Enhancing the Physician Enterprise in Maryland 11 17-08
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Enhancing the Physician Enterprise in Maryland 11 17-08 Enhancing the Physician Enterprise in Maryland 11 17-08 Document Transcript

  • Enhancing the Physician Enterprise in Maryland: An Analysis of the Practice Environment and Economic Impacts of Maryland’s Physicians Submitted by: Sage Growth Partners, LLC Commissioned by: MedChi, The Maryland State Medical Society November 2008
  • Table of Contents List of Tables and Figures ................................ .......................................................................................2 ....................... I. Executive Summary................................ ..............................................................................................3 .............................. The Economic Power of Physicians .........................................................4 ......................... Building the Great Physician Enterprise ...................................................4 he ................... II. Introduction ................................ .........................................................................................................6 ......... III. The Physician Practice Climate in Maryland ....................................................6 .................... Maryland’s Medical Insurance Liability Environment .............................9 Maryland’s Cost of Living ......................................................................10 ’s Tax Impact ................................ ..............................................................................................11 After Tax Income ................................ ....................................................................................13 1 The Health Insurance Market in Maryland .............................................15 1 VI. Physicians as Economic Drivers ......................................................................18 1 Why is Healthcare Such a Key Driver of Our Economy? ......................20 Physicians as Economic Engines ............................................................20 V. Recommendations and Potential Solutions .......................................................22 2 What We Agree On ................................ .................................................................................22 2 Desired Outcome ................................ ....................................................................................22 2 Recommendations to Form and Enhance Physician Enterprises ............25 2 Supply Recommendations ......................................................................25 2 Infrastructure Recommendations ............................................................26 2 Enhancing the Physician Enterprise in Maryland 1
  • List of Tables and Figures Exhibit I-1. Economic Impacts ................................ ...............................................................................4 ............... Exhibit III-1. Non-Physician Labor Costs: Physician Hourly Mean Wage, Physician’s Office ..................................................................7 .. Exhibit III-2. Selected Positions ................................ .............................................................................7 ............. Exhibit III-3. Class A and Class B Medical Space: Average Price Per Square Foot 2005 2005-2008 ..............................................................8 .............................. Exhibit III-4. Price Per Square Foot: ce Class A and B Space and Annual Rental Expense ..................................................8 .................. Exhibit III-5. Cost of Living ................................ .................................................................................10 Exhibit III-6. State Business Climate Tax Index ..................................................11 Exhibit III-7. Maryland Business Formations ......................................................12 Exhibit III-8. Major State and Local Tax Burden for a Family of Three: $150,000 Income Level .............................................................12 Exhibit III-9. Graduating Medical Student Debt ..................................................13 9. 1 Exhibit III-10. Educational Debt Service as a Percentage 10. Of After Tax Income: 25 Year Repayment Program .............................................14 1 Exhibit III-11. Percentage Increase in After Tax Income Needed To Maintain a Lifestyle After a Move from aintain Delaware, Pennsylvania, or Virginia to Maryland Maryland.................................................14 1 Exhibit IV-1. Operating Margins, Top Insurers, 204-2006 ..................................15 1 Exhibit IV-2. Risk-Based Capital Analysis ..........................................................16 Based 1 Exhibit IV-3. Underwriting Performance in Maryland 3. Maryland.........................................17 1 Exhibit V-1. Maryland Nonfarm Employment by Industry 1. Sector Groups, July 2007 v. July 2008 Absolute Change .....................................19 1 Exhibit V-2. Select Industries as a Portion of Total 2. Maryland Employment, Annual 2007, NSA NSA..........................................................20 Exhibit V-3. Economic Impacts................................ ............................................................................21 Exhibit V-4. Establishment Data ..........................................................................21 Enhancing the Physician Enterprise in Maryland 2
  • EXECUTIVE SUMMARY Maryland is very reliant on a strong physician population to secure its role as a progressive, desirable place to live and work. The state has a long reputation as a national leader in health services, policy, and health care delivery. And, as everyone knows, the reputation of a knows, jurisdiction’s health markets affects its ability to attract business leaders to one area. Physicians are the lynchpin to the state’s healthcare and scientific prominence. However, evidence suggests that Maryland is at risk for becoming a less attractive place for physicians to locate and build a business. In particular, in many ways, Maryland is more expensive than many of the other states proximal to Maryland. First, major cost categories within a medical practice are more expensive in Maryland than Virginia or Pennsylvania. These include the cost of medical office space, some 20 percent higher in Maryland than in neighboring Virginia or Pennsylvania, and non non-physician labor costs which are some 12 percent higher than wage rates nationally. Additionally, Maryland r is one of the most expensive states in America in which to live, ranked seventh in the annual ACCRA Cost of Living Index. In other words, Maryland is the seventh most expensive state in n the United States. The drivers of cost of living include housing, utilities, groceries, transportation, . etc. Finally, Maryland is one of the highest tax states in the country, offering the fourth highest state and local tax burdens in the US. Therefore, Maryland is an expensive proposition for a physician practice. In addition to higher costs, Maryland is an increasingly risky place to practice medicine. While place malpractice premiums have somewhat stabilized, they are stabilizing at prices that are at an all- all time high. In absence of more substantial tort reform, Maryland’s malpractice reputation will substantial continue to influence physicians considering Maryland as a destination. A recent American College of Obstetricians and Gynecologists survey of residents in Pennsylvania found that almost Gynecologists 27 percent of those surveyed cited malpractice insurance as one of the top two reasons for selecting a geographic area. Finally, and not to be understated, the health insurance market in Maryland is highly concentrate concentrated, aggregating the power of two of the most s significant brands in healthcare: United Healthcare and ited BlueCross/BlueShield (Carefirst). As these two payers cover over 80 percent of the commercial nt comm health insurance market, they exert tremendous control over physicians and their contracts for service. This is particularly true for independent solo-practicing physicians, and small groups of independent, fewer than 5 physicians. When combined with the major public payers, Medicare and Medicaid rs, (both of which offer no material negotiation flexibility) the payer environment in Maryland flexibility), r represents a “virtual” single-payer – a monolith that pays, on aggregate, less than 100 percent of payer what Medicare pays physicians in Maryland. Further as the two largest commercial insurers re Maryland. continue market dominance in Maryland, they are able to fend off competition because of the tremendous reserves they have aggregated. ve The combined effect of all of these factors makes Maryland an increasingly less attractive state for physicians to practice in or locate to; the question is why should citizens of Maryland be concerned about this? Enhancing the Physician Enterprise in Maryland 3
