UnCommon Sense^® Sample Issue

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Apply the Smell Test

Some of the business propositions being presented to physicians are really pretty odious as business ventures. But on top of everything else, they have legal implications that, if successfully challenged, could be very embarrassing for all concerned.

Physicians are not expected to be lawyers, but all citizens are expected to know and obey the laws of the land. Your state medical society is usually a good source of information on the laws governing the practice of medicine. It's a good idea to familiarize yourself with them so you don't naively blunder onto the wrong side of the law. Here are some that we see being broken on a regular basis.

Corporate Practice of Medicine

Most states prohibit non-physicians from owning any part of a medical practice. That includes hospitals, insurance companies and lay investors. There may be exemptions for teaching hospitals, HMOs and certain non-profit charitable foundations, but as a general matter, the rest of us cannot hire doctors to practice medicine for us.

That's why the lawyers are touting management service organizations (MSOs) as the vehicle to circumvent the acquisition of practices by hospitals and venture capital backed public companies. Of course, many of these are just shams for businesses that are seeking to acquire and merge practices into a single big venture. Reading their literature, it's clear that is their intent. When the Wall Street MBAs want to exchange their stock for your license to practice medicine, it's against the state law in many places.

Fee Splitting

Most states prohibit fee splitting. The term refers to the practice of paying commissions for referrals of business. While it is legal for physicians in a group practice to divide up the income however they want, paying a consideration to an unrelated party -- physician or otherwise -- for referrals of patients is off limits. That calls into question many of the MSO arrangements where services provided, including solicitation of contracts, is paid for as a percentage of revenues.

Capping and Steering

State business and professions codes frequently make it illegal to employ "cappers, steerers and runners" or other persons to procure patients. Now, you probably don't hire "ambulance chasers" but your IPA or MSO might employ individuals to enroll patients.

Federal Fraud and Abuse

Besides submission of false claims to Medicare and Medicaid, Federal law prohibits incentives to refer business. Income distribution plans which reward referrals to labs, imaging facilities and hospitals are included. And purchase of physician practices by parties who might benefit from referrals are also suspect if the purchase price is more than the fair market value of the tangible assets. Further, sale or reassignment of Medicare and Medicaid accounts receivable is also illegal.

HMO and Insurance Law

In their zeal to accept risk contracts, some organizations may be ignoring state licensure laws regulating insurance companies and HMOs. For example, contracting directly with employers or an HMO for services you don't provide (like rare subspecialty services included in your capitation) may run afoul of state law. Generally, acceptance of risk contracts implies the existence of surety bonds, reserves and procedures that ensure that purchasers get what they pay for.

Antitrust

The restructuring of practices to gain market power raises state and federal antitrust law issues. First, there is the creation of a monopoly interest which, by virtue of size, gathers unfair market power. Provided there is a bona fide business purpose, recent Federal Trade Commission (FTC) guidelines place the safety zone at thirty percent of the market for non-exclusive arrangements and twenty percent for exclusive ones.

For example, if no more than thirty percent of the urologists in a market area combine into a financially integrated urology IPA to contract for capitation, and each is free to contract with other plans, there will be no finding of unfair competition. Now, if your little IPA is only 30% of the market, how much power do you think you will have in the negotiation area?

Then there is also 'combination or conspiracy in restraint of trade' to contend with. Where business that are otherwise competitors join together -- as clients of an MSO or members of an IPA, say -- there may be the appearance of collusion in price setting. Indeed, one of the main reasons to sell-out to an MSO, along with former competitors, is to hire staff to jointly negotiate managed care contracts for you. The result may be uniform pricing of the services afterwards. To the extent these are still separate professional practices (in conformance with the state corporate practice law), the result may be illegal price fixing, group boycotting or allocation of markets; all bad jazz necessitating expensive defense attorneys.

Worth the Risk?

Lots of the deals being promoted are worth the risk -- for the promoters. They may never be investigated or sued. Even if they are, they may not have to go to jail; merely unwind their illegal operation. But you may not see it that way. For one thing, it's embarrassing walking up the courthouse steps with your jacket over your head. So, in the words of P. J. O'Rourke, "never steal anything so small that you'll have to go to an unpleasant city jail for it instead of a minimum-security federal tennis prison."

