Episode 014: Get Down to Business

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Brian: Hello and welcome to our podcast on integrated versus independent practice for physicians. Today our guest is Dr. John Lytle, I'm Brian Fortenberry. Welcome Dr. Lytle.

Dr. Lytle: Thank you.

Brian: You are a board certified orthopedic physician, correct?

Dr. Lytle: Yes.

Brian: Now how many years have you been practicing all together?

Dr. Lytle: I went into practice at the completion of my fellowship in 1988. I think it's about 29 to 30 years at this point.

Brian: Okay, and of those years my understanding is you've done some practice in an independent private practice setting, but you have also been an employed physician as well. Could you tell us a little bit about the timeframe that you've done those two things?

Dr. Lytle: Sure, I began in private practice, in fact set up my own practice and began what was known as the South Arkansas orthopedic center and, in 2009, we converted to a hospital employment model. We're a single hospital town, small practice and it was gonna fit us better and fit the needs of the hospital better at that time.

Brian: When did you decide that you were going to become a physician? Take me through that part of, was it a decision that you made in college or prior to that and how did you know?

Dr. Lytle: That's a real easy thing for me, my father's a physician.

Brian: Okay.

Dr. Lytle: And there's nothing I've ever wanted to be but a physician. I knew very early, humorous story, that when they started the second grade the local newspaper came to my school to interview students. I happened to be the one, the picture of me on the front page of the paper says "Future Physician Lytle says it's all a review anyway," going into the second grade. So, I've always wanted to be a doctor.

Brian: Was your dream early on of being a physician, did you see yourself in private practice or did you see yourself working for a hospital itself?

Dr. Lytle: In private practice. The model of hospital employment when employed physicians at that point was extremely rare, virtually didn't exist, back in the 60's and 70's and as we went through. I did what I knew. I'd watch my father. I knew how he worked. I knew how I wanted to work and I'd basically spent my life preparing to go into practice and figuring out what had to be done. There's lots of things I didn't know that I learned, but it was a process that I knew that I was gonna do from day one.

Brian: So since you were planning on starting out then in the independent practice you come out of school, you get ready to go, I'm assuming your father, having your father and being able to watch him, did prepare you to some extent for what you were getting into, but I feel probably there was no way to be completely ready for what it meant to be an independent practicing physician. What does that mean and what all does it require to start out like that?

Dr. Lytle: Right, that's a great question because as a physician you're basically a small businessman. You have to understand that. There are medical license, a community of franchise license and a franchise tax you have to pay as a physician. You have to employ and find out what license personnel have to be in your office and what they can and cannot do. For example, as an orthopedic surgeon, I needed an x-ray tech...

Brian: Right.

Dr. Lytle: ...well I watched my father practice and never realizing years ago the people made x-rays did not have a license. Some did, some didn't. Well in an orthopedic surgery office, you can't have an x-ray technician that's not licensed. You have to have a licensed nurse because they cannot do all the things nursing does for a physician in private practice without having a licensed nurse. Just all the aspects of a small business. Having a telephone system, for example, most people, most college students, medical students, residents would not think about the complexity of that. Making sure that the payroll is done correctly...

Brian: Right.

Dr. Lytle: ...and you're paying payroll taxes and you're paying, like I said, the franchise tax, the incorporation tax of your business. There's lots of issues about being a small business owner that most medical students are not aware of.

Brian: Very rarely do you hear a physician in training say, "I can't wait to go out and practice the business of medicine." I mean, most people seem to want to just help people, take care of patients, but you really have to be prepared to be a businessman or woman first to just even get off the ground is what it sounds like.

Dr. Lytle: That's exactly correct and it is a small business. At one point in time, when I had three partners, I had 29 employees, I forgot I had over a three million dollar payroll and it was truly a small business and enterprise that's important to the local chamber of commerce. You're actually contributing to the wellbeing of the community, and that's an exception, rather than a rule, but still lots and lots of small towns, I guess I'm thinking more of a small town situation than going into a big city such as Nashville or Little Rock. I was trained in Little Rock, but most of the small towns the doctor is sort of the mainstay of main street if you will.

Brian: Certainly. Now at some point, you transitioned from that private practice to a more employed physician role. Kind of walk us through that, not only when you did it but what that looked like for you. And I imagine for every physician it's gonna be a little bit different so your story is probably gonna be a little bit different from another person. That being said though, there's going to be a common thread that goes through that. What does it mean to become an employed physician and what does that look like?

Dr. Lytle: Well, in my particular case as a businessman that was responsible for the financial wellbeing of this enterprise, like I say, at that point I had 19 employees, I'm responsible for their paychecks and everything. So, I had to make sure that the amount of revenue generated by this practice was gonna pay the bills. As I began practice, that number was like 79 and 21. As this evolved with the changing policies of the federal government, changing pay scales it hadn't crossed 50/50 yet, but it was getting close. It was in the 60% and 40% range.

Brian: Wow.

Dr. Lytle: And I could see the changing evolution of how I was being paid and what I got paid then had to pay the expenses and practice costs and I could see that this was not gonna sustain itself. In other words, I was gonna go into the red very quickly.

Brian: Sure.

Dr. Lytle: As a single private practicing physician, you can't sustain that. You're losing money.

Brian: Right.

Dr. Lytle: Well that was not because we were not working. In fact, we measured the work we did with relative value work units, RVW's.

