American College of Physicians: Internal Medicine — Doctors for Adults ®


Walking away from corporate medicine

Fed up with the hassles of managed care, some are going it alone

From the October 1999 ACP-ASIM Observer, copyright 1999 by the American College of Physicians-American Society of Internal Medicine.

By Edward Martin

Allan N. Shulkin, FACP, was at a friend's funeral when he recalled her favorite phrase: "Life doesn't have to be this complicated." From the many long conversations he had shared with her about medicine and life, it was this simple message that he remembered most on a summer afternoon in Dallas a year ago.

At that moment, Dr. Shulkin vowed to quit the cardiothoracic practice he'd joined a couple of years earlier. Like his deceased friend, who had left a hospital anesthesiology group to return to private practice, Dr. Shulkin left his large practice and became part of a small but determined group of American doctors who are leaving corporate medicine and striking out on their own.

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These physicians are walking away from jobs at large group practices, management service organizations and HMOs to return to independent practices. Perhaps even more significantly, many are also figuring out ways to build practices where they don't have to work with restrictive managed care plans.

The degree of their financial success has varied. Some, like Dr. Shulkin, have found clinical freedom to be more lucrative than working for someone else. For others, private practice has led to crushing financial problems. But both groups have one thing in common: They say that dropping out of corporate medicine was the best decision they ever made.

Breaking point

For many physicians, the idea of recreating a simpler kind of practice is tantalizing. According to AMA data from 1998, roughly four out of 10 physicians are employed by someone else, up five percentage points from 1995, and nine out of 10 have managed-care contracts.

'You can't take a principled stand and still work for a managed care plan'

—Jane Orient, MD

In part, those figures reflect the positive side of working for someone else. According to figures from the Medical Group Management Association (MGMA), employed doctors on average work seven hours a week less than independent doctors. They also get pensions and benefits and share call with colleagues. Punching a corporate clock also means that physicians don't have to bother with business hassles like payroll taxes and hiring and firing employees.

Yet some see anecdotal evidence that more and more physicians are willing to toss aside the golden handcuffs of corporate practice and make a fresh start. "Doctors are getting out of corporate medicine at an escalating rate," said Robert Wright, MGMA chairman and a practice consultant in Nashville. "It involves a huge personal and financial decision, but it can still be done."

What makes physicians finally decide to take the plunge and go it alone? For California nephrologist Joselyn E. Bailey, ACP-ASIM Member, who worked in multispecialty groups for six years before starting her own practice, two incidents pushed her over the line.

One physician decided to leave corporate medicine after being berated by a utilitzation director after having trouble obtaining a Pap smear from a 300-pound patient.

The first involved a man she was monitoring for response to warfarin after a pulmonary embolism. When the patient began complaining of chest pain, she referred him to the group's pulmonologist.

"It was Thanksgiving and the specialist didn't want to be bothered," recalled Dr. Bailey, who now owns a practice in the west Los Angeles suburb of Torrance. "Just before Christmas, I got a call in the middle of the night. The patient was in the emergency room again, in agonizing pain. The pulmonologist still hadn't seen him, but this time the hospital did a CT scan and found lung cancer." The patient was referred to an oncologist and died several months later.

In the second incident, when Dr. Bailey had trouble obtaining a satisfactory Pap smear from a 300-pound patient, she called the patient's health plan for authorization to refer her to a gynecologist. "I got a fax, 'Denied,' " she recalled. She then received a call from the health plan's director of utilization. "I was raked over the coals for being incompetent," she said.

Those types of experiences have made physicians like Dr. Bailey so bitter that they don't want anything to do with managed care plans. Hard-liners like Tucson internist Jane Orient, MD, say that the point of going it alone is to not only forego corporate medicine, but to refuse managed care altogether. "You can't take a principled stand and still work for a managed care plan," said Dr. Orient, who is executive director of the Association of American Physicians and Surgeons, a society dedicated to preserving a free-market environment for doctors.

Most physicians who leave corporate medicine, however, seem to take a more moderate approach. While many reject contracts and health plans that restrict their clinical decision-making, they continue to accept patients from preferred provider networks and similar plans.

For example, San Antonio internist Carrie L. Cooper, MD, has severed ties with local HMOs, but she still receives some of her annual $200,000 gross income from patients who are willing to pay larger deductibles or copays to visit doctors outside of their preferred provider or point-of-service networks. She also remains on the lists of a few preferred provider organizations and accepts small fee discounts, but she does not accept restrictions on how she treats patients. The balance of her income comes from fee-for-service Medicare patients, some cash patients and fee-for-service indemnity plans.

Dr. Cooper's practice reflects the ups and downs of practicing outside the corporate mainstream. To care for her 600 active patients, she works roughly 80 hours per week. After overhead and taxes, which chew up about 30% of her income, she will net $90,000 this year, which puts her just shy of the national before-tax average of $140,000 for general internists.

What's missing? Vacations, for one thing. Because she is reluctant to pay $3,000 a week for locum tenens relief, Dr. Cooper seldom takes a vacation. "You worry," she said, "because not only are you spending money on your vacation, you also don't have money coming in from your practice." In addition, she has no pension or retirement plan, although she hopes to start one soon.