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Stopping the HMO Leak

It comes as a request for transfer of medical records. The salesmen on television have won one more of your Medicare patients for the HMO plan. It all sounds too good to be true to Seniors. All prescriptions for $5.00, extended coverage for nursing home care, no co-payments for hospital services. What we know is, it is too good to be true.

Physicians in every specialty report they are losing Medicare patients to HMO plans at an alarming rate. Worse yet, the patients are often too embarrassed to come back when they get a true taste of HMO service. The Health Care Financing Administration (CMS) surveyed former Medicare HMO enrollees. They found that only 25% of HMO dropouts had switched to another HMO plan. Three quarters went back to fee-for-service physicians.

Why did they quit the HMO?

They reported their reasons as:

1. Premiums were increased.
2. "Their doctor" left the plan.
3. They were unhappy with the choice of physicians.
4. They had difficulty seeing a specialist.
5. It was too far to travel for the services.

Twenty percent said they frequently sought services outside the HMO, anyway, due to long waits to see a physician. Twenty three percent said they retained their supplemental coverage while enrolled in the HMO plan, presumably as a hedge against the possibility of it not working out. Their number one complaint? Long waits to get an appointment.

Get these patients back

What can you do to help patients make a more informed decision or feel good about coming back into your practice? Try this two phased strategy:

• First: Help your Medicare patients understand what they are getting into and how to evaluate the HMO.
• Second: When they leave your practice, tell them you understand and give them permission to come back. You could even promise to help them disenroll from the HMO if it doesn't work out to their satisfaction.

We recommend you publish an information sheet for Medicare patients and make it available in your office. It might be titled "So you're thinking about going to a Medicare Health Plan". It should list what questions the patients should ask the HMO and when to get answers in writing. One of the most important topics is what to do if they can't get the care they need; who do they call? It should also tell them clearly how to get off the plan. You will also want to condition patients for how long it will take to get off the plan. Patients don't lose coverage, but it can take time to get claims paid during this period. So, keep the door to your office open by telling patients how to use you in an emergency.

Keep a supply of Medicare forms CMS-566 (1-88) on hand to give to patients. It is critical that the forms be taken to the Social Security office immediately after notifying the Health Plan of the disenrollment. Offer to copy the letter requesting disenrollment for the patient to attach to the CMS form. It usually takes thirty days notice of disenrollment but the HMO plans often do not report the disenrollment to Medicare immediately. Medicare can take up to 60 days to re-enroll the patient after (or if) they receive notice from the plan. Patients caught in this bureaucratic limbo can become agitated. That's where your kind, reassuring and helpful office staff comes in.

If a patient asks to return to your office before all the forms and paperwork have been finished, offer to charge them as a Medicare patient even if they can't show proof of eligibility yet, even though the coverage may be delayed somewhat. In other words, do not punish a patient for returning.

Preventing the leak

Of course, keeping Medicare patients in the fold from the start is lots easier than helping them come back. You can keep them from being tempted away by competing head-to-head with HMOs.

If patients are leaving HMOs because they can't see a specialist, don't like the choice of hospitals, have transportation problems, and have to wait too long to get an appointment, be sure you are meeting these needs. You can't do much about the price of the coverage, but you can make them not want to leave you because of your attentive and friendly style.

One of the most attractive features of an HMO to a Senior is the big break they get on prescriptions. This can amount to several hundred dollars a month for someone with a chronic illness. Check the cost at the pharmacy of Timoptic or anti-inflammatants and imagine that cost every month on top of an assortment of other medication. Drug dispensing companies have been marketing to physicians the profitability of selling medications in the office. You might talk to them about selling them to patients at near cost to give the your patients an alternative to the HMO discount.

When HMOs sell, you sell harder

It looks undignified and self serving to knock the competition but you should level the playing field by providing a fair basis for comparison. The HMO sales people only give the positive anecdotes and references so your Seniors can think they are making an economic decision when they are really choosing the quality of their health care.

So You're Thinking of Joining a Medicare Health Plan? (HMO)

It can be confusing. HMO plans are always clear when they talk about the savings in your costs. There is more to your health than money, though. You should ask these additional questions, and get the name, address and phone number of the plan representative to make sure you are getting what you pay for.