  • The Economic Power of Physicians According to the Centers for Medicare and Medicaid Services (CMS), spending on physicians in America accounts for approximately 21 percent of all healthcare services. While a significant care percentage, this statistic only tells a small part of the story. Physicians control a much higher percentage of total health expenditures: they direct admissions to hospitals and post-acute e post facilities; control the length of stay while in those facilities; prescribe prescription drugs, medical dr devices, and other medical equipment and they direct a bevy of diagnostic and other ancillary equipment; services. As such, physicians are at the center of the creation of significant economic activity. One approach to capture the scope of the economic activity of physicians in Maryland is to perform economic significance analysis. In the case of this report, the authors have used publicly available economic and demographic data and an IMPLAN input-output economic model as output proxy for economic activity related to physician activities. This methodology describes the parts. First, the model measures the direct economic activity of physicians and physician groups, described in terms of jobs created aggregate compensation, and aggregate revenue. The second scribed created, component of the model is the indire effects, that is the economic vibrancy created by entities in e indirect business to support physician groups. These might include medical supply firms, office supply firms, commercial real estate firms, etc. Finally, the third component of the model measures induced economic activity; aggregate economic product produced by firms that build around duced populations of consumers employed by the healthcare industry. Therefore, this metric attempts to capture the economic activity of restaurants, retail shops, consumer service vendors, gas stations, service etc that are positively influenced by the medical industrial complex. Based on this economic medical-industrial analysis for physicians practicing in Maryland, physician enterprises are contributing over $8 billion in economic impacts including over $4.5 billion in direct impacts, $1.2 billion in indirect nomic 5 impacts, and $2.5 billion in induced impacts. In addition, the physicians have had a hand in generating over 71,000 jobs, representing some $4 billion in employee compensation. , Exhibit I-1: Economic Impacts Direct (1,2) Indirect (2) Induced (2) Total Jobs (3) 41,694 9,287 20,556 71,537 Compensation (millions) $2,754 $455 $830 $4,040 Revenue (millions) $4,576 $1,170 $2,476 $8,222 Source: IMPLAN Nationally, the economic impact of physician practice has been similar to that in Maryland. Within the healthcare industry, offices of physicians represent 37 percent of all firms in health care, and some 15.5 percent of all healthcare employment. Building the Great Physician Enterprise ng Most educated observers agree that physicians are a critical driver of our economy, in their varied roles as care physicians, scientists, entrepreneurs, etc. However, based on many factors, it seems s, that Maryland runs the risk of being perceived as a state not attractive to physician entrepreneurs. e This risk should concern policy makers and state economic development leaders, as the state’s Enhancing the Physician Enterprise in Maryland 4
  • ability to recruit the best and brightest physicians is central to maintaining its status as a its progressive bellwether state. Therefore, it seems appropriate to direct public policy to physician entrepreneurs in the same way the state views bio-technology and life science entrepreneurs. Namely, the state ought to focus on technology attracting the best physicians available, and on enhancing infrastructure supports for physician physician- entrepreneurs that wish to build the forward thinking care delivery entities of the future that will forward-thinking be required to deal with Maryland’s demographic tsunami and pending chronic care crisis. and Pursuant to enhancing physician supply, we believe that state needs to focus on three specific recommendations, namely: I. To explore loan repayment assistance programs, II. To develop a sustainable practice enhancement financing program, and III. To achieve substantive tort reform. These programs are tiered to provide support and relief to practice in the varied stages of their practices stage practice life; a targeted loan repayment program will attract physicians to Maryland; the practic practice enhancement program will target rising entrepreneurial practices that want to inv in their invest businesses and communities, and build the needed chronic care model of the future; tort reform will reduce supply dislocations in key specialties and allow physicians to reinvest premium saving in their businesses. Relative to enhancing physicians’ access to infrastructure supports, we believe the state ought to ’ focus on two recommendations: IV. Develop a physician physician-enterprise incubator, and V. Develop a physician qual innovation fund. quality As the state has already signaled its belief in providing business formation and support services to other key industries, we believe they should leverage existing incubator programs or build new ones targeted at the physician-enterprise. This should be done with a recognition that each enterprise. physician in practice in America has proven to be a bona fide jobs creator. Therefore, this kind of Therefore investment in physicians will actually drive economic development in Maryland. Also, we know that larger physician entities are better positioned to negotiate with the large concentrated payers. arger large, Finally, with an eye toward the promise that information technology holds for health care quality, and recognizing that adoption of clinical information technology in small medical practices is still technology somewhat limited, despite many adoption incentives we believe the state ought to create a incentives, Quality Innovation Fund (QIF.) The QIF would provide funding for health information und technology to support the development of comprehensive chronic care medical systems. For example, Deloite Consulting has estimated the cost of start up for developing a medical home to start-up be between $25,000 and $100,000 per FTE physician; start-up for a small group of 3 physicians tween up could be as much as $300,000: well beyond what most physicians have retained in their practices. A sizable chunk of that investment is undeniably tied to the cost of purchasing information technology. This creates a major barrier of care coordination and health status improvement which ultimately costs all Marylanders. Enhancing the Physician Enterprise in Maryland 5