Despite a relentless schedule and financial pressure, Dr. Cooper is glad she made the break. "I'm far happier than any physician I know in corporate medicine," she reflected one Friday afternoon, with her last patient treated and her sole employee, a medical assistant, gone for the weekend. Another plus: Her small office is decorated in the earth tones of the Southwest, "like I dreamed it would be when I was in medical school."

Financial motivations

Not all disenchantment stems from clinical conflicts with health plans. Mr. Wright from the MGMA noted that physician practice management companies charge up to 18% of revenues to manage a practice, or they simply pay doctors a salary plus incentives. Many physicians in such situations, however, find that bureaucracy increases costs without providing many benefits. "The doctor asks, 'What value am I getting out of this arrangement?' " Mr. Wright said.

Last year, for example, 150 physicians in Fort Smith, Ark., sued the practice management company PhyCor Inc., complaining that they promised savings that never materialized. And in Charlotte, N.C., 140 Nalle Clinic physicians are renegotiating their contracts after watching their incomes drop. Internist David L. Conard, ACP-ASIM Member, who was one of 36 doctors who sold to PhyCor in 1990, said that in December, his take-home pay was less than $3,500. In February, he quit to start his own practice.

Dr. Shulkin, who said he originally joined a large practice because he was "mesmerized by the glitz of working for a large, sophisticated medical group," had a similar experience. Once he joined the group, his salary was based on his billings, but he quickly discovered that collections were lackadaisical at best.

"The month I joined the group, my collections fell 20% and never came back," he said. "Group management was great at strategizing but never put anything into practice."

"In your own practice, your office manager knows you were out until 3 o'clock in the morning taking care of a desperately ill patient," he said. "They fight tooth and nail to get the money, out of loyalty. They don't do that when you work for a big group practice."

Fortunately for Dr. Shulkin, when he sold his solo practice in 1996, he had included a clause that enabled him to buy it back. He got a $50,000 line of credit to get his practice up and running until cash began to flow in from patient visits; his total cost to regain his practice was about $125,000. "The hard part was agonizing over the decision," he said. "The rest was easy."

Since his return to private practice, Dr. Shulkin has been more successful than ever. He typically has a roster of 25 to 30 inpatients, and he expects his net income to exceed $500,000 this year. While his income has clearly rebounded since he left corporate medicine, his newfound clinical independence is even more valuable.

As one of the leading critical-care pulmonologists in the Dallas area, Dr. Shulkin still accepts managed care contracts, but he is able to pick and choose. If a certain contract doesn't meet his criteria, he said he simply rejects it.

"The plans usually come back and offer more," he explained. "Fortunately, I've become a dominant player at a major hospital, and since I've been back on my own, I've learned that the more independent you are, the more difficult it is for managed care to dominate you."

Arnold Ison, MD, a dermatologist in St. Petersburg, Fla., has had similar success accepting only patients with conventional fee-for-service indemnity insurance or non-HMO Medicare, as well as those who pay cash. Like many breakaway doctors, he also sees a fair number of patients who go out of their health plan's networks and pay a larger portion of their bill to see the doctor of their choice.

Though he earns nearly $1 million a year, in part because of Florida's high rate of skin cancer, he insists that money is not his main reward. Instead, it is the ability to spend time with patients. "They're not shuffled through in eight minutes," he said. "They love it."

A bumpy road

Not everyone is so successful, however. Back in California, Dr. Bailey, who left her multispecialty group after getting fed up with insurance companies, has faced financial hardships. Part of her problems stem from her decision to not accept any managed care patients, but there are other factors. She practices in Torrance, a community that has suffered from job losses in its once-strong aviation industry. On a good day, she sees a half dozen patients.

If you've been employed for several years, you're really not ready to cope with the current health care environment and might have no idea what it takes to run your own practice."

—Terri Couch, Texas Medical Association

"I cashed in my pension to pay off my house, then got rid of the fat, including most of my salary," Dr. Bailey said of her departure from corporate medicine. She has a part-time secretary, and her equipment includes "an EKG machine so old it doesn't have a printout."

After overhead, repayments to her pension fund and a $430 monthly payment on her office condominium, she clears $22,000 a year. Still, Dr. Bailey said she is happy. "I wouldn't trade my independence and the few pennies I do make for all the tea in China," she said.

David MacDonald, MD, has also had his share of bad experiences since leaving his job as an Army doctor. After finishing his residency, he worked for TriCare, the military's managed care plan. In 1996, disenchanted with managed care, he quit and became a partner in a network of primary care clinics in Renton, Wash., near Seattle. But his frustrations with managed care had just begun.

The clinics were already deep in debt and getting worse because of pressure from health plans to give discounts, along with rising administrative costs and delayed and denied claims. The clinics were busy, but they were losing roughly $80,000 a month.

The practice's problems were not just financial. "We had a woman in her middle 50s with persistent abdominal pain," Dr. MacDonald recalled. "We couldn't pin down a diagnosis, but were repeatedly denied an MRI." Finally, the clinic paid for the MRI itself, confirming Dr. MacDonald's suspicion of spinal stenosis.

