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Physician Practice Runs Lean to Weather Financial Storm

Analysis  |  By Christopher Cheney  
   May 15, 2017

One independent physician practice in Texas has deployed a retrenchment strategy to contain costs in the unsettled atmosphere of federal healthcare policy.

Physician practices are among the weakest links in the healthcare provider sector.

Practices rarely have the deep financial pockets of health systems and hospitals.

Unlike at health systems and hospitals, where resources can generally be marshalled, at physician practices, regulatory compliance, revenue cycle management, and other administrative functions are heavy burdens.

In terms of bargaining power relative to commercial payers, only the largest practices and physician organizations with market edges have an expectation of cutting sweet deals on reimbursement rates.

Now, after enduring several years of financial challenges during the rollout of the Patient Protection and Affordable Care Act, the challenges continue under a cloud of uncertainty as federal healthcare policy teeters on chaos.

  • The ACA could be repealed and replaced, or not.
  • Medicaid expansion under the ACA, which is providing coverage to millions of low-income adults in 31 states and the District of Columbia, could be scrapped entirely, retained in some states, or continue to spread nationwide.
  • Under the Trump administration's leadership, the implementation of value-based payment models at the Centers for Medicare & Medicaid Services could continue, or not.

Financial strains at practices are having record-breaking consequences. Physician groups were the hottest healthcare-industry sector for merger and acquisition deals in the first quarter of this year, according to

With 48 transactions in Q1 2017, physician group M&A deals increased 78% over the last quarter of 2016, and posted 109% year-over-year growth compared to Q1 2016.

James "Larry" Holly, MD, has been coping with financial pressures at his practice since the early years of PPACA implementation. Holly is CEO and founder of Southeast Texas Medical Associates (SETMA), a group practice based in Beaumont, TX.

SETMA has had an electronic health record system for nearly two decades, and Holly is confident of success in Medicare's new value-based payment system under the Medicare Access and CHIP Reauthorization Act (MACRA). His practice, however, is in a weakened financial state.

Related Link: Top 10 MACRA Considerations for Providers

"From 2011 to 2017, simultaneously with the deployment of the Affordable Care Act with its taxes on healthcare organizations, Health and Human Services began a seven-year, 4% annual reduction in reimbursement on Medicare Advantage plans," Holly says.

"With this 28% reduction in MA reimbursement, continued rising cost of delivering care and the ACA tax, which for SETMA's IPA is $1.7 million annually, we were tipped over into being unable to sustain some of the programs we had put into place."

SETMA is struggling to maintain access to services for its most vulnerable patients, Holly says.

"We were unable to continue our annual $500,000 contribution to the SETMA Foundation for the support of our poorest patients. Even some with insurance could not afford their co-pays and medications. We still have money in the Foundation, but it will be exhausted in another year."

Holly says the foundation "[turns] no one away and we never dismiss patients due to debt, but without relief and/or without additional decreases in reimbursement, we will not be able to sustain SETMA."


To remain solvent and gird for ongoing financial challenges, the practice is running lean. It has:

  • Reduced partner salaries by up to 56%
  • Been unable to regularly pay partner salaries [all other staff are regularly paid]
  • Reduced employee hours by 8%
  • Reduced services such as care coordination and hospital care teams by an unspecified amount 

"We have delayed planned innovations, closed our behavioral health clinic, and reduced patient-centered medical home accreditations from four agencies to two," Holly says.

SETMA's fate is tied to the uncertain outcome of the healthcare-reform debate in Washington, he explains.

"We believe that within the next year, we will see a turnaround in our economic situation, not because of increased payments, but because of the cumulative effect of our retrenchment."

"If we [could] have relief either from the ACA tax, or from HHS reductions in MA reimbursement, we would be fine. The effect of both makes the future questionable for us and others like us," Holly says.

Christopher Cheney is the senior clinical care​ editor at HealthLeaders.

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