  • INTRODUCTION Report Objective and Brief Background MedChi, The Maryland State Medical Society engaged Sage Growth Partners, LLC (SGP) to edical engaged study the business and economic environment for physicians practicing medicine in Maryland and to identify the significant economic impacts of Maryland’s practicing physicians. This analysis is Maryland’s in response to the work of the Governor of Maryland’s Task Force on Physician Access and ork Physician Reimbursement. This environment is defined not only by the laws and regulations that govern medical practice, but it also incorporates the routine practices and behavior of key component of components the system. The study attempts to objectively evaluate the impacts of the macro economic environment on physicians and physician entities. Additionally, the analysis will ascertain how sicians the climate for physician enterprises in Maryland might affect the State’s ability to attract new the physicians, either coming out of training or moving from a different market. Typically, economic impact analyses are static in nature and focus upon the economic impacts of an activity under current conditions. This report, however, is dynamic and analyzes medical analyz practice trends in Maryland and then maps them forward. To allow for a healthier analysis, this report also compares Maryland’s practice environment to that of other states in the regions such as Virginia, Delaware, and Pennsylvania, especially as it relates to the cost of establishing and maintaining medical practice. The report begins with an overview of the physician practice environment in Maryland, including costs, risks, and other obstacles facing physician entrepreneurs. The discussion then focuses on the economic impacts of Maryland’s physician community, and where possible, quantifies these impacts by use of a standard IMPLAN input output econometric model to calculate job, wage, input-output output and fiscal impacts. The report concludes with a broad set of recommendations that might nd improve the operating environment for physicians in Maryland, while making Maryland a more attractive and hospitable place for physician physician-entrepreneurs to locate. The Study Team The study team included Don McDaniel and Dan D’Orazio from Sage Growth Partners, LLC, and Anirban Basu and Josh Lowery from Sage Policy Group, Inc. Finally, we were counseled by John Duberg of the Nearing Group, who supported our IMPLAN modelin efforts. modeling PHYSICIAN PRACTICE CLIMATE IN MARYLAND LIMATE Practicing medicine in Maryland is expensive, especially when compared to other states in the region. Two of the primary drivers of operating a practice include labor and rent. Exhibit III-1 highlights the hourly rate of non-physician labor in 2007. When compared to national averages, physician the hourly rate for non-physician labor in Maryland is 12.5 percent greater than the rest of the physician country. When examined regionally, Maryland’s non non-physician labor is anywhere from 6 percent ywhere to 17.5 percent higher than Delaware and Pennsylvania respectively. Enhancing the Physician Enterprise in Maryland 6
  • Exhibit III-1: Non-Physician Labor Costs: Hourly Mean Wage, Physician’s Office Physician Maryland $22.01 Delaware $20.69 Virginia $20.61 National $19.56 Pennsylvania $18.73 0 5 10 15 20 25 Source: Bureau of Labor Statistics: May, 2007 Exhibit III-2 provides a snapshot of select positions and their hourly rate for non-physician labor. non- Maryland is highlighted in red, and with the exception of “Medial Assistant in Delaware,” these positions demonstrate the higher hourly labor costs in Maryland. According to MGMA’s 2008 Maryland. Revenue and Cost Module, non-physician labor operating costs account for up to 47 percent of physician total medical revenue. To the extent that labor costs in Maryland are greater, these costs disproportionally impact physician enterprises in Maryland compared to other states. enterprises Exhibit III-2: Selected Positions Medical Medical Records RN LPN Receptionist Assistant & HIT National $30.04 $18.72 $13.59 $11.82 $15.12 Maryland $33.89 $22.48 $14.27 $12.41 $17.91 Delaware $31.51 $21.69 $14.84 $12.17 $14.85 Virginia $28.54 $17.60 $13.42 $11.87 $15.74 Pennsylvania $28.50 $18.99 $12.92 $11.40 $14.93 Source: Bureau of Labor Statistics: May, 2007 Medical office space is another significant business expense for physician practices. Similar to non-physician labor costs, medical office space in Maryland is more costly than in other states. physician Exhibit III-3 depicts the three year average for Class A and Class B medical space in Maryland, Enhancing the Physician Enterprise in Maryland 7
  • Virginia, and Pennsylvania.1 Per square foot of Class A space, Maryland is 19 percent greater than Pennsylvania and 23 percent more expensive than Virginia: similar ratios exist for Class B Space. Exhibit III-3: Class A and Class B Medical Space: Average Price Per Square Foot 2005-2008 ass Maryland Virginia Pennsylvania $30.00 $28.54 $23.92 $24.90 $23.14 $21.72 Price per Ft2 $19.32 $20.00 $10.00 $0.00 Class A Class B Source: CB Richard Ellis Maryland’s higher rental expenses can directly impact the financial standing of a physician practice. According to the Medical Group Management Association, the average single specialty primary care physician office, with under three full time equivalent physicians, is 4,056 square feet.2 The following table highlights the fiscal impacts of higher rental fees on operating expenses across the region. Exhibit III-4: Price Per Square Foot, Class A and B Space and Annual Rental Expense er al Single Specialty, Price Per Square Percentage Discount Annual Expense Primary Care Foot: Class A From Maryland Maryland $28.54 $116,000 N/A Pennsylvania $23.92 $97,000 19.5 Virginia $23.14 94,000 23.4 Note: Median square footage of a single specialty, primary care office is 4,056 per 2007 MGMA data 1 Class A space defined: excellent location and access, attract high quality tenants, and is managed professionally. attracts Usually steel framed and tall. Class B space defined: good (versus excellent) locations, management, and construction. High tenant standards and l . little functional deterioration. 2 Cost Survey for Single-Specialty Practices: 2007 Report based on 2006 Data. Medical Group Management Specialty Report Association. Enhancing the Physician Enterprise in Maryland 8
  • By opening doors for business in Maryland, physician practices, under these assumptions, will pay $19,000 more for rent than in Pennsylvania and $22,000 more than Virginia (annually). These higher fixed compete with other physician expenses such as malpractice an non- and -physician labor. Maryland’s Medical Liability Insurance Environment In 2004, Maryland’s General Assembly enacted emergency legislation to offset skyrock skyrocketing malpractice rates for Maryland’s physicians. From 2001 2001-2004, Maryland physicians’ medical physician liability insurance increased by 71 percent3. During the same time, specialists experienced an increase of 39 percent in their premiums. Since then, the malpractice environment has calmed, malpractice and Maryland’s largest carrier, Medical Mutual has decreased rates by 15 percent. Other carriers in Maryland, however, have either increased or kept their rates stable. While some carriers such as Medical Mutual are modestly stabilizing rates, it is important to note that rates are stabilizing at ly all time high levels, and Maryland’s market remains volatile. From 2005 2007, the number of 2005-2007, 4 suits filed and then closed, increased by 229 percent . Even if the cases fail to materialize, the mate 5 costs to defend against dropped or dismissed cases average $18,887 . The Maryland Insurance Administration notes in their 2008 professional liability report that “the combination of increases in closed claims and the number of suits filed ov the period of 2003-2007 underscores the over 2007 continued volatility of this line of business.” An area of debate in malpractice reform, in Maryland and other states, is the limitation on non- non economic damages. Some states have imposed caps on non economic damages at $250,000. In non-economic Maryland, however, awards or verdicts under non economic caps can go as high as $650,000. non-economic While the purpose of this analysis is not to debate the merits of non economic caps or other s non-economic malpractice statutes, it is instructive examine how some reforms may benefit the physician enterprise. Here are some key points: It would take a 22 percent increase in doctor’s wages to generate a comparable supply generate response to the response generated by the passage of a cap on non economic damages.6 non-economic Studies show physician supply would increase, ranging from 2 6 percent, with a host of 2-6 78 reforms including caps on non non-economic damages. Impact on Residents: 26.5% of residents in a Pennsylvania study cited malpractice insurance as one of the top two reasons for selecting a geographic area.9 This is troubling 3 American College of Emergency Physicians. The National Report Card on the State of Emergency Medicine. 4 Maryland Insurance Administration. 2008 Report on the Availability and Affordability of Health Care Medical Affordability Professional Liability Insurance in Maryland. 5 American Medical Association. 6 Medical Malpractice and Physicians in High Risk Specialties. Klick and Strattman, 2007 7 Ibid. 8 Impact of Malpractice Reforms on the Supply of Physician Services. JAMA 2005;293 (21), 2618-2625 Physician 2618 Enhancing the Physician Enterprise in Maryland 9
