There are a number of factors contributing to the financial pressures being placed on community physicians. One of the most significant is that the federal government, the most important payer of medical costs, tends to favor inpatient and ambulatory care delivered by hospitals. A recent story provided the details (see: Doctors going broke). Below is an excerpt from it
Doctors in America are harboring an embarrassing secret: Many of them are going broke. This quiet reality, which is spreading nationwide, is claiming a wide range of casualties, including family physicians, cardiologists and oncologists. Industry watchers say the trend is worrisome. Half of all doctors in the nation operate a private practice...."A lot of independent practices are starting to see serious financial issues," said [ a consultant to physician practices]. Doctors list shrinking insurance reimbursements, changing regulations, rising business and drug costs among the factors preventing them from keeping their practices afloat. But some experts counter that doctors' lack of business acumen is also to blame....[A cardiologist] said recent steep 35% to 40% cuts in Medicare reimbursements for key cardiovascular services, such as stress tests and echocardiograms, have taken a substantial toll on revenue. "Our total revenue was down about 9% last year compared to 2010," he said. "These cuts have destabilized private cardiology practices," he said. "A third of our patients are on Medicare. So these Medicare cuts are by far the biggest factor. Private insurers follow Medicare rates. So those reimbursements are going down as well."....Also on his mind, the impending 27.4% Medicare pay cut for doctors. "If that goes through, it will put us under," he said.Changes in drug reimbursements have hurt [oncologists] badly. Until the mid-2000's, drugs sales were big profit generators for oncologists. In oncology, doctors were allowed to profit from drug sales. So doctors would buy expensive cancer drugs at bulk prices from drugmakers and then sell them at much higher prices to their patients. "I grew up in that system. I was spending $1.5 million a month on buying treatment drugs," [an oncologist] said. In 2005, Medicare revised the reimbursement guidelines for cancer drugs, which effectively made reimbursements for many expensive cancer drugs fall to less than the actual cost of the drugs.
There is no question that cutbacks in Medicare and Medicaid reimbursement are hurting many physicians in private practice. However, I also agree with the statement above that part of the problem is many doctor's "lack of business acumen." When times are flush and reimbursement is at a high level, faulty business practices can be glossed over. The same rule does not apply to current conditions. It's easy to manage a business on the way up and hard to manage one of the way down. Physicians spend many years in training but spend almost no time learning how to run a business.
I have posted a number of notes about the so-called oncology concession whereby oncologists purchase expensive cancer drugs at a wholesale price to treat their patients and then mark up the prices when they are administered (see: Academic Oncology and the "Chemotherapy Concession"; The Oncology Concession Under Attack by Health Insurance Companies). I have been told that it's easier to manage the expensive, limited-shelf-life chemothrapy inventory in academic oncology infusion centers with a large number of patients than in smaller private practices. Large cancer hospitals also benefit from the discounted volume purchases of such drugs.
The bottom line is that movement toward Big Medicine (Big Health Systems, Big Payers, and Big Pharma) persists unabated (see: Health Insurance Company to Purchase Troubled Pittsburgh Health System; Hospitals Use Their Medical Schools, Residencies for Later Physician Recruitment).