1. "If I don't like the hospital in the plan or it is too far away from my family, what choice do I have?"
2. "If I feel sick enough to be seen in the doctor's office and there are no appointments available, how can I get in to see the doctor? May I go to the emergency room?"
3. "Will I have the option of seeing the ophthalmologist or orthopedist I have seen for the last twenty years?"
4. "How do I get a second opinion about surgery or a procedure? May I choose the doctor?"
5. "Who has the authority to get a policy or decision changed? How can I contact this person?"
6. "How do I stop the plan and go back to Medicare, as I had before? How many days notice is required? Do you contact Medicare? What happens if Medicare paperwork is delayed and I'm not on your plan anymore? Do I get anything in writing from the plan or Medicare to prove to my doctors that I am now covered by Medicare again?"
7. "Will I be able to get supplemental coverage if I leave the HMO sicker than when I signed up?"

We understand that you are faced with hard choices involving health insurance. If you do join a plan we don't contract with, we will keep your chart in the office in case you change your mind. We will help you with the papers to be able to come back to our office. Once you have been released from the plan, even before the paperwork is complete, we will see you as we always have with the Senior Citizen discount through Medicare. We are here to help.

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Stay Rational About Discounts

Take a lesson from the airlines. Price cutting can be ruinous competitive behavior, and it's driven many airlines out of business. Why, then, do they do it? Is there an urge toward organizational suicide in this industry?

No, airlines aren't trying to go out of business. They have the same problem all medical practices have: high fixed costs and the ultimately perishable product. When the 7 p.m. flight from New York to Los Angeles closes its door and pushes back from the gate, its revenue production is history. No more passengers will be boarded and no more money collected. If there are any empty seats, it makes sense to fill them before the plane leaves the gate.

The same is true in a medical practice. When a doctor begins seeing patients in the office, there may be some empty slots on the schedule. If those haven't been filled by the end of the day, they are forever lost as an income opportunity. Time is the only resource in a physician's practice that can't be exchanged for money. You can't buy more time and you can't save it up for future use. Once it's gone, it's gone.

Insidious Competition

Price competition is the worst form of competition. That's because it's the easiest kind to beat. It's dangerous thinking to start believing your services are just like everyone else's. If there's nothing special about you, patients will choose the cheapest doctor they can find. So will the organizations that round-up physicians into "preferred provider" networks. The only thing preferred about these doctors is that the carriers prefer to pay them less than the market rate.

But if there isn't anything particularly special about your practice, you should keep a balanced view when it comes to discounting your service. Physicians can learn from the airlines how to cope with this problem.

United Airlines can predict fairly accurately how many full fare seats they'll sell on that flight from New York to Los Angeles. They collect statistics every day. They know how many no-shows to expect. And they know how many last minute passengers will present themselves at the gate requesting an unreserved seat.

If the plane's capacity is 225 passengers and their experience is that they can sell only 125 full fare seats, it makes sense to try to fill as many of the other 100 seats as possible, even if it means discounting the fare. That's because the marginal cost of flying one more passenger is very low. The salaries of the crew and the cost of operating the equipment and reservation systems are the same whether they sell 125 tickets or 126 tickets. The entire amount of that 126th passenger's fare translates to bottom line profit for the flight.

Discount Your Empty Seats

The same is true in a medical practice. The overhead of seeing an office schedule of 20 patients won't be increased much if one or two more are scheduled. For example, if your average fee per patient visit is $45 and you collect 82% of your charges, you can expect each encounter to bring you $37. After subtracting a couple of dollars for supplies, you're left with a $35 profit.

Adding just one more patient per hour, six hours a day, four days a week, brings the doctor nearly $37,000 per year of added income. That's a respectable raise!

It works for new patients, too. In the example, seeing just two more new patients per day can bring that same practice nearly $23,000 per year of added net profit. And don't forget to add the spin-off benefits of seeing more patients: you'll find more surgery to do and expand your referral base in the bargain.

Naturally, if you can fill these slots with "full fare passengers", that's the best approach. You do that by building the best practice in your specialty and region and making sure people know it. That's marketing.