  • since the Maryland lags behind the national average for retaining medical students who trained in Maryland. As of 2006, Maryland ranked 38 out of the 50 states for retaining ed residents trained in Maryland. Nationally, states retain 39 percent of the residents training at schools in state, but Maryland only retained 26 percent10. While this is not solely te, s attributable to malpractice, it certainly influences their decisions. Maryland’s Cost of Living Maryland’s cost of living is among the highest in the nation, ranking 7th. At the heart of the high cost of living is housing. Other factors contributing to the high cost of living include utilities, groceries, and transportation. When physicians make a decision on where to practice, many factors are at play: family, geographic surroundings, reimbursement, malpractice insurance, patient population, healthcare eco system, education system, arts and recreation etc. While ion, eco-system, Maryland is an attractive state with many of the above mentioned attributes, it remains as one of the most expensive places to live. When coupled with the high cost of doing business in business Maryland (labor, rent, malpractice), Maryland’s high cost of living adds another layer of expense. Here is a list of the top 10 most expensive states to live in addition to the rankings for neighboring states such as Virginia, Delaware and Penns Pennsylvania. As one can see, Maryland’s regional competition is ranked lower in cost of living. Exhibit III-5: Cost of Living Rank State Rank State 1 Hawaii 8 Alaska 2 California 9 Massachusetts 3 Washington DC 10 Rhode Island 4 Connecticut 19 Delaware 5 New York 21 Virginia 6 New Jersey 22 Pennsylvania 7 Maryland Source: ACCRA Cost of Living Index 9 Effects of a Professional Liability Crisis on Residents’ Practice Decisions. American College of Obstetricians and Gynecologists. Mello and Kelly, 2005. 10 Key Physician Data by State. Association of American Medical Colleges, Center for Workforce Studies. 2006. Enhancing the Physician Enterprise in Maryland 10
  • Tax Impact The Tax Foundation presents an annual “State Business Climate Tax Climate Index” that compares state business climates relative to the other fifty states. The report studies the impact of five tax measures: individual income tax, sales tax, corporate tax, property tax, and tax, unemployment insurance. Each of these areas is assigned a different weight: individual income tax is weighted the greatest, followed, in order, by sales tax, corporate tax, property tax, and unemployment insurance. Economists have differing views as to the impact that taxes have on differing individuals and businesses, and literature reviews of this subject area will point observers in a number of directions. Generally speaking, however, taxes impact business which in turn impact individuals through wages and prices. ough When comparing the Overall Rank for the 2008 Tax Climate Index, which is inclusive of all five tax indexes, Maryland ranked 24th. Exhibit III-6 highlights the results of the 2008 index for Maryland and its regional neighbors: Delaware, Virginia, and Pennsylvania. This index ranks Maryland ahead of Pennsylvania, but behind Virginia and Delaware respectively. Taking a closer look at the index, one will see a disparity between Maryland’s corporate tax rate and the individual income tax rate. While Maryland’s corporate tax rate is competitive nationally and ome regionally, Maryland’s individual income tax rate ranking is among the highest in the nation. Exhibit III-6: State Business Climate Tax Index State Overall Rank Corporate Tax Individual Income Tax Delaware 9 17 32 Virginia 14 4 21 Maryland 24 7 37 Pennsylvania 27 42 11 Note: these rankings were calculated prior to Maryland raising its Corporate Income tax from 7 to 8.25%. Source: The Tax Foundation. The high ranking for individual income tax rate is significant because many businesses, i.e. sole proprietorships, partnerships, and S Corporations report income through individual tax incomes known as “flow through entities.” Therefore, these businesses will feel the impact of Maryland’s high individual income taxes. As demonstrated in Exhibit III-7, in 2007, the IRS reported that 71 n percent of Maryland businesses were structured as a Partnership or S Corporation (flow through Corporation entities), thus they will feel the impact of the higher individual income tax rate. As physicians eel think about where to practice medicine, taxes may play an important role in causing physicians to think twice as other expenses such as rent and malpractice compete with their bottom line. l Enhancing the Physician Enterprise in Maryland 11
  • Exhibit III-7: Maryland Business Formations Partnership & S-Corporation Corporation (71%) Corporations (29%) Source: IRS Data Book 2007 Contributing to Maryland’s high income taxes are municipal and county level income taxes. The ’s combined effect of state and local income tax, estimated at 10.8% of income, has ranked among the highest in the nation over the last 30 years. In 1977, Maryland had the eighth highest state and local income tax burden. In 2008, Maryland’s ranking deteriorated as Maryland had the fourth highest state and local income tax rates. Each year, the District of Columbia assesses the tax rates and tax burdens of the District and its surroundin communities. Exhibit III-8 illustrates surrounding Maryland’s unfavorable position. Families earning $150,000 in 2006 in Montgomery County and Prince George’s County had the highest tax burden when compared to neighboring communities in the District of Columbia and Northern Virginia. Exhibit III-8: Major State and Local Tax Burden for a Family of Three: $150,000 Income Level Prince Montgomery Fairfax Arlington George’s DC Alexandria County County County County Tax $16,551 $16,455 $15,027 $13,317 $13,302 $13,117 Burden Rank 1 2 3 4 5 6 Source: Tax Rates and Tax Burdens, Washington DC Metropolitan Area. Issued November 2007 by the Government of the District of Columbia. Note: Tax burden includes income tax, real estate tax, sales and use Tax, and Automobile. Enhancing the Physician Enterprise in Maryland 12
