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After loss of key doctors, WakeMed seeks to stabilize

Just a year ago, three Raleigh neurosurgeons made the jump to Rex Hospital as full-time employees, a hiring move that all but guaranteed Rex millions of dollars a year in hospital billings. A big chunk of those surgery bills had previously been reaped by WakeMed Health & Hospitals’ flagship hospital in Raleigh.

The surgeons’ move to Rex cleared the way for the UNC-owned hospital to launch a lucrative new business virtually overnight: Rex Neurosurgery and Spine Specialists. The threesome had been independent for years and often used the operating rooms at Rex’s crosstown rival, WakeMed.

Rex’s financial gain is an increasingly common economic threat facing WakeMed as the Raleigh health system strives to recover from its first operating loss in its 52-year history. WakeMed leaders have said repeatedly the organization’s financial turnaround hinges on cost-cutting and improving relationships with doctors, many of whom felt alienated by WakeMed administrators for years.

WakeMed’s rapprochement strategy comes as the health care industry consolidates, creating self-contained networks of doctors, hospitals and labs that are concentrating payment patterns within sprawling health care organizations.

“There is a war out there, all economically driven, as to who you can refer to,” said Ken Rich, one of four neurosurgeons at Raleigh Neurosurgical Center, an independent group that operates predominantly at WakeMed.

This is the second round for doctors who went through a similar economic realignment in the 1990s, which fizzled out and left a bitter taste for many.

Conrad Flick, a family doctor in Raleigh, was employed by Rex for five years in the 1990s. He plans to stick it out as an independent despite the mounting challenges, such as spending several hundred thousand dollars on the conversion to electronic medical records at his six-doctor practice.

“I’ve been an employed physician once and know the disadvantages of organizations getting involved in how I provide care,” Flick said. “Oftentimes they’re run by business people and administrators and not by people who truly understand what it means to take care of patients on a day-to-day basis.”

The doctor hiring binge has reached the point that WakeMed officials now say they have all the doctors they need and are not going to escalate an arms race just to prevent doctors from joining the competition.

Buying up medical practices entails a financial risk that could backfire, as it did in the 1990s, the last time hospitals vied to hire doctors and later wrote off the investments as losses, said WakeMed’s interim CEO, Donald Gintzig.

Gintzig said empire-building is not the only viable business model in health care, and WakeMed will compete by being sensitive to physicians’ concerns and responsive to their needs, rather than by taking over their practices.

“If a physician came to us and said, ‘I am really concerned about my ability to deliver care and I want to talk to you about being employed,’ we’d listen,” Gintzig said. “But I’m not going to call him on the phone and say, ‘We’re going to buy your practice and if you don’t talk to us, I’m going to put another doctor in your backyard and put you out of business.’ 

Battle for referrals

Triangle doctors are increasingly caught up in a fierce competition for patients that has been playing out nationwide for several years. Hospital-employed doctors influence which heart and other specialists patients are steered to and whether routine lab tests and imaging gets done at costly hospital facilities or cheaper independent labs.

Those critical of the trend say it curtails competition and drives up costs. Hospitals have more leverage to negotiate higher payments from insurers than small physician practices can command, and hospitals often inflate or tack on charges for their own services.

Some U.S. hospitals charge more than 10 times their cost, National Nurses United said in a study issued last week. North Carolina’s hospitals charge 316 percent of their cost on average, the group contends. Hospital officials have countered that their charges are meaningless because hospitals collect negotiated insurance rates or Medicare rates, not raw charges.

Still, the dramatic shift engulfing doctors has prompted Blue Cross Blue Shield of North Carolina, the state’s largest insurance company, to offer doctors higher reimbursements if they remain independent.

The trio who joined Rex said they had little choice. The future of medicine points to more and more consolidation, they said, in which most patients’ medical needs can be provided within a walled garden, and independent doctors are at risk of being locked out.

“There is a kind of unspoken expectation that physicians within the same network will refer patients to each other,” said Robert Lacin, one of Rex’s three neurosurgeons. “It is really easier to be part of a bigger network than be on your own and try to hustle and generate business.”

Lacin predicted that within a half-decade, North Carolina’s health care market will likely be controlled by a handful of large provider networks; independent doctors will survive only in very large practices with dozens of practitioners and enough clout to negotiate payments with insurers and hospitals.

“Hospitals have a possibility of providing you with a network of referring physicians, where you can sleep on a more comfortable cushion, knowing that you’re going to get a share of the market and referrals on a regular basis,” Lacin said.

Lacin also said working for Rex frees him and other doctors from money worries and lets them concentrate on practicing medicine.

Nearly 600 doctors, representing more than a quarter of Wake County physicians, are employed by Rex Hospital or WakeMed, with scores of others tied up in contracts and joint ventures. Statewide about half of all doctors are either employed by hospitals or are in some kind of contractual obligation, according to the N.C. Hospital Association.

Duke University Health System, known for its aggressive expansion into Wake County and beyond, did not provide information about its market share and said officials were unavailable to discuss the trend.