But if you have other able competitors, it may be reasonable to consider filling the last few "seats on your plane" each day with "super savers". Signing with some discounted plans but limiting their access is a reasonable strategy. Nearly every physician we know is eligible to see Medicaid patients, but most carefully control the number they actually see. Those slots are limited to patients who are referred from appropriate sources and who must to be seen according to the guidelines set by the physicians who own the business. But those same physicians are frequently providing unlimited access for patients of other deeply discounted plans and complaining about it.

We think it's smart to limit your access by discounted plan patients the same way Medicaid patient access is controlled. Save plenty of room on the schedule for full fee patients. Allow your personnel to "sell" the discounted slots only when it's clear that the more economically desirable patients won't need them.

In upcoming issues we'll be talking about techniques to schedule for higher profits and marketing ideas to keep the full fee patients coming. For now, our message is: stay rational about managed care contracts. They may represent your continued access to important bottom line protection against pushing back from the gate with empty seats.

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The Rules of Thumb

Physicians are surprisingly inclined to reduce things to their simplest. It must go along with having to learn and retain so much information in their training. They are constantly asking us in management consulting for the "rule of thumb" answer. But as Einstein said, everything should be as simple as possible, but no simpler.

Rules of thumb are a dime a dozen, and we all like quick tests to determine if something is right or wrong. But rules of thumb are quick approximations, rough estimates. And, they change as time goes by.

For example, there's a rule of thumb in the personal computer world: the PC you really want to buy is always $5,000 this year, $2,500 next year and $900 the year after that. How this rule helps anyone is another matter.

For all their failings of generality, here are some we've picked up along the way. Feel free to add them to your collection, but use sparingly unless you're average.

Practice Sale Value

Primary practices sell for about one year's net income (plus the cost of the hard assets). That's way too cheap, and if you can buy one, you should. But that's the going rate.

Specialty practices seem to sell for between 20 and 50 percent of a year's net income. The local circumstances and specialty are important determiners of value, but it's just not true that there's no goodwill anymore. For some practices, the value is greater than ever.

Accounts Receivable Health

This one's easy and reliable. Your A/R should be no higher than two to three months' gross charges. The uncollected accounts over 90 days old should be less than 30% of the total. Collection percentage: 98% of adjusted charges, or better.

The Rule of Tools and Supplies

If something is needed by a worker (including physicians) as often as once a day, keep it within about four strides distance. And if usage frequency rises to at least hourly, keep it within 30 inches of the worker. That includes photocopiers, telephones, laryngoscopes, and computer terminals. Redundancy of equipment and supplies all over the office isn't wasteful, it's efficient.

Patient Service

Patients shouldn't be asked to wait more than 15 minutes. After 20 minutes 50% of patients will be annoyed. After 40 minutes, nearly all are.

Number of Employees

Full-time-equivalent (FTE) employees per FTE physician varies across specialties from a low of 2.35 for cardiovascular and thoracic surgeons to 6.33 for ophthalmologists. Primary physicians use about 3.5 to 4.0 per doctor. Primary specialists like OBGs and orthopedists seem to need about 4.5 employees per physician. Our rule of thumb: employ as many as you need to do all the work on time, and no more.

Office Space

Allow about 900 square feet for the first physician in an office and about 500 square feet for each additional physician. As practices grow, the exercise is complicated by the fact that physicians won't be in the office at the same time, so scrap this yardstick at about the fifth physician.

Practice Size

The ideal size practice is represented by the fingers of one hand for specialists and the fingers of both hands for primary care physicians. Don't start trying to practice medicine with toes.

Specialists shouldn't try to grow much beyond four or five because they start acting like employees and refusing to compromise for the good of the group. And, there's nothing to be gained by getting bigger. All the subspecialty skills can normally be covered by four or five colleagues and there are few (if any) economies of scale to be gained by further growth. The statistics are clear: the larger the practice, the higher the overhead.

Primary physicians can make larger groups -- up to ten, say -- recover their greater investment in management energy by more effectively employing allied health providers to help them. And, they can more safely support a large number of capitated patients that allows them to be paid for the valuable gatekeeper function in addition to just getting paid for the care. Bigger than ten just never makes much sense unless you're trying to be Kaiser Permanente or Mayo.