  • After Tax Income If practicing medicine has become more expensive, so too has becoming a physician. Tuition and fees are rising at rates faster than physician incomes, and students, from both public and private institutions, must contend with large student debt bills upon graduation. The Association of American Medical Colleges reports that the public medical school graduate debt grew at a compounded annual rate of 6.9 percent while private medical school debt was slightly slower at 5.9 percent. All tolled, physicians from public and private schools are facing debts of between $120,000 and $160,000. Exhibit III-9 shows the aggressive increases in tuition, fees, and debt. Exhibit III-9: Graduating Medical Student Debt Public: Annual Private: Annual Year Total Debt Total Debt Tuition and Fees Tuition and Fees 2001 $12,411 $86,000 $31,296 $120,000 2002 $13,873 $92,000 $32,649 $127,000 2003 $16,332 $100,000 $34,247 $135,000 2004 $19,043 $105,000 $37,269 $140,000 2005 $23,370 $115,000 $39,024 $150,000 2006 $20,978 $120,000 $39,413 $160,000 Annual Rate 11.1% 6.9% 4.7% 5.9% Source: Association of American Medical Colleges As a result of the large sums of medical debt, physicians must maximize their after tax income to reduce their debt burden. As Exhibit III-10 shows, the amount of after tax income dedicated for debt service from public medical schools ranged from 8 8-10 percent for public schools and 12-14 percent for private schools for 2006. As medical education costs continue to mount, the amount of education after tax income needed to satisfy these loans is projected to dramatically increase. Take the graduating class of 2033. For example, i physician incomes only grow 2 percent and tuition and if ian fees continued their current growth, education debt service will consume nearly 40 percent of after urrent tax income. Even if incomes rise by 5 percent annually, the percentage of after tax income for satisfying educational debt is projected to outpace the 2006 figures (recent data p point to an average income growth closer to 3 percent). Enhancing the Physician Enterprise in Maryland 13
  • Exhibit III-10: Educational Debt Service as a Percentage of After Tax Income: 25 Year Repayment Program 2033 Graduates 2006 2% Income 3% Income 5% Income Graduates Growth Growth Growth Public 8.8%-10.3% 33.1%-38.8% 25.4%-29.8% 15.1%- -17.7% Schools Private 11.9%-14.0% 34.8%-40.8% 26.7%-31.4% 15.9%- -19.7% Schools Source: Medical School Tuition and Young Physician Indebtedness. Association of American Medical Colleges. October 2007 After tax income is important not only to pay off medical school debt but also to maintain a ncome pay comfortable lifestyle. The ACCRA cost of living scale measure the percentage increase in after the tax income needed to maintain a certain lifestyle after a move from one area to another. Because Maryland is a more expensive state to live in, physicians who located from states such as Pennsylvania, Delaware, and Virginia would need a 25 percent increase in after tax dollar to maintain a similar lifestyle in Maryland (Exhibit III-11). Lifestyle issues and quality of life are becoming increasingly more important to the new generation of physicians. If physician incomes cannot compensate for the high costs of living and practicing in Maryland, some may consider nnot practicing elsewhere. As it currently stands, Maryland has a poor ranking of retaining the physicians and fellows trained in state. Exhibit III-11: Percentage Increase in After Tax Income Needed to Maintain a Lifestyle after a move from Delaware, Pennsylvania, or Virginia to Maryland 30% 25% 25% 25% 24% Percent Increase 20% 15% 10% 5% 0% Delaware Pennsylvania Virginia Source: ACCRA Cost of Living Index: Based on the first quarter of 2008 Enhancing the Physician Enterprise in Maryland 14
  • The Health Insurance Market in Maryland The commercial health insurance environment in Maryland might best be described as a “virtual described single payer” to the extent that the commercial insurance product offerings are increasingly similar in terms of plan design, product choice, physician networks and prices. Further, there is tremendous market concentration; the top two insurers in the State, CareFirst BlueCross BlueShield and United Healthcare control over 80% of the market for private health insurance. Given this level of monopsony po power, these payers exert a tremendous level of control over premiums and physician payments. As a result, the market has hardened, competition has been he stifled, and the dominant insurer’s market position and profitably has increased dramatically. Exhibit IV-1 depicts industry profitably among some of the largest national health insurers, showing sustained profitably well above the cost of capital available to its participants. Exhibit IV-1: Operating Margins, Top Insurers 2004-2006 Insurers, 14% 2004 2005 2006 12% 10% Operating Margin 8% 6% 4% 2% 0% (1) Aetna WellPoint UnitedHealth Cigna Humana Group Source: Hoovers. Data for all years updated as of January 2008. Link: www.hoovers.com. (1) 2004 operating . margin data for WellPoint include both pre and post-merger data for the merger with Anthem in November 2004. pre- merger Enhancing the Physician Enterprise in Maryland 15
  • Further, the largest insurers in Maryland have used their market position to amass large surpluses that help them to stave off new competition. As one sees from a review of Exhibit IV-2, through 2003, health insurers in Maryland had amassed an aggregate of some $1.7 billion in statutory surplus, amounting to over 6 times the amount of capital required of health insurers by Maryland regulators. Exhibit IV-2: Risk-Based Capital Analysis apital Total Authorized Capital (TAC) in Billions TAC per authorized control level risk risk-based capital 1999 2000 2001 2002 2003 $3.0 800% 654% $2.4 Percent Control Level 600% Capital in Billions 508% 457% 467% $1.8 $1.7 378% $1.3 400% $1.2 $1.1 $0.8 $0.7 200% $0.6 $0.0 0% Source: Mathematica Policy Research, Inc. Enhancing the Physician Enterprise in Maryland 16
  • Finally, consistent with the theme of steadily improving margins, the top insurers in Maryland have used their extreme market leverage with purchasers on one hand, and physicians on the other to generate dramatically better underwriting performance and lower costs (Exhibit IV-3). This lower chart shows the plans dramatically improving underwriting results, while lowering administrative load to 15 percent. Exhibit IV-3: Underwriting Performance in Maryland Average Underwriting Gain Administrative Cost Trend 25% 22% 21% 20% 19% 16% 15% Percent Gain 15% 12% 10% 7% 6% 6% 5% 4% 0% 1999 2000 2001 2002 2003 Source: Mathematica Policy Research, Inc. Enhancing the Physician Enterprise in Maryland 17
  • PHYSICIANS AS ECONOMIC DRIVERS IC Why is Healthcare such a key driver of our economy? The health care business is a key component of our domestic economy in the United States, and drives tremendous economic activity even beyond the health care industry. Further, based on key Further, attributes of the health care business, it does not seem that the economic drivers will change anytime soon. Among the attributes that render health care almost immune to traditional economic cycles include: • Healthcare is labor-intensive The healthcare industry is highly labor-intensive, especially sive. intensive, so because of the industry’s historic under spending on information and other technologies that have enhanced labor productivity in other industries. Labor requirements in healthcare span from entry n entry-level, low-paid positions that require little formal education to paid highly technical positions that require a high level of formal education and training, making the industry very attractive to workforce development advocates. • Employment is local. Healthcare is unique in that much of the labor used in healthcare . delivery has to be physically proximate to the patient and physician-entity. While there entity. are on-going attempts to move certain labor going labor-intensive functions off-shore (such as reading shore radiology films, as well as administrative functions such as data entry and medical claims diology processing), the bulk of healthcare employment needs to be locally based. Therefore, a higher percentage of each new dollar of revenue generated by physicians and hea healthcare provider organization is kept within the U.S. than is the case with other industries. • Health care is ubiquitous and not cyclical. Health care has a broader impact than other cyclical. industries because as a basic staple of life, its presence is inescapable; every community in inescapable; America, from the most affluent to the poorest, has some healthcare footprint, and planning for the provision of health services is always a top or near top priority for near-top community resource planners. Additionally, the frequency or intensity of health services intensity is only weakly correlated with economic cycles or other exogenous factors; when healthcare is needed, it is needed, and the more acute the service, the less price sensitive the consumer. • New clinical and information technology wi always be introduced. New medical will . devices, prescription drugs, and diagnostic technologies will continue be used and highly valued, and the threat of defensive medicine will ensure that physicians will continue to use the latest technology even in circumstances where there is questionable marginal circumstances benefit. Also, the deployment of clinical decision support systems promises to arm physicians with tools to ensure better patient compliance with appropriately indicated s treatments, which may swell utilization of certain services for underserved populations. utilization • Advancements in medical science will accelerate. Medical spending over the past century accelerate. has resulted in enormous financial and qualitative return on investment. Health care has enabled Americans to enjoy and sustain a very high quality of life with relatively open enjoy access to the best that healthcare can offer. However, the most significant return on healthcare investment has been the eradication or management of crippling and disabling Enhancing the Physician Enterprise in Maryland 18
