There is no doubt that nephrology practice in the United States has been forever transformed by changes in the last decade. Doctors and practice managers have had to adapt to regulatory and legislative changes, market shifts and technological developments. We are constantly adjusting our business models in order to remain in compliance with government mandates and meet the changing needs of our business partners, all while continuing to provide low cost, high quality patient care.
Once every two years, the Renal Physicians Association conducts a survey among its members regarding their physician practices. The survey includes questions about practice size, income, personnel, and other issues. NN&I asked us to examine data from the past five Nephrology Practice Business Benchmarking surveys to bring into focus just how much impact these changes have had on the nephrology specialty.
An immediate observation is simply the participation in and content of the RPA’s biennial survey. The survey conducted using 2005 data represented 708 nephrologists and was 146 pages of detail. The most recent survey represents 1,266 nephrologists and is 341 pages. Content and methodology remains quite consistent in the survey, allowing for year-to-year comparison but each adds new questions, greater detail and/or data sorted into new meaningful categories.
Complexity is a clear theme in the analysis. Initially focusing on productivity, revenue, expenses and compensation, the survey has evolved to collect and report additional information related to billing practices, government program participation such as the Physician Quality Reporting System (PQRS) and meaningful use, physician workforce demographics and more. When the information was first collected in 2007, over 86% of practices reported conducting billing functions in house. By 2013, that number has dropped to 73%. Government program participation has steadily increased as the risk of non-participation results in financial penalties, greatly adding to the complexity of the nephrology practice (see Table 1).
Care delivery models and service lines have evolved as well. In 2004, only 52% of practices reported having one or more Advanced Practitioners (APs) at a ratio of .22 APs to 1 full time equivalent (FTE) nephrologist. By 2013, that number rose to 76% of practices at a ratio of .39:1. Since the inception of the outpatient dialysis G-codes in 2004, where monthly Medicare reimbursement became based on the number of face-to-face visits between provider and dialysis patient, the reliance on nurse practitioners and physician assistants to meet the needs of the patient population has increased dramatically.
Practices have expanded significantly by developing vascular access centers and hiring or training interventional nephrologists. In 2005, only 20% of practices reported participating in a vascular access center and 12% reported having 1 or more FTE interventional nephrologists. Every survey since has reported a steady increase in both of these figures (see Table 2).
The math problem
Very little has changed in the way of payor mix for nephrology practices. Over the last 10 years, Medicare has remained the largest purchaser of nephrology services, consistently representing approximately 64% of the volume for nephrology practices. Medicaid has represented a steady 6-7% of the workload over the same time period, commercial plans roughly 24% , and self-pay/charity care 4-5%. While this is not surprising or new information, it does demonstrate just how vulnerable the nephrology specialty is to changes in government reimbursement and payment policy.
From 2004 to 2013, average net fees for services from all payors per FTE nephrologist grew by less than 10%. This is the actual cash received into the practice for providing direct patient care and services. At the same time, total relative value units (RVUs), the basis of reimbursement and an indicator of physician work, have increased by 41% and operating expenses have grown by more than 28%. This has resulted in a cumulative net reduction of approximately $20,000 per FTE physician over the time period (see Figure 1).
Despite minimal growth in reimbursement and a much greater growth in operating expense, the average nephrologist’s compensation has grown from $272,000 in 2004 to $316,000 in 2013, a 16% increase. This means that the nephrologist has had to cultivate or find additional revenue sources outside of providing patient care (see Figure 2).
Medical director services
It has long been known that the nephrologist has earned income by providing medical director services for dialysis facilities. The most recent RPA surveys indicate that this continues to be an important component of the business model and is becoming a larger percentage of total revenue growing from 10.4% of total revenue in 2004 to 14.6% in 2013 (see Figure 3). One likely factor that has driven this increase is the expanded responsibilities of the dialysis unit medical director in the new Conditions for Coverage for End-Stage Renal Disease Facilities established in 2008.
However, Medical director revenue is not solely responsible for the increase in the other income category and the grouping has always included research, rent, legal work and royalties. The Physician Quality Reporting System, implemented in 2007, the Electronic Prescribing Incentive Program, 2009 (ended 2013), and Meaningful Use in 2011 all began as programs with financial incentives attached for successful participation. As stated earlier, participation in these programs has increased significantly since inception. These incentives have been front-loaded and account for a large part of the growth in this category. Distributions from joint ventures in dialysis units are also a recent contributor to this group.
Successful groups come in all sizes but the data is telling us that bigger often means better, at least in terms of the financial data, and the trends show us that practices are getting larger. The RPA survey defines benchmark practices as those having both Net Income before Physician Expenses per FTE Physician greater than the median, and Total Operating Expenses per RVU less than the median. Nearly 55% of the practices fitting this category in 2013 had 8 or more physicians whereas the majority of practices fitting this category in 2005 had 2-7 physicians (see Table 3).
Historically, this bears out in the physician compensation numbers as well. Practices with vascular access centers typically come closest to the benchmark practice compensation numbers. Practices that can support vascular access centers are typically larger. Since vascular access center data has been collected by the RPA survey, at least 74% of the practices having vascular access centers have 8 or more FTE nephrologists. This number grew to 82.5% of practices in 2013.
Size also influences the ability to control expenses. As practices become more complex through legislative and regulatory change, the human resources needed to support a nephrology practice change in expertise, skill set, and quantity. Personnel expense has grown by 36% since 2004 and general and administrative expense, the category where the recurring costs associated with technology is captured, has grown by 30%. The high-ticket items in these categories, when spread over a larger number of physicians, have less impact to compensation on a per FTE physician basis. Figure 4 demonstrates how each group has performed in nephrologist average compensation over time.
The analysis of this benchmarking data tells us several things. Nephrology practices are more complex. Physicians are generating more RVUs for less money and a greater percentage of income is coming from things other than direct patient care. Practices have responded partly by becoming larger and looking for revenue stream diversification. The ability to predict the financial future from the historical data is problematic. We know from the most recent survey that a significant number of nephrology practices are already participating in accountable care organizations, shared savings programs, and even risk sharing contracts. We know that the incentive for participation in government quality reporting programs and meaningful use is transitioning from the carrot to the stick and that reductions in reimbursement will be applied to those who are unsuccessful. In order to take on the challenges and complexity that the future holds, successful nephrology practices will likely be larger, more sophisticated and tightly aligned with all stakeholders in the pursuit to provide high quality, low cost care to patients with kidney disease.