Rules of thumb are occasionally handy. They help us focus on the right issues. But for important decisions, they don't substitute for careful analysis of the situation at hand. The average tennis racquet works okay for most hackers, but Andre Agassi has his built to order.

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MSO? Just Say No

Hospitals have a hard job. Nobody wants what they have to offer. They get no respect for taking care of patients -- the physicians do that. All they get is abuse because they cost so much. Poor hospitals.

Now, there's talk of turning the tables on hospitals by cutting their use even more. Physicians are starting to get paid to keep patients out of the hospital. And clever alternatives to inpatient stays have been flourishing. Hospital administrators have been using every legal and not-so-legal inducement to get the medical staff to over use the facility for years. What's a poor hospital administrator to do now that the focus is on managed cost?

One approach has been to get into the outpatient business. All it takes is a medical license, and the best place to get one on the secondary market is to buy it used from the medical staff. Since that's against the law in most states, the alternative is the Management Services Organization or MSO.

Here's how it works. The hospital finances the creation of a business entity -- the MSO -- to provide services under contract to those of the medical staff who join. The physicians see the patients, but the MSO staffs the doctor's office, provides the suite and the equipment, does the billing and purchasing and so forth. Essentially, the doctor just shows up in a turn-key office and does the doctoring, leaving all else to the MSO, which takes a cut of the collections in exchange for the service. Sound reasonable so far?

It isn't. Nobody asks why the hospital is interested in doing all this. Profit? It would never fly for that reason, because these services always cost more when the hospital renders them. That's because the employees will need to be covered under the hospital pay and benefit system, always more generous than the compensation plans of medical practices. And, the layers of administration the hospital inevitably adds to the organization cost a bundle, too. No, the service will have to be subsidized by the hospital to be competitive.

The real motivation to the hospital is to gain control of the physicians on the medical staff. The MSO will often dictate the managed care plans the physicians participate in and sometimes require exclusive allegiance to the host hospital. It's an indirect way for the hospital to ensure a flow of patients into it's beds.

MSO Acid Test

What's in it for the physicians? Very little. Many are herded into these organizations out of fear that staying out will foreclose access to some patients in the future. Others expect to save money on overhead by getting a subsidy from the hospital on the services rendered. They are usually disappointed, because the freedom and flexibility they give up are worth much more than the meager overhead savings the hospital can offer. Federal law prohibits the hospital from kicking back enough savings to make the venture attractive.

To be sure a proposed MSO deal is a good one, try this simple test. The signed contract you give them should be exchanged for a huge check. The hospital is buying control of your practice, so don't do the deal without one. And, if there is a check, the deal probably isn't legal. Be sure you and the hospital keep it a secret.

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Opening Up 'Closed' Panels

The bad dream is starting to come true in many metropolitan areas. Physicians who resisted joining managed care panels are losing patients. Worse, they are now being told it's too late to join. "We have all the blankologists we need." Is there anything you can do to get on a panel once it's closed? Of course!

Most physicians are not trained in sales technique. But selling is what's required to gain a contract with a seemingly closed HMO. And one of the early lessons they teach salesmen: don't take 'no' for an answer. The best sales reps are trained to answer every objection until there is only one possible response: "I'll take it." The hardest part is getting your prospect to tell you his objections.

Most physicians simply give up when they get the form letter from the plan that it is closed to new providers. "Oh well, I tried." But the physician who really wants to be listed on the plan has a different response: "Obviously, they don't know enough about my practice yet." This physician is likely to call to get an appointment with the provider contracting manager -- and maybe the medical director -- to explain why they should reconsider their position.

Have Something they Need

If your practice is just like all the others listed on their panel, it's going to be hard to make the case you should be added. So you'll want to concentrate on educating the plan about how you are different. Concentrate on what you can do to help the plan. They need (in this order) lower cost care, patient satisfaction, an ability and willingness to use plan hospitals and labs, and quality outcomes.*

Your approach: "I understand that your panel is complete. I'm not asking you to change your policy. But I want to familiarize you with our practice so that, when there is a vacancy in my specialty, you will be sure to consider me." Vacancies on the plan's roster of providers actually do occur. Physicians retire or move away. And sometimes they are discharged for over-utilization, unwillingness to cooperate with plan procedures, or because of patient service complaints.