  • illnesses (e.g., the discovery of insulin in 1922, or the discovery of the polio vaccine in he 1954). More recently, there have been significant advancements in the sequencing of human genes to identify predispositions to chronic diseases. These have all had a significant impact of the life expectancy of Americans; at the beginning of the 20th century pact life expectancy was 47 years, and by the year 2004, life expectancy had climbed to 78 years.11 However, regardless of the discovery, there is one common theme historically; advancements in technology and science have almost always driven new or enhanced demand for a series of clinical treatments, driving overall costs in the system. • Demographic pressures. Demographics in the United States will change dramatically . during the next 20 years as more people reach their 60s, 70s, and beyond. The U.S. Census Bureau projects that the “number of Americans age 65 or older will swell from 35 million today to more than 62 million by 2025 - nearly an 80 percent increase.”12 As people grow o older, demand for health services increases dramatically. Specifically, long long-term care is projected to grow very rapidly; a recent study by VHA suggests that between 2020 an and 2030, expenditures on long term care services will grow by more than 42 percent.13 long-term Relative to Maryland’s economy specifically, Maryland relies on health care. The chart below presents the change in Maryland Nonfarm Employment by industry from 7/07 thr through 7/08, and as one can see, educational and health services was the leading new jobs creator, adding a net change of 11,000 new jobs to Maryland’s economy. Exhibit V-1: Maryland Nonfarm Employment by Industry Sector Groups July 2007 v. July 2008 Groups, Absolute Change Educational & Health Services 11,000 Professional & Business Services 10,000 Government 5,400 Leisure & Hospitality 5,300 Other Services 2,000 Information 0 Trade, Transportation & Utilities -300 MD Total: +25.4K; +1.0% Financial Activities -1,500 US Total: -174K; 174K; Construction -2,100 -0.1% Manufacturing -4,400 -7,000 7,000 -4,000 -1,000 2,000 5,000 8,000 11,000 Employment Source: Bureau of Labor Statistics 11 Healthcare 2005, A Strategic Assessment of the Health Care Environment in the United States. 1st ed. 2005. 12 "Aging Americans: Stranded Without Options." Transact.org. Surface Transportation Policy Partnership. <http://www.transact.org/library/reports_html/seniors/Aging_exec_summ.pdf>. Accessed 24 May 2007. 13 Healthcare 2000, A Strategic Assessment of the Health Care Environment in the United States. 1st ed. 2000. States. Enhancing the Physician Enterprise in Maryland 19
  • Further, the next exhibit represents industry sector’s percentage of total Maryland employment during 2007. As expected, hospitals, a huge local employer in many communities, represents 3.9 percent of total Maryland employment – with less than 60 employers in this category. Additionally, offices of physicians represent some 1.7 percent of total employment in the State. f Exhibit V-2: Select Industries as Portion of Total Maryland Employment, Annual 2007, NSA Financial Activities 6.0% Manufacturing 5.1% State Government 3.9% Hospitals 3.9% Education Services 2.6% Information 2.0% Construction of Buildings 1.7% Office of Physicians 1.7% Insurance Carriers 1.4% Legal Services 0.8% Accounting 0.7% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% Percentage of Total Maryland Employment Source: Bureau of Labor Statistics So, while the health care business is a key component of our domestic economy in the United States, physicians are at the center of that economic activity. While physicians account for some 21 percent of all U.S. health expenditures, according to the Center for Medicare and Medicaid Services (CMS), they actually control a great deal more spending activity through their leadership in ordering diagnostic tests and ancillary services, referral activity, admission activity to both admission acute and post-acute facilities and utilization of drugs. acute Physicians as Economic Engines In an attempt to characterize the extent of economic activity generated by physicians in Maryland, we utilize IMPLAN modeling and available economic data. The IMPLAN approach classifies the available breadth of economic activity in three categories. The first category is that of direct economic activity, that is, the revenue, compensation and jobs created by physicians and physician practices in Maryland. The second component is that of indirect economic activity, that is the economic activity of individuals and firms that are directly servicing the physician practice marketplace. These firms include suppliers, providers of ancillary services, real estate firms, accounting, legal and other professional services firms, etc. Again, in this category, we attempt to capture aggregate firm revenue, compensation, and jobs. Finally, the third component, induced economic gate Enhancing the Physician Enterprise in Maryland 20
  • activity is a description of the firms and markets created around the activities of daily living of all e the individual consumers fueled by their employment either directly by physicians or by the employment, organizations that support physicians. These firms may include restaurants, retail establ establishments, car dealerships, etc. Using data from the U.S. Census Bureau, our modeling of private physician group activity in Maryland suggests that physician enterprises generate over $8 billion of economic activity, comprised of approximately $4.5 billion of direct effects, almost $1.2 billion of indirect effects and almost $2.5 billion of induced effects. This data is represented in the table, below. Exhibit V-3: Economic Impacts Direct (1,2) Indirect (2) Induced (2) Total Jobs (3) 41,694 9,287 20,556 71,537 Compensation (millions) $2,754 $455 $830 $4,040 Revenue (millions) $4,576 $1,170 $2,476 $8,222 Source: IMPLAN Further, if one views employment within and among health care entities, as represented below, physician offices represent some 37 percent of all health care establishments and account for approximately 15.5 percent of all jobs in health care. Exhibit: V-4: Percentage Distribution of Establishments and Employment in Health Care, 2004 Establishment Type Establishments Employment Hospitals, public and private 1.9% 41.3% Nursing and residential care facilities 11.6% 21.3% Offices of physicians 37.0% 15.5% Offices of dentists 21.0% 5.7% Home health care services 3.0% 5.8% Offices of other health practitioners 18.7% 4.0% Outpatient care centers 3.2% 3.4% Other ambulatory health care services 1.5% 1.5% Medical and diagnostic laboratories 2.1% 1.4% Source: Bureau of Labor Statistics Enhancing the Physician Enterprise in Maryland 21
