with patients on diet and exercise plans also serves as the medical-home project manager, in charge of compiling and tracking patient data. The nurse who communicates with hospitals also handles information-technology problems and oversees blood-thinner monitoring.

Partly to boost revenue, Westminster last year started selling dietary supplements, though Dr. Hammond says it peddles only those he feels are backed by medical evidence. The clinic hopes a new chiropractor will bring in extra income. Last year, the clinic got around $34,000 from a grant that went to hire a clinical social worker, though it still had to sponsor a golf fund-raiser to help pay her.

HealthTeamWorks, the nonprofit that sponsored the primary-care program that Westminster has been relying on, says most participating insurers are expected to continue their payments to practices until they have a more permanent source of support.

“We’re not going to go backward,” says Jill Hummel, vice president of payment innovation at WellPoint. Aetna’s Elizabeth Curran, who oversees national network programs, says it is “committed to maintain” its support of medical homes created under the HealthTeamWorks program.

Officials with UnitedHealth, WellPoint and Aetna say they are moving rapidly toward permanent reformed payment options to reward practices like Dr. Hammond’s. “If we really want value, we have to pay for value,” says Sam Ho, chief clinical officer at UnitedHealthcare, who says his company, too, will keep helping the nonprofit’s program as an interim measure.

Dr. Hammond says he has gotten no formal guarantee that the existing funding will continue. The nonprofit’s program, while helpful, still didn’t provide enough resources for the practice’s efforts, he says, partly because the main monthly payments covered only about 15% of Westminster’s commercially insured patients. Westminster also hasn’t been approached with contract language or details about the big insurers’ new plans, he says, so it is hard to gauge how they will work, or plan future budgets. “I’ll believe it when I see the checks,” he says.

This article was originally published in the March 15, 2012 edition of The Wall Street Journal.

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