WakeMed officials say they have been able to recoup most of the lost revenue from the triple neurosurgery defection, as Raleigh Neurosurgical Clinic rebuilt its independent practice by bringing in a pair of new surgeons who practice primarily at WakeMed and its satellites.

Rebuilding relationships

Patients are just one reason doctors align with hospitals. Doctors say they are increasingly squeezed by soaring office expenses and technology costs and by reduced payments from Medicare and private insurers. Working for hospitals offers financial stability and eliminates contracting, procurement, compliance and other administrative hassles of running a medical practice.

Tim Garner, one of the four brain-and-spine surgeons at Raleigh Neurosurgical Center, which works primarily at WakeMed, estimates that the three surgeons who joined Rex generate about $15 million a year in hospital billings when surgery-related services are factored in, such as MRIs, anesthesia, implants, rehabilitation, lab work and diagnostics.

Within several months, Rex expects to begin construction on a heart center to accommodate patients treated by about two dozen cardiologists hired in 2010. To date, that may be the Triangle’s most dramatic instance of the transformation reshaping the region’s health care market.

Rex’s bid to corner the Triangle’s heart-care market triggered an unsuccessful hostile takeover bid by WakeMed, and both sides now say they are moving past the era of ill will.

WakeMed has swelled to about 250 doctors from 50 in recent years, while Rex has ballooned to 350 from 100.

This year, WakeMed could hire fewer than 10 doctors, said John Piatkowski, the organization’s senior vice president for physician services.

The hospitals represent their doctors as a bloc when negotiating reimbursements from insurers, whereas independent doctors are prohibited by federal antitrust law from colluding in rate negotiations.

WakeMed, which posted a $14.4 million operating loss last year, is searching for a new CEO after Bill Atkinson resigned last fall.

Since Atkinson’s departure, the organization is focused on mending existing relationships with doctors as one prong of its turnaround strategy. Toward that end, WakeMed in October hired Piatkowski, a pediatrician, to oversee WakeMed’s stable of doctors.

Piatkowski reports directly to WakeMed’s CEO, Gintzig said, whereas in the past doctor representatives reported lower in the organizational hierarchy. Gintzig described Piatkowski’s hire as the most visible example of WakeMed’s strategy to rebuild trust with local doctors, who have long complained of being ignored and disrespected by WakeMed’s leadership.

“It comes back to the benefit of having an employed physician model with a physician leading it,” Piatkowski said.

Doctors who are employed by WakeMed are free to make referrals as they see fit, WakeMed officials said. John Sinden, a cardiologist hired by WakeMed three years ago, said he is under no pressure to send his patients to WakeMed facilities and doctors, but he said he joined WakeMed because the hospital’s stable of doctors will refer patients to him and other WakeMed cardiologists.

Sinden also said as hospitals were snapping up doctors practices, he was losing patients as an independent because the hospital-employed doctors started sending their patients to hospital-employed specialists.

In hospital accounting parlance, patient billings that are not captured by a hospital’s network are designated as “leakage.”

The employment contract for the Rex neurosurgeons includes an explicit written expectation that they will default to Rex facilities in their referrals to the extent feasible. The contract also says the doctors are are free to make medical decisions in the best interest of the patient.

Rex’s chief operating officer, Steve Burriss, stressed that Rex doctors are not under compulsion to make referrals within Rex and that their referral pattern is not rigorously monitored.

He acknowledged, however, that if a doctor predominantly referred outside the Rex network, administrators would ask that doctor if there is a problem with Rex’s facilities and services.

Burriss said another force driving consolidation is an emerging emphasis on prevention and cost-cutting, which requires the use of electronic medical records and intensive patient monitoring. Some of the requirements come from the Affordable Care Act, or Obamacare, which penalizes hospitals for excessive readmissions of Medicare patients.

Help for independents

Blue Cross launched its own attempt to stem runaway medical costs, Blue Quality Physician Program, in 2009; it’s designed to trim expenses by encouraging North Carolina doctors to stay independent. The insurer pays doctors higher reimbursement rates for reducing costly hospital admissions and following prescribed protocols.

The program is not open to doctors who work for hospitals because it sets up a potential conflict of interest for hospital-employed physicians.

“If they are owned by a large hospital network, they may lose their ability to choose where they want to refer their patients,” said Patti Forest, Blue Cross’ senior medical director for network quality and performance. “So, for instance, if there’s a lower-cost site for certain radiology procedures that’s independent, that could be in direct competition with that hospital’s radiology department where the costs may be significantly higher.”

The program is not terribly popular. It has about 531 primary care doctors signed up, out of about 7,500 statewide. Blue Cross plans to expand the program to independent oncologists, whose services generate substantially lower fees than if they were employed by a hospital.

Blue Cross’ contract forbids doctors from disclosing the reimbursement rate they have negotiated with the company. Flick, a Raleigh family physician who has participated in the Blue Quality Physician Program from its inception, said his reimbursement increase is less than 20 percent.

Murawski: 919-829-8932
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