Business Models Large Vs Small Primary Care Practices

Triple Aim, innovation, regulation, certification, cost cutting, and other changes have widened the gap between small primary care practices and large practices for the past 37 years. The treatment of small practices and those that they serve will some day be recognized as discrimination by design.

Revenue and Collections

The financial design for primary care has been an issue since the 1980s. Stagnant payments, increasing costs of delivery, and increasing complexity represent the Triple Threat to primary care. This threat is most prevalent in the smaller practices.

• 15% higher payment are common in large vs small practices for the same office codes (Medicare Data 2011). This translates to about $65,000 less payment per primary care doctor.  This is shaped by a number of different factors such as being small or rural, not being associated with a hospital, being in the wrong state, and being less organized.
• Large systems and practices often have 5% annual escalation clauses. Small practices have take it or leave it contracts that are burdensome to the practices and their patients.
• Larger means the ability to strategize, to shift resources for best profit, to choose and adapt location, patient population, and health plan contracts for maximal revenue, maximal outcomes, least cost of delivery, and most local resources. This has not been so for smaller and less organized practices where revenue has been stagnant and practices are fixed in place, population, and location.
• About 10% is lost to collections in large primary practices vs 15 - 20% for small. A 5 percentage point differential translates to $50,000 per doc per year.
• Delays and denials can be more challenging for small practices and for the insurance plans more likely in small practices

Higher Costs of Delivery Via Innovation, Regulation, Certification

Rapid changes are more difficult for small practices with fewer and less specialized personnel. In the last decade a number of regulation, innovation, and certification changes have been thrust upon primary care. In general, the adverse impacts are more likely for small practices. Sometimes these changes have been implemented even when knowing these adverse impacts.

• $32,500 for HITECH per doc (MGMA)
• $30,000 at least for additional digitalization, HIT and similar costs
• $40,000 for MACRA per doc (Health Affairs)
• $43,000 for Primary Care Medical Home (PCMH) for large practices - $60,000 to $105,000 in other estimates (Annals FM) - likely higher cost for smaller practices

The costs of the above may be greater for small practices although some small practices are spared (by MACRA) or are choosing not to spend the dollars. CMS has already published the expected problems for smaller practices via MACRA. 

Productivity losses occur due to the above but these have been poorly studied. Additional time for documentation has been studied and extra hours a day per physician for documentation, messages, and internal reviews add up. Burnout, higher turnover, and morale problems have increased due to all of these above.

The bottom line has been shave so much that personnel have not been added to address these areas. More burden is placed on fewer taking more time and effort for little in the way of apparent gain.

Value based and other forms of Pay for Performance have already been reviewed for adverse impacts. Smaller practices tend to have patients that are inherently less healthy which will result in lesser payment.

Another assumption of the micromanagers is that larger providers are better. Actually larger practices have different and better finances, advantages in team members, and patients with inherently better plans and outcomes. 

There is an assumption that larger practices and systems will absorb smaller practices for their own good. Why would an insurance plans, systems, or practices absorb practices where patients are more complex and have lesser outcomes and fewer resources. Many that do have better finances in mind, not the care of the patients in the small practices. Small practices are focused locally and actually had better outcomes in studies by Casalino. These better outcomes for practices smaller than 10 physicians and especially for 1 and 2 person practices were a surprise to researchers - who were looking for worse.

Why blast small practices away, and local focus, and community orientation for dubious benefits, if any? Much of what is published has dubious value despite the focus on "value based."



Even worse is the discrimination inherent in innovative "accountable" payment designs. Underserved practices such as seen in Community Health Centers have had direct studies demonstrating the discrimination inherent in Pay for Performance (Hong, JAMA). Pay for Performance Fails to Deliver

Higher Costs of Personnel Turnover 

Buchbinder indicated $225,000 cost for primary care physician turnover years ago. A reasonable update of the costs of recruitment, retention, locums, lost productivity, orientation costs, and adapting to the practice and patients and team members would be $300,000 for the turnover cost of a lost primary care physician. This translates to $100,000 per primary care doctor per year with turnover about each 3 years.

• Smaller practices face over $100,000 per primary care turnover per year with less than 3 year averages and higher costs of recruitment, retention, advertising, orientation, lost revenue, lost productivity, and other adaptation costs
• Larger practices may face little in the way of turnover costs as recruitment and retention incentives, advertising, and gaps can be filled by minor adjustments of existing personnel and physicians. 

Small practices that run short on workforce end up losing patients to other practices because they cannot schedule new patients or return established patients to care. This represents a future problem with revenue and more difficulties balancing personnel to revenue. A poor financial design worsens this common scenario. If revenues decrease it can be hard to replace a physician assistant, nurse practitioner, or a physician. Large practices can make up gaps by shifts among remaining workforce.

A sudden decline of 2 physicians, physician assistants, or nurse practitioners in a small practice requires substantial management to restore revenue and stabilize existing and future workforce.

Recent studies in Annals of FM regarding rural practice indicate that higher turnover is seen around metro areas and in places lowest in concentrations of physicians. These are where small practices are more prevalent. Larger practices are often sought by new graduates or by those departing small practices.

• Twice the turnover and half the revenue generation limit nurse practitioner and physician assistant contributions. Scope of practice and complexity of patient care can be challenging for new graduates. Expansions of NP to 20,000 annual graduats and PA to 9000 acts with the poor financial design to set up a revolving door situation resulting in limitations in new area such as primary care experience. 
• Many of the short and long term effects of the current financial design have not been considered or studied.
• The value of a long term primary care physician retained for 10 - 15 or more years is recognized, but again studies have failed to consider the positive contributions while the negative assumptions continue to be published and promoted.

Higher Costs in Non-Personnel Areas of Primary Care

Supplies, equipment, and insurance costs are discounted for large practices and practices in large systems. Some largest can even negotiate to result in no waste as the suppliers are responsible for the supplies. Only the supplies used are charged to the practice. Size dictates negotiating power for higher payments and lower costs as document in studies of insurance, systems, and practices. The costs for non-personnel areas run about $40,000 to $50,000 per primary care physician. Savings from size were estimated at $10,000 per primary care physician. Very efficient large practices can save substantially in discounts and less waste. Smallest practices end up paying for these discounts as suppliers recoup their losses.

Physical Plant Costs

Cost of office space, utilities, maintenance, and property taxes are higher for large practices. Best locations with best patients and best insurance plans are costly. However this increased cost is offset by better payments, depreciation, investment, and contributions. Small practices often receive support from hospital or community although support is limited by federal laws and poor finances inherent in small hospitals and small or lower income communities.

Additional Limitations for Small Practices 
 
Small practices are often located where patients are more complex and have more chronic diseases and fewer resources. Medicare, Medicaid, disabled, poor, fixed income, and vulnerable populations are often more concentrated in small practice settings. Poor payment, poor support, and poor design make greater complexity of practice, patient, and community even more difficult.