Cardiologists and Hospitals: A New Marriage?

Picture yourself at your hospital’s employee benefits fair. In front of you is the funny guy from the cafeteria. Ahead of him is the CEO’s secretary. Behind you are the hospital’s cardiologists. The hospital’s cardiologists? Ten years ago, five years ago, or even one year ago, hospital-employed cardiologists were not the norm. Now, cardiology groups seem to be signing up with hospitals as fast as they can crank out news releases announcing it. What’s changed? Let’s look at the recent past. Cardiologists used to align with hospitals providing them the best facilities, lab equipment and most importantly, paying customers. When Medicare and insurance companies began crunching the amount of professional fees cardiologists could receive for an office visit, they naturally looked for other ways to increase revenue. They soon realized they didn’t need the hospitals to provide the high-end equipment like ultra-fast CT scanners, nuclear scanners or even catheterization labs. With technology companies eager to sell or lease equipment to new customers at generous terms, cardiologists were soon buying and building their own high-end testing facilities. They were able to keep the fees that used to go to the hospitals because of a clause called the “safe harbor exemption” in the federal legislation designed to prevent self-referrals, the Stark Laws. This model for maximizing cardiology revenues took off like hula-hoops, pet rocks and beanie babies put together. Cardiologists rushed to get their own space and equipment in order to capture this revenue stream. One noted healthcare attorney reported that helping cardiologists arrange these high-end purchasing agreements made up his entire practice. Then a movement called ‘health reform’ began in earnest and suddenly, the safe harbor was filling up with mines ready to blow up any cardiologists who tried to enter. The exemptions to self-referral became a target for reformers, from physician-owned hospitals to technology and labs in individual offices. The same crunch which hit office visit fees was coming to cardiologist-owned testing. Physician-Owned Catheterization Labs Reimbursement for physician-owned cath labs has already dropped dramatically, sometimes up to 25 percent. These cuts alone are forcing cardiologists to limit services or consider selling their labs to hospitals. With next year’s budget, cuts could be up to 50 percent, making it impossible for new groups to get into the business of cath lab ownership. Office-Based Testing If you were at a cardiology conference and didn’t hear physicians expressing fears about big cuts coming to office-based testing, then you might need to have your hearing checked. Although the Medicare cuts for testing and fees were just a proposal, the general belief that some form of health reform legislation was inevitable had led to a surge of new alignments between hospitals and cardiologists. The physicians were willing to give up their independence in exchange for a steady paycheck. The hospitals, in turn, welcomed back the revenue stream for cardiac testing, and were able to project a flat cost for heart physicians, while having more control of this core program of any hospital. The resulting frenzy to align has resulted in as many quickie marriages as a Las Vegas wedding chapel. Except in this case, a few hospitals and practices may find themselves waiting alone at the altar. If this seems a little far-fetched to you, allow me to quote from two news articles from the Business Journal of Kansas City online service just 26 hours apart: Wednesday, October 28, 2009, 11:43 am CDT HCA Midwest acquires Midwest Cardiology Associates HCA Midwest Health System will buy Midwest Cardiology associates for an undisclosed amount. …HCA Midwest said the Midwest Cardiologists’ 13 heart specialists will continue to provide care at three HCA Midwest Hospitals. …Midwest Cardiology recently began providing cardiology services at Providence Medical Center in Kansas City, Kansas, which is part of the Sisters of Charity Leavenworth Health System. …“Our new relationship with HCA Midwest Health System represents the next, natural progression…These are challenging times in health care, and even greater cooperation between hospitals and physicians is needed if we are to continue to meet the needs of our patients.” (Dr. Daniel Scharf, Midwest Cardiology) Thursday, October 29, 2009 1:36 pm CDT Carondolet Health hires Kansas City Cardiology Associates Carondolet Health has hired the 14 cardiologists who constitute Kansas City Cardiology and their office staff. …Starting Jan. 1, they will work for Carondolet. …Kansas City Cardiology Associates has provided services to Carondolet’s St. Mary’s Medical Center since July 2007…Kansas City Heart Group, a seven-doctor practice, has provided services to St. Joseph Medical Center Carondolet Heart Institute for more than 20 years and will continue to do so. …Kansas City Cardiology Associates will move its Kansas City practice location to the St. Joseph Medical Center…The existing practice locations in Lee’s Summit and at St. Mary’s Medical Center will remain. Is it a coincidence that within the same time frame of these announcements CMS published its final rules for the 2010 Medicare Physician Fee Schedule? That schedule showed almost all of the services provided by cardiologists will see fees cut from 10 to 40 percent. Nuclear testing will be cut by 36 percent. Echocardiograms will be cut 10 percent. Coronary stenting will be cut four percent. Even though the cuts are supposed to be phased in over the next few years, the pressure to see cost savings as part of health reform is immense and a gradual approach is likely to go by the wayside. Even the American College of Cardiology (ACC) complained that cuts of this magnitude could not be absorbed by most groups. That warning from the ACC was not lost on local cardiology practices. Those practices that found a suitor and hurried to the altar seem to have beaten the rush. Other practices are going to struggle and almost certainly will have to change the way they do business. Hospitals that have their cardiologists inside their organizations also seem to have an advantage. They now have cardiologists as employees and don’t have to worry about demands in practice admissions. One hopes this flurry of marriages was preceded by serious discussion about common values, culture and vision for the future. Just like any marriage, there will be issues that arise as both sides get used to the new working relationship. Just as in real families, there will be fights about money. Don’t forget CMS payment cuts we know about are coming and cuts we don’t know about as part of health reform are coming as well. The financial pro formas upon which the marriage was based may not be the reality in just a few short years. And there is one little difference between these marriages and real marriages. One partner, the hospital, has multiple spouses, be they nurses, heart surgeons, bond holders and in some cases, stockholders. The marriage counseling session over that should be interesting. That cardiologist with you in the benefits line may be smiling now, but check the expression on his face in three or four years. That will be the test of the marriage. n John Florio can be contacted at jflorio@kumc.edu

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