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FULL PLATE: Dr. William McCabe looks over the chart work Monday at Allied Family Care in Mesa.

Emily Piranio For the Tribune

Physicians seek cure for failing practices

By Ed Gately, Tribune

July 16, 2006

Dr. William McCabe, a family practice physician, remembers when he had his own private practice in Mesa with nine physicians on staff. Now, he works for Banner Health, which took over his practice after skyrocketing expenses and limited income forced him out of business.


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Allied Family Care, which used to be his practice, is located adjacent to Banner Mesa Medical Center, and now has just two physicians and a nurse practitioner on staff.

“Banner (then Lutheran Healthcare System) asked me to expand my practice originally because they needed some more support . . . to keep feeding the hospital,” McCabe said. “They said they would underwrite a loan for me and they would support the practice until it got going. I was trying to pay the overhead myself, buying insurance for people and trying to have a 401(k) for them and such, and I just went flat broke.”

McCabe knows of at least six other primary care offices in the area that have closed recently because the physicians couldn’t earn enough to cover their practice expenses.

“Things are pretty desperate for primary care,” he said. “The nationwide average income for family physicians is around $120,000, and none of the doctors in my practice were making $100,000. We make less, probably $20,000 to $25,000 a year less than the doctors in other states.”

According to a recent national study by the Center for Studying Health System Change, physicians’ net income from practicing medicine dropped about 7 percent between 1995 and 2003.

Among the different types of physicians, primary care physicians saw the biggest drop —10.2 percent — during that period.

Surgeons’ income fell by 8.2 percent, while specialists’ income remained unchanged.

Dr. Collin Udall, a primary care physician at Paragon Medical Associates in Mesa, said about 75 percent of his practice’s revenue goes toward expenses, up from about 60 percent when he first went into practice.

The practice includes Udall, a second physician, a nurse practitioner and other staff members.

“Right now, the problem is there’s money out there and it’s being paid all different places, and how much we make pretty much goes down every year because there’s so much else that has to be paid,” he said.

The cost of business for doctors is “killing doctors,” said Chic Older, executive vice president of the Arizona Medical Association.

“You’ve got the cost of health care killing business and the cost of business killing health care,” he said.

Physicians are paying more for medical liability insurance than ever before to help cover higher dollar claims, said John Carland, chairman and CEO of Mutual Insurance Co. of Arizona (MICA), which insures most physicians in Arizona and is owned by its policyholders.

MICA increased its medical liability insurance rates 5 percent in 2002, 12.5 percent in 2003, 16 percent in 2004, 6 percent in 2005, and 5 percent this year.

Other carriers have been forced to implement even higher rate increases, Carland said.

“Claims severity is the first, second and last reason for increasing premiums,” he said. “Juries are coming back with bigger judgments. When a jury comes in with a judgment, everybody involved in this business, including the plaintiff attorneys, read what that value was and then that’s the value that they look for when they have a similar case and they’re looking for a settlement. So it drives up settlements as well as judgments.”

Judgments that include millions in “non-economic” damages are driving up medical liability insurance rates, Carland said.

“On a $500,000 case, pain and suffering can be $5 million,” he said. “Obviously that’s something very difficult for an insurance company to predict and therefore charge for. (Unlike California), Arizona has no cap on pain and suffering. We have no damage caps of any kind because we’re prohibited from that in our constitution.”

Medical liability insurance rates are higher for physicians who have been in practice the longest, McCabe said.

“I’ve been in practice 44 years and I’ve never had a successful malpractice suit,” he said. “I did have a couple filed in the 1970s, but I’ve never had a successful malpractice suit, and yet my malpractice keeps going up because I’m at risk for all of the people I’ve seen over the years.”

The percentage of a physician’s income that goes toward insurance is roughly the same regardless of specialty, Older said. Family practitioners may pay less than neurosurgeons, but they also make less money, he said.

Udall said his medical liability insurance is $18,000 this year, compared to $16,000 last year.

That was just one cost increase he’s had to deal with this year.

“Our benefit expenses for our employees . . . their health benefits went up about $1,000 a month (each) this year, and salaries, of course, keep going up,” he said.

Physicians strive to maximize the number of patients they see, and correctly code (transform verbal descriptions of diseases, injuries, and procedures into numeric or alphanumeric designation) so they are paid correctly, while keeping their expenses as low as possible, Udall said.

“Every year it gets a little bit harder to do that,” he said.

Medicare reimbursement steadily has been declining, along with reimbursement from managed-care organizations, McCabe said.

Earlier this year, Congress voted to halt a 4.4 percent cut in Medicare physician pay.

“We can charge anything we want, but Medicare will only reimburse a certain amount and the managedcare companies pay us based on a percentage of Medicare, less than 100 percent of Medicare,” he said. “We’re down 20 percent. If I could get $100 for a service in 1997, I’m now getting $80 for that same service. It’s a severe reduction on the income side, while the outgoing side has gone up and up, and up.”

According to the Centers for Medicare & Medicaid Services, federal statute requires an annual proposal to cut Medicare reimbursement to physicians.

Arizona is a “mature” managed-care market, meaning the vast majority of residents seeking health care services are part of a managed-care organization like Humana, UnitedHealthcare and Health Net.

This means physicians must contract with managedcare organizations in order to attract clients, and therefore are limited to reimbursement from managed care for their income because few if any patients pay fees for services, said Andrea Smiley, the Arizona Medical Association’s director of communications and media relations.

“The domino effect for physicians is typically when Medicare sets whatever their pay is going to, whether they’re going to keep it the same or lower it, and the managed care organizations typically follow suit with some percentage of whatever Medicare is going to do,” she said.

In contract negotiations with physicians, Humana tries to “get the best deals we can for our groups that we insure,” said Dick Brown, director of media and public relations. Humana is the nation’s fifth-largest managed care provider, with more than 143,000 members in Arizona.

“I guess it depends on which side of the negotiating table you’re sitting on,” he said.

“There have been stories written about physicians who don’t believe they’re getting enough of a reimbursement, and on the other side of the table where we sit with our groups that we represent, the cost of health care is double-digit trending and we’re charged with trying to keep that under control.”

Contact Ed Gately by email, or phone (480) 898-6814


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