In 1997, Dr. MacDonald and his partner came to a difficult decision: They would sever all ties with managed care. To keep the practice running during the tough times, the two physicians dipped deeply into personal assets, went for months without paychecks and, two and a half years later, still operate frugally.

"My partner walked away from a 10,000-square-foot home and I drive a 10-year-old Mercury Grand Marquis with 160,000 miles on it," said Dr. MacDonald. After he missed the third mortgage payment on his family's 1940s farmhouse, Dr. MacDonald, 42, the father of five, faced a crisis. "The bank threatened to take it away from us."

To get the practice back on its feet and salvage his personal finances, Dr. MacDonald and his partner created an innovative program called SimpleCare, in which they discount fees by up to 50% for patients who pay cash. If those patients were part of a health plan, Dr. MacDonald said, most of the money he is giving away in discounts would be paying for overhead that is traditionally part of managed care and practice management contracts.

So far, the program appears to be working. Dr. MacDonald said that he expects to earn near the national median for internists of $140,000 this year, and the network of clinics "is digging out of the hole." The program is working so well, in fact, that about 50 other providers in western states are using a similar version of it.

Know thyself

While Dr. Shulkin's and Dr. MacDonald's experiences are extreme contrasts, they are by all accounts common among physicians who decide to go it alone. So what determines whether a physician who decides to leave corporate medicine will struggle or succeed?

According to Terri Couch, director of TMA Physician Services, the Texas Medical Association office that advises doctors about setting up independent practices, successful private physicians typically have a strong entrepreneurial streak. Some, for example, have developed thriving locum tenens businesses, while others become hospitalists, issue second opinions in disputes with insurers, specialize in executive physicals or retrain for workers' compensation care.

Ultimately, experts say, physicians need to perform an unflinching self-examination before making the leap to private practice. Personality traits—knowing when to bend to the will of the marketplace, for example—can be critical. "You have to establish and build relationships with patients and dominant payers, whether conventional insurers, risk contractors or whatever," said the MGMA's Mr. Wright. "Physicians who do that have better opportunities than ones who hunker down. That's why you have one in California at the subsistence level, and another in Florida making a million bucks."

Ironically, Ms. Couch explained that frustrated doctors who are most eager to strike out on their own are often the least prepared. "If you've been employed for several years, you're really not ready to cope with the current health care environment and might have no idea what it takes to run your own practice," she said.

Thomas LaGrelius, MD, a Los Angeles family physician who is president of Indoc, an association of independent physicians, said that going it alone is not right for everyone. "If you've worked for, say, Kaiser, for five or six years, still have a medical school loan, two kids and a $250,000 mortgage, are unwilling to move and require a six-figure income," he said, "sorry, you can't do it."

Most who have made the move, however, say that they don't regret it. Though he works 16-hour days and takes fewer skiing vacations than when he was employed by someone else, Dr. Shulkin described returning to practice on his own in a single word: liberty. "The day I quit," he said, "was like the sun rising."

Edward Martin is a freelance writer in Charlotte, N.C.

Thinking of quitting? Read this first

If you're thinking of leaving corporate medicine to establish your own practice, experts offer this advice:

  • Give it time. It takes up to four months to get a Medicare provider number, and three to six months to get on health-plan provider lists. Telephone directory listings take even longer. A noncompete clause may also mean you have to relocate. Figure on a minimum of six months lead time.
  • Seek out advice. Turn to medical associations, consultants and groups such as the Association of American Physicians and Surgeons (602-327-4885) or Indoc, an association of independent physicians (Indoc's president, Thomas LaGrelius, MD, can be reached at 310-378-6208.)
  • Figure out the financing. To fund your new venture, consider banks, the Small Business Administration, a second mortgage on your home, pension and retirement funds, personal savings, and equity in an existing practice. Arrange a line of credit that gives you 90 days of operating capital, or a minimum of $30,000.
  • Calculate your costs. If you cut every corner possible, you may be able to get through the first year with $100,000. When you factor in leasing and outfitting an office; equipment, malpractice, general liability, personal and employee insurance; computers and software; staffing and overhead, you're probably looking at more than twice that amount.
  • Get the equipment. Decide whether to lease or buy. Leasing requires less initial capital; buying means it's yours in the long run. Consider used equipment, which, thanks to medical consolidation, is widely available.
  • Consider outsourcing. If you're striking out on your own, a medical assistant may be all the staff you need. In most states, they're trained to handle limited medical tasks such as injections, plus administration. Consider outsourcing your billing and ancillary services like lab work or X-rays.
  • Don't burn bridges. You'll need former colleagues, health plans and hospital contacts for referrals. Polish your networking skills and consider trading call with other independent doctors so you can avoid the high cost (up to $3,000 a week) of bringing in locum tenens help.
  • Get your name out. Volunteer in community activities and advertise the opening of your practice. If you're willing to accept preferred provider contracts, get on their lists. Figure on one to two years to fill practice, and a year to break even financially.
  • Consider compromise. Join an IPA for managed-care clout. Rather than starting from scratch, think about joining an established private practice.

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