Newspaper articles, letters to the editor, advertisements, signs in doctors’ offices and even billboards call attention to the medical malpractice insurance calamity and the ensuing emigration of local physicians. Arguments supporting and challenging these issues are well-documented and, as with all topics of conflict, medical tort reform has its advocates and adversaries.
Regardless of whether one views these crises as perceived or established, the issue too often overlooked in this debate is the potential effect on small business owners. It is a common belief that only those who may lose a valued and trusted physician are affected.
However, the rise in malpractice premiums and the potential decrease in the number of physicians will unavoidably affect the cost of doing business in Northeast Ohio.
The cost
A physician typically is paid a contracted rate by an insurance company for services rendered (patient office visits, surgeries and procedures, lab work). The rate is established through what are commonly known as “contracted networks.”
These networks started years ago when physicians and insurance companies began negotiating fee schedule decreases, theoretically in exchange for the steering of patients, by the insurance plan, to contracted “in network” physicians. The free and open negotiation between physicians and insurers has given way to fee schedule mandates by the insurers, usually as a percentage of Medicare fees.
Given that physician groups are generally small businesses, typically employing between one and 10 physicians, they have very little ability to negotiate an increase in their fees, which are necessary for them to keep up with the costs of running a small business (increases in employee salary, employee benefits, workers’ compensation, insurance costs). Other members of the health care system, such as hospitals, have more influence and are better able to increase their fees with negotiations.
Due to the method and nature of physician contracting and health care network formation, physicians have not been able to incorporate the cost of malpractice insurance premiums and other cost increases into fee increases. Physicians saw their premiums increase an astonishing 154 percent between 2001 and 2003. Today, some specialists pay well over $100,000 a year in insurance premiums.
Changes in the business of medicine
Historically, physicians have responded to the cost of malpractice and other rate increases by subtracting them directly from the bottom line. However, they can no longer absorb the increases of the last five years without passing that cost on to the consumer through higher fees.
The majority of physicians have increased the number of patients they see to the level where patients do not feel they are getting enough time with their doctors, and doctors know that they are not spending enough time with their patients.
The litigious environment has forced physicians to practice defensive medicine, ordering additional tests to avoid or minimize the chance of being sued. Whether the phenomenon of practicing defensive medicine is necessary or not is irrelevant.
What is significant is that businesses are seeing the cost of health care continue to rise in their health insurance premiums. And these higher premiums reflect only minimal fee schedule increases. The unit cost of physician services has not risen, but the utilization is increasing, and the resulting cost of care has increased.
The bottom line
The concern of small businesses should be that our current health insurance premiums do not reflect physician fee increases. Premiums will increase when physicians begin to rebel against the current network pricing models, and will have a direct effect on the cost of a business’s products or services.
The more physicians who are out-of-network will be a cost borne by our businesses or our employees.
Regardless of which side is right about malpractice and who is to blame, basic economic theory tells us that if it takes longer to get appointments with specialists because there are fewer of them, and if the cost of doing business for doctors grows beyond their ability to pay for it, doctors will negotiate fee increases to recoup the increases in the cost of doing business or leave the networks that provide discounts.
Either situation will impact the cost of running a company and doing business. Thomas Ferkovic, R.Ph., M.S., is director of SS&G Healthcare Services, a division of SS&G Financial Services Inc. (www.SSandG.com). SS&G Healthcare Services provides services dedicated to assisting physicians and physician practices. Reach Ferkovic at [email protected] or (330) 670-5316.