  • RECOMMENDATIONS AND P ECOMMENDATIONS POTENTIAL SOLUTIONS What We Agree On Based on evidence from this analysis and other work completed and presented to the Task Force ased on Access and Reimbursement, there are several conclusions that one can draw that are broadly agreed upon. They are as follows: The private medical practice environment in Maryland is increasingly costly and risky, and he environment physicians are operating in a challenging reimbursement environment exacerbated b by excessive payer concentration. Physician real incomes have declined since 1995. hysician In Maryland, commercial fee fee-for-service reimbursement currently rests at 98 percent of service Medicare vs. payments at 116 percent of Medicare nationally. Physicians are working harder to sustain take home incomes, and the hassle factor in take-home practice has increased significantly. This comes at a time when no one denies that access to primary care, emergency medicine and obstetrics is mission-critical for all communities medicine, critical in Maryland and that access may be compromised in the future. The Maryland medical malpractice environment has been graded an F by the American College of Emergency Physicians, an issue that is closely watched by physicians contemplating moving to Maryland. Competition for physicians is national in scope, and Maryland is forced to be a net ompetition importer of physicians. Despite this challenging environment, physicians and physician entities are an economic force – te key drivers of Maryland’s almost $19 billion health care economy and Maryland’s prominent and emerging life science and biotechnology industries. Most agree that a vibrant physician marketplace in Maryland is crucial t the State’s long-term economic viability. to Desired Outcome Based on the critical importance of physicians to Maryland’s economy, decision makers should ased covet physician migration into Maryland and create public policy that attracts physicians to create Maryland, facilitates the formation of larger medical groups, and encourages physician physician-led entrepreneurship, innovation, and quality improvement. Relative to the key issue of reimbursement, it seems from all available evidence that physicians that are members of larger groups have greater success negotiating favorable rates with payers, one key component of the physician dynamic in Maryland. The Center for Studying Health Systems Change reports that Systems “physicians are not moving to large multispecialty practices, the organizational model that may be s Enhancing the Physician Enterprise in Maryland 22
  • best able to support care coordination, quality improvement and reporting activities and investments in health information technology.14 An innovative approach to accomplishing the outcomes identified above is to view and treat omplishing potential physician-entrepreneurs in much the same way that the State of Maryland views entrepreneurs entrepreneurs from other key industries, as attractive business drivers that deserve some level of ancillary support from the State. Physicians meet every definition of the classic entrepreneur – ry they create jobs, drive social utility, drive economic activity, create civic pride, build an ecosystem of interdependent supply chain partners, and drive innovation. dependent In the current health care system, innovation at the physician group practice level is particularly critical as it relates to improving quality and patient safety. This critical need is evident as it relates to preparing systems of care for the coming onslaught of older Americans with greater co- co morbidities and more chronic conditions. These chronic diseases are prevalent and costly, with some 133 million people suffering from at least one in 2005 – projected to grow to 177 million by 2030. Further, patients with chronic diseases account for a disproportionate share of health risk ther, and expenditures – 70 percent of all deaths and 75 percent of annual medical costs. An American Hospital Association study reports that asthma, diabetes and high-blood pressure result in 164 diabetes, od million days of absenteeism with a $30 billion price tag for employers. The current model of chronic care delivery is fragmented at best, including multiple physicians, multiple medications, a higher risk of service and diagnostic test duplication, avoidable hospitalizations, and adverse drug events. Existing systems are structured around acute, episodi episodic events – resulting in fragmented, inefficient, ineffective and costly care. The optimal care model would involve a multi-disciplinary team – primary care physician, appropriate medical specialists, disciplinary disease educator, and care coordinator. In light of the overwhelming requirement for the State of Maryland to become a more attractive destination for physicians, and the impending chronic illness crush, it seems that preparing impending physician groups to be fully prepared to manage complex, multiple chronic patients is a wise multiple-chronic investment of time and potentially money. One such potential model is the Group Health Maccoll Institute for Healthcare Innovation Model. The Maccoll model calls for a chronic care delivery or system with clearly defined staff roles; a culture and accountability system that promotes high- ith high quality outcomes; treatment based on best evidence and decision support technology to ensure technology integration of primary and specialty care; clinical information systems to provide timely access to n timel patient information; support for patient self ort self-management; and community relationships to mobilize resources in support of patients’ needs.15 14 Results from the Community Tracking Study, Number 18. August 2007 ng 15 Source: Center for Studying Health System Change, Research Brief No. 6, June 2008 Enhancing the Physician Enterprise in Maryland 23
  • The concept of the medical home has been advanced as one that i physician-driven, multi- e is driven, multi disciplinary, and structured to deal with chronic care patients. While still a developing model, it is widely recognized that the costs of developing a medical home model in the modern physician home enterprise are at least in the range of $25,000 to $100,000 per FTE physician in start-up costs. start These costs include additional staffing and infrastructure build out and the purchase and build-out deployment of an electronic medical record, and on-going operating costs of between $90,000 and going 16 $150,000 per year per FTE physician . Most practicing physicians find the formation capital required to build a truly integrated medical home practice model to be well beyond their means. Additionally, as the formation of integrated Additionally, multispecialty groups is foiled by limited access to capital, the growing physician population desirous of an employed practice situation has few private practice options, and is forced to pursue employment with hospitals and health systems that have deep pockets. Further, small, spitals independent physician practices that would like to work together are limited in their collaboration because of Federal anti-trust laws. trust Based on the requirements of practice formation, with an eye toward the advanced medical home model of physician practice, the desired outcomes of any public policy that enhances physician practice should: Afford practicing physicians economies of scale relative to operating expenses and capital costs, Afford physician groups of all size more negotiating leverage with payers, resulting in sizes ore better negotiated rates, and efficiency savings for the payer, Provide groups access to capital and business acumen, Provide groups the wherewithal to create appropriate quality management infrastructure, appropriate including deployment of mission critical health information technology and clinical mission-critical decision support technology In addition, larger physician enterprises will have the ability to participate in true population risk management, either as a direct contractor with purchasers or as a partner with health insurers. anagement, Finally, it is believed that incubator funds will incent entrepreneurial physicians in larger enterprises to develop innovative care delivery alternatives – including telemedicine, remote luding telemetry and monitoring models. 16 http://www.deloitte.com/dtt/cda/doc/content/us_chs_MedicalHome_w.pdf Enhancing the Physician Enterprise in Maryland 24
