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REVIEW SUMMARY
Industry. Health care
Trend. The government could take away doctors' entrepreneurial zeal.
Key. Narrow specialties will likely fare better than general medicine as government barrels into the health care business.
Stephen Laquis had a difficult business decision to make and the government didn't make it easier.
The eye surgeon's Bonita Springs practice is thriving with 200 patients a week, 40 surgeries a week and 17 employees on the payroll. He needs room to expand, but uncertainty about government health care has tempered his ambitions.
It's the kind of decision that entrepreneurial doctors in Florida might not have faced a few years ago. Should they invest their life savings in new buildings and technology if the government forces deep payment cuts in the recently passed federal health-care bill?
“It's very risky and it's a very difficult decision,” says Nicole Laquis, director for her husband's thriving practice. The couple recently acquired an 8,000-square-foot building where they plan to house a new surgery center. “It's going to be hard to carry that overhead,” Laquis says.
Stephen Laquis has an advantage in that he is a sought-after specialist who is among the few who performs oculoplastic surgery, which involves reconstruction of fractured areas around the eye. “Having a busy practice is somewhat comforting,” he says. Nicole Laquis adds: “I don't know that we can put the business on the back burner and wait for the impact of the legislation.”
Their builder, Fort Myers-based Stevens Construction, is designing the space for maximum efficiency, ensuring the Laquis can handle a growing flow of patients and stay ahead of cuts to health-care programs. Mark Stevens, president of the construction firm, says wasted time and effort can be slashed by the way exam rooms are located in close proximity to each other.
But it seems that doctors such as Laquis are more exception than the rule as politicians continue to sort out the tangled health-care legislation, which will include cost-cutting on reimbursements.
Specialists like Laquis may be somewhat more insulated from the threat of lower reimbursements while broader practices may have trouble making their numbers. “Outpatient centers used to pay very, very well, but the [insurance reimbursement] fees have been cut substantially,” says Michael Wasylik, an orthopedic surgeon in Tampa, who is the chairman of the Hillsborough County Medical Association's board of trustees.
The beneficiaries may turn out to be hospitals. Entrepreneurial doctors in recent years built outpatient centers and skimmed the best-paying patients from hospitals, leaving the hospitals with a greater share of indigent patients. Now, as physicians get squeezed by the government and managed care, hospitals are eyeing those centers for potential acquisition at discount prices.
“Legislation seems to be forcing doctors to work for hospitals so they can be controlled,” Wasylik says.
“All the entrepreneurial docs run the risk that an outpatient center might be profitable today but not three years down the road,” says Alan Bomstein, president and chief executive officer of Creative Contractors in Clearwater, which builds for hospitals. Bomstein serves on the boards of Morton Plant Mease and BayCare Health System.
For example, Bomstein says outpatient catheterization laboratories are no longer profitable and hospitals have been buying them from doctors. “We've seen that before with imaging,” he says. “I think a lot of docs are going to start running from a lot of their outpatient centers because they're seeing the writing on the wall.”
Government uncertainty
To pay for the expansion of government health care, insurance payments to doctors from such programs as Medicare, Tricare and Medicaid will almost certainly be cut. (Medicare is the federal health-insurance program for the elderly, Tricare is the health insurance for retired military and Medicaid is the state health insurance for the poor.)
For example, every year Congress puts off the planned 21% cuts in Medicare reimbursements that it's supposed to make. With this kind of uncertainty, it's hard for any business to invest in the future. “I think there will be some trepidation with physicians regarding any type of capital investment,” says Craig Sweet, a Fort Myers reproductive endocrinologist who is president of the Lee County Medical Society.
“We have to become more politically active,” Sweet says. He concedes that doctors generally aren't suited for politics. “If we were really into that we wouldn't have gotten into medicine,” he says.
Politics start at the local level, too.
For example, Lee County tripled taxes on new construction even as the recession took hold. The cost of so-called “impact fees” adds as much as 30% to the expense of new space, says Stevens, who calls such fees “criminally insane.”
In fact, many doctors are exploring expanding in neighboring Charlotte County instead, where such taxes are much lower.
And Sweet is not afraid to say this: Many doctors aren't good business people. They're overconfident because of they're so good at medicine that they believe they can be equally successful in business.
“In these troubled times, they will do best if they stay with what they know,” Sweet advises. His practice is expanding by offering services such as embryo donation and egg freezing, but he's not leasing more space or buying new buildings.
Doctors sometimes get in trouble rushing into the hottest trend. Sweet says doctors in recent years rushed to rent electrolysis machines that cost as much as $70,000 a year to lease. When the number of patients for elective hair removal fell in the recession, doctors lost money on the machines.
Space for lease
The incomprehensible health-care legislation and the resulting uncertainty means doctors aren't leasing significant amounts of medical-office space either, commercial real estate brokers say.
Except for a handful of unique specialties, most doctors aren't risking big expansions, says Jay Crandall of the Crandall Commercial Group in Bonita Springs. Crandall, who specializes in medical-office space, says most doctors are renewing leases for existing space and staying put.
The few specialists Crandall says are expanding include those in spinal surgery, dermatology, concierge medicine and diseases that require immediate treatment such as cancer. “Cancer, that's not something you put off,” says Crandall, a survivor himself. Doctors have become much more concerned about overhead since the recession started. “They're being very protective of cash flow,” says Robert King, president of R.J. King & Associates in Tampa, a commercial real estate brokerage firm that specializes in medical space.
It's not just cuts to Medicare that doctors are worried about.
“Doctors are very nervous about private-insurance payments,” King says. The health-care legislation may force private insurance companies to cut reimbursements to doctors to make up for the losses they'll incur on people with chronic health problems. What's more, it's likely that patients will have to pay much higher co-pays.
In turn, doctors who once may have paid more than $20 per square foot for medical space in the Tampa Bay region are now demanding rents in the teens. “Interest in the $20 to $25 net are a faint memory,” King says.
Stressed doctors are already seeing more patients than they ever have to make a profit. “A doctor has only so many hours in the day,” King says. “They'll use physician's assistants and other non-medical assistants to get that volume up.”
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