For hospital systems, operating doctors groups is a balancing act

Matt Wright Dr. Elizabeth Siraco is medical director of Tri-County Medical Associates, the doctors group owned by Milford Regional Medical Center. Like most doctors groups, Tri-County Medical operates in the red.

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By Livia Gershon

When Edward J. Kelly joined Milford Regional Medical Center 25 years ago, the hospital wasn’t in the business of employing physicians. In those years, doctors in Central Massachusetts mostly worked for themselves, either as sole proprietors or in group practices with a few colleagues.

But soon, Kelly found that physicians—particularly young ones—preferred to become employees of a hospital physicians’ group. When Milford Regional’s competitor, MetroWest Regional Medical Center, started its own doctors group, doctors who had previously been admitting patients to Milford went to the competition.

“What we realized is that if we didn’t employ physicians, we couldn’t get them to come to our area,” said Kelly, who is now president and CEO of Milford Regional.

Today, physician groups owned by hospitals or their parent companies are a key part of the Central Massachusetts healthcare ecosystem. But, for these owners, balancing the financial demands of the groups with community needs can be tricky.

Doctors groups bleeding money?

In the 2016 financial year, the finances of all hospital-affiliated physician groups in Central Massachusetts were in the red, according to a report from the state Center for Health Information and Analysis. That’s partly a result of reporting quirks. For example, when a specialist brings a patient to their affiliated hospital and performs a procedure, much of the cost that insurance pays goes to the hospital, even though the patient wouldn’t be there without the doctor.

Still, the cost of operating physician groups is significant for health systems. For example, in fiscal 2016, Milford Regional experienced a $5.3 million loss, driven partly by a $5.4 million shortfall for its doctor group, Tri-County Medical Associates. At Southbridge-based Harrington HealthCare System, a $12.4 million profit for Harrington Hospital wasn’t quite enough to balance out a $12.7 million loss by Harrington Physician Services. Heywood Medical Group, MetroWest Physician Services, Saint Vincent Medical Group., and UMass Memorial Medical Group all ended up in the red as well, although their associated hospitals more than made up for their losses.

Philip Ciaramicoli Jr., president of Tri-County Medical Associates, said that serving the community and maintaining the organization’s financial health in the long term requires frequent investment in new services. For example, since last October, Tri-County has opened three urgent care centers.

“We’re probably going to lose significant money, but it’s an investment in our future,” Ciaramicoli said. “It is something that, frankly, if we didn’t do it, our competition would.”

Investing in the right specialists is also important. Michal Frejka, vice president and chief operating officer of Harrington Physician Services, said he’s working to improve the Harrington system’s financial profile, partly by adding more specialists in fields that tend to make more money—which includes areas like orthopedics, cardiology, and endoscopy.

“When you see hospitals, some doing better than others, it may be that they have these higher revenue-generating specialties,” he said. “Primary care doesn’t make money. It loses money.”

Aside from bringing in more specialists, Frejka said, Harrington is working to make its primary care offices operate more efficiently.

“The only way to make money in primary care is (to have) a lot of volume,” he said. “But you can’t hurt quality.”

Dr. Henry L. Dorkin, president of the Massachusetts Medical Society, a professional organization representing Bay State doctors, said that’s a tough needle to thread.

“When you go to the doctor, you want the doctor to pay attention to you, let you say everything that’s on your mind, and take time to explain everything to you,” he said. “You can’t do that in a short interaction.”

Dorkin said today’s practices have to make doctors see more patients per hour than ever before if they want rates paid by insurers to cover their costs. But, he said, even if certain services just can’t work financially, healthcare providers will usually offer them anyway if they’re something the community needs.

“As I said in one meeting… they know that they have us by our morals,” he said. “Even in settings where reimbursements fall short, we will continue to do it. That’s why hospitals have fundraisers.”

Costs under scrutiny

The overall cost of hospitals and providers has been a front-burner issue for years in Massachusetts. That state spends far more than most other states on health care but has had some success in curbing cost hikes in recent years since a bill limiting spending growth was passed in 2012.

Between 2009 and 2014, Massachusetts had an average annual increase of only 2.32 percent, compared with 3.14 percent for the whole country, according to the Massachusetts Health Policy Commission. But, of course, keeping costs down on one side means keeping revenues down on another.

The calculus can be particularly tricky for smaller rural health systems. Winn Brown, CEO of Heywood Healthcare, pointed out that his system doesn’t have as much leverage with private insurance companies as a large urban one.

“In some of our contracts, frankly, we are not paid nearly as well,” he said.

And, Brown said, when it comes to hiring, Heywood is in competition with those urban systems for doctors who might prefer to live in the city for lifestyle reasons.

“We have to pay them commensurately, and oftentimes more than what they would accept in a more urban setting,” he said. “It’s counter to what you might think.”

Beyond the salaries of physicians and other medical personnel, a major issue for physician groups is administrative and technology expenses, particularly electronic medical records.

“They’re crazy expensive,” Frejka said. “I mean crazy expensive. And the costs continue to go up.”

Beyond the systems, and the add-on modules that physician groups often find they need to buy each year to keep up with the latest standards, working with EMRs can be taxing. Ciaramicoli said electronic records allow Tri-County to keep much better patient charts than it otherwise could, but, because they take time for physicians to complete, they reduce the volume of patients that doctors are able to see by 10 to 15 percent.

“So your volume is down, rates are flat, investment in overhead is greater than ever,” he said.

Ciaramicoli said some doctors use scribes—people who take electronic notes for them, allowing them to focus on their patients—but that creates another expense in the form of additional staff.

One of the most significant efforts to change how doctors are paid in recent years has been the move toward accountable care organizations and other models that pay providers to keep patients healthy, rather than reimbursing them for each procedure or patient visit they complete. But Central Massachusetts health care executives said the model isn’t really taking off yet.

Ciaramicoli said Milford Regional has some contracts for Medicare and Medicaid patients that place some of the risk on the health system, but for the most part, payments remain fee-for-service.

“It’s slow to evolve,” he said.

Still, he said, the system—like others in Central Massachusetts—is working on ways to manage patients’ health on a long-term basis. That includes things like having nurses meet regularly with high-risk patients to make sure they’re taking their medications properly.

Kelly thinks the best plan for financial, and patient care success in avoiding “business fads” and focusing on quality care.

“When you go out to meetings, there’s a lot of black clouds in the air,” he said. “It can be depressing. [But] what gets us going every day is how do we take care of our patients.”