  • Recommendations to Form and Enhance Physician E dations Enterprises Early in the Task Force process, the Secretary of Maryland’s Department of Health and Mental Hygiene identified his desire to craft task Force recommendations that focused on three key areas, namely improving physician supply, improving physician infrastructure including increasing the deployment of advanced information technology, and finally enhancements to the physician finally, reimbursement environment. During the Task Force deliberations there was a lot of attention on deliberations, dealing with reimbursement shortfalls by physicians. The focus of these recommendations therefore, will be on the supply and in infrastructure components – as Maryland should strive to become the home of the “Great Physician Enterprise”. Relative to these recommendations, they will focus on creating market oriented solutions, with the market-oriented assumption that the enhancement of physician practices will ultimately force increased practices reimbursement as the larger, more sophisticated groups have better success negotiating with payers. Therefore, the recommendations include: Supply Recommendations Maryland needs to attract the best and the brightest physicians, and will do so by developing and implementing three critical recommendations. I. Dramatically expand the Loan Repayment Assistance Program. This recommendation Program. would likely see loan repayment or forgiveness tied to service provision in medically underserved forgiveness areas. While this program is in effect currently, it is little used and marginally funded at best. Regional health systems ought to be very willing to participate in the funding of this progra program, especially in Western Maryland, Southern Maryland and the Eastern Shore. Maryland, II. Develop a Working Capital Loan Program This program would be similar to working Program. capital facilities enhanced by loan guarantees to the lending institutions making the loans. This program should be modeled after the mezzanine level funding market and could include a small mezzanine-level business investment company (SBIC) component. Mezzanine investments focus on placements in firms that are net cash-flow positive, and have positive financial outlooks, with the State of flow financial Maryland providing a loan-guarantee. By their nature, physician practices are cash guarantee. cash-flow and net income positive, and physicians are among the lowest credit risks of any professional classification. Finally, further research should explore opportunities for equity participation by private investors, who may be interested in investing in diagnostic and procedural ancillary services, but face obstacles that include legal and regulatory challenges. III. Undertake substantive to reform: There is fairly substantial evidence of the linkage tort between meaningful tort reform and economic development in a number of key states, including Georgia, Texas, and some 25 year plus of positive experience in California. In fact, in California Enhancing the Physician Enterprise in Maryland 25
  • over the time that the MICRA reform has been in place, premiums in the greater United States have risen almost four times as much as those in California. Further, early evidence in Texas is that premium savings tied to reforms has led to increased invest investment in mission-critical areas such critical as improved patient safety, enhanced investment in clinical information technology, expanded coverage to the uninsured, etc. Infrastructure Recommendations To fully understand the infrastructure recommendations, one has to understand why larger has physician entities are better positioned to deliver higher quality services and compete more effectively in the marketplace. Larger, more integrated physician organizations are better able to competitively respond to payer cons consolidation, and to market to and negotiate with the variety of health care purchasers. They can more easily invest in information technology infrastructure which can help to enhance quality of care They are also better positioned to make strategic care. str acquisitions, employ newly trained physicians, and drive more integrated, coordinated care by itions, developing ancillary services and integrated medical facilities. Larger medical groups are also . better for payers. They prove to be l costly to contract with–both administratively and from an less evaluative perspective, and in some cases the payers delegate certain key quality and performance , cases, functions to the more sophisticated groups. To promote, facilitate, and enhance physician entrepreneurial enterprise, policy makers should ma develop and implement the following infrastructure recommendations. IV. Create a Physician-Enterprise Incubator The State of Maryland is home to more Enterprise Incubator. than 20 business incubators located throughout the state. These incubators are supported b the by Maryland Technology Development Corporation, and offer strategic advice, business formation and ongoing operational assistance, shared administrative and physical resources, and access to state-of-the-art equipment and facilities. Each has its own admissions policies, unique facilities, art admissions and program objectives, but all in Maryland share a common thread in that they are predominantly technology focused. The goal of the business incubators is to help birth and assist the growth of early stage companies Specifically, the goal of incubators is to help support companies. jobs creation among new business entities in the State. Physician entrepreneurs are in need of the same scope of incubator services, but at the present, these kinds of services are not available to physicians. From a policy perspective, no industry t sector seems a surer bet at creating jobs than a new hea care physician organization. Based on health B national analysis, for every full-time equivalent physician in private practice in the United time States, that physician creates more than 4 full time equivalent staff positions. Therefore, a t full-time physician practice-focused incubator would clearly generate the type of workforce growth that focused workforce policy makers may desire. Enhancing the Physician Enterprise in Maryland 26
  • The model for the incubator has to be developed, and could be developed de novo or built to and leverage existing State of Maryland investment in similar infrastru ture. For example, the model infrastructure. could include a public incubator targeted for physician groups and physician led enterprises. This physician-led enterprises incubator could be affiliated with the Maryland Department of Business and Economic Development. There could also be incentives to promote private incubation activities. At a activities minimum, the menu of support services would include professional management, marketing and enu ,m business development, operations management and information technology support. perations management, nformation support V. Develop a Physician Quality Innovation Fund A fund should be created to support Fund: clinical integration among independent physicians principally through the deployment of tion physicians, he information technology. The information technology would support the development of medical home infrastructure, and promote interoperability by and among physicians. This fund would also provide risk capital for independent physician network organizations that desire to participate in network true population-based health status improvement by aggregating physicians under one network based contract and integrating to manage the continuum of care. As it relates specifically to the implementation of hea information technology, there are health , significant barriers to fuller deployment. These include c cost, complexity of systems (lack of omplexity standards), privacy, confidentiality and security issues, legal issues, and finally, a lack of financial rivacy, incentives for the physician practice to make the investment required. This Quality Innovation Fund, therefore, could be a catalyst for electronic medical record adoption with an end end-goal of true clinical interoperability. Enhancing the Physician Enterprise in Maryland 27