If you do well in face-to-face meetings, that's best. It gives you a chance to 'read' their expressions and ask questions, giving you feedback to be sure you're answering their objections. If your office is special -- you have an office surgical suite, occupational and physical therapy or first cabin decor -- try to get them to meet you there. A quick tour will give them the feel for what you provide patients. "We're very sensitive to patient satisfaction here. We know that patient complaints about service are an embarrassment to the plan and the employers who pay good money for this coverage. That's why you will never have an unresolved problem with this office."

Your mission is to both tell and show how you will be an asset to the plan. "I understand conservative care. We're very proud of our VBAC rate. It's the highest in the community. And we also have the lowest C-Section rate at our hospital. Patients love our success, and they are disappointed when they have to transfer to another practice for their OB care because we're not listed on your plan."

Testimonials

If you can enlist help from influential patients, it often works. When they tell you they have to transfer to another physician because you aren't listed on their new plan, help them ask their employer to lean on the plan to admit you as a provider. Write a sample letter for them to give to the boss -- or send directly to the plan -- explaining that they want to stay with you, and that you are willing to continue their care, if only the plan will make an exception by admitting you to the panel.

Your physician referral base can help, too. If a friend is on the panel, he or she may be willing to lobby on your behalf. Write a sample letter for him and ask that he make a few calls to the contracting manager and medical director on your behalf. It doesn't cost much to ask.

Sometimes you can make a direct approach to the employer who bought the plan. Take case of the orthopedist with a good reputation for getting injured workers back to work fast and at reasonable cost. He could tell the employee benefits manager that their health insurance company won't let those same patients come to him for their regular care. Insurance carriers and HMOs listen to benefits managers.

Build a Database

If you're really behind in the contracting game, you should consider a full-court press to get listed by as many as you can. To do that, get organized. Catalogue the plans you don't have participation agreements with. Your file on each plan should include the full name and address, phone and fax numbers, contact names and their extension numbers, the major employers they cover, who in your area and specialty are already on the panel and, briefly, the terms of participation.

You will collect this information from a variety of sources. The IPAs in the area, the hospitals and friendly colleagues may open their files to you. It's helpful if you have a friendly, outgoing and well-connected office manager. She or he will have colleagues who may be willing to help. The county or state medical society professional relations department may also have information on plans operating in your area. Your own insurance broker should have summary information about plans, too. Finally, watch the news, read your mail and work, work, work your list.

Quitters Never Win

Now, every seasoned salesman knows that not every trick works every time. When one approach doesn't work, try another. And keep at it every few weeks; follow-up calls to enquire whether there has been any change in their provider status and to remind that you're still anxious to be included may just wear them down at some point.

Winners never quit and quitters never win. It's never too late to be persistent, and their needs may change. Marketing your practice to managed care plans is just like marketing it to patients and referral sources. It's not a one-pass, quick effort. Instead, it requires dogged adherence to an 'everything counts' attention to detail.

Sample 'Lobbying' Letters

Enlisting your patients or colleagues to lobby on your behalf? Make it easy for them by preparing a sample letter. Here are a couple to get you started.

Patient Letter to Employer

"I just learned that the HMO plan I have selected restricts my choice of physicians in a way that prevents me from seeing Sylvia Leftout, MD. She tells me she has offered to contract with the plan on the same terms as other gynecologists, but that they refuse to admit her.

Dr. Leftout has been my gynecologist for several years and I am very disappointed that she has been excluded in this way. I was otherwise happy with the health plan you provide, but I now wonder about why any good HMO would exclude a fine physician like Dr. Leftout. I would appreciate your contacting the plan to see if they could make an exception to their policy in this case."

Referring Physician Letter

"I have worked with Dr. Leftout for many years. She has served my patients well in the past and now I find I am unable to refer to her under my contract with the IPA. I understand the need to limit the panel of contracting providers, but I think the best interests of the plan and its subscribers would be served by making an exception in this case.

While there are fine blankologists on the list, there are times when Dr. Leftout's special skills and thoughtful care of my patients cannot be reproduced. I hope you will reconsider Dr. Leftout for inclusion."

* Johnson & Higgins

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