Brian: Okay.

Dr. Lytle: We were actually performing more work at that point in time than we had 10 years previously. But the reimbursement, the amount of money that the federal government and therefore private insurance payers, was completely different. They just were not paying that, and so the practice was almost at a 50/50 break even position. The reason for that was the demographics of my population base, extremely poor county and I had 23% of my practice was either no pay or Medicaid.

Brian: Okay.

Dr. Lytle: In Tennessee, that would count as 10 care.

Brian: Sure. So, how did those numbers get there and how did that affect your decision to go into that employed physician situation?

Dr. Lytle: In my specific case, we had always had our clinic model varied between two physicians to up to, for a very brief period of time, five physicians, but most of the time three physicians. When we made this transition, there were three physicians. We had always been rather transparent of what everyone was paid because you only got paid for what the work you did. If I saw a patient then I got the revenue and payment from that patient, but we had a blended model of paying expenses. We had some fixed expenses that we literally divided by three or how many ever physicians were there. Then we had some variable expenses like employee costs and the telephone system was another one. If they calculated at the end of the month that I did 42% of the work, not revenue, but the work actually done, then I paid 42% of the variable cost of the clinic if you will.

Brian: Okay.

Dr. Lytle: And that's the way we figured it out and we did that, the three of us together with our business manager that helped us manage this. So, what it was for every dollar of revenue that came in, 79% was profit, 21% were the expenses to run the business, and that changed every month, but it was a pretty good number back in 1988 and it lasted that way all the way through 98 into 2000 and then you can start seeing it change dramatically. Primarily not because we were doing less work because we were actually doing more work... we could measure that by the RVW's. But the reimbursement per RVW was significantly less. Again, that's policy directed by the federal government or the various insurance companies, if you will. Your patient mix if you were doing pure private insurance versus Medicaid or Medicare or as I mentioned earlier no pay or however you wanted to turn that...

Brian: Almost like indigent care.

Dr. Lytle: Indigent care.

Brian: Gotcha.

Dr. Lytle: Except there's no tax advantage or nothing doing that. It's just your time and that's part of being a physician...

Brian: Sure.

Dr. Lytle: ...I'm not bemoaning that as being a bad thing, but it's what drove you to have to have money to go home to pay your bills at home. So, the hospital recognized this and when those trend lines started to come together, in other words from 79% profit down to a 54% profit over that 20 years, we could see that that was starting to change. So, several things happened all at once... one of my partners reached an age when he was gonna go off the call schedule, our lease of our office space, we did not own the office space, we leased it, we were due for a renewal of that lease, all that came to do at the same time and that wasn't by accident. We kinda strategically planned all those things so that we knew changes were coming and changes could and should be made, we just didn't know it was gonna be coming employed. So, when it came to that point they saw nationally what was happening that it was not unusual to employ physician. It was a little unusual to employ specialists. General practitioners, family practitioners, primary care physician was very common.

Brian: Mm-hmm.

Dr. Lytle: And there'd already been on generation of practice buyouts if you will and they knew the pitfalls of those. They paid a lot of money for the practice only to see then the practice not generate that type of revenue after the fact, and we all wanted to avoid that. We didn't want any sense of impropriety of being paid for not working or being paid inappropriately when the hospital was struggling just like we were and our community, it's a very poor community if you will. So, we developed a pay scale that was a fee for service pay scale. You only got paid if worked and, like I said, if you created the amount of work to meet the thresholds that MGMA had set out there as the standards, then you could sort of set your own time and scale and place of how you worked and how much time and vacation you took, if you will. In orthopedics and like every specialty almost the call schedule is real important. We were able to direct our own call schedule, if you will. But that's how we got to that point of what specifically drove us over the edge is the revenue and expenses almost were to the crossover point where the expenses were gonna be more than the revenue.

Brian: So it really was much of a business decision for you as much as anything then?

Dr. Lytle: It was 100% a business decision. You think about a friend who's a car dealer. If 23% of the people that came in to buy cars didn't pay their bill, he wouldn't stay in business. Well that was the same with the physician. So, I had a very high percentage, actually it was 12%, that never paid me at all.

Brian: Wow.

Dr. Lytle: And so I had the rest, up to 23% of my whole practice was that way. And that's a factor of where I lived and where I practiced. I chose to be there.

Brian: Sure.

Dr. Lytle: And that's okay, but the hospital was a great corporate partner. They said "no way, let's look at this. We want you to continue to be here. You chose us to come here. You provided service". Well, from 1988 until 2008, so 20 years...

Brian: 20 years worth of investment...

Dr. Lytle: And we started negotiating that then I would become a hospital employee. Now, as we went into this there were lots of pitfalls. I had people that had worked for me for that 20 years...

Brian: Right.

Dr. Lytle: ...the entire time. They were really important to me. They had their profit sharing plan which was equivalent of the 401k that before those things existed we established this. That's where their retirement money was and that was really important to them. And so, I negotiated with the hospital for them to become hospital employees at the same time, but what I really was proud of was is that I negotiated their time of service so that my 20 year employees were also hospital 20 year employees.

Brian: Oh wow.

Dr. Lytle: Every one of my 19 employees at that point were fully vested in their retirement plans, so immediately on day one of employment with the hospital, they were fully vested in the hospital's plan and they went through all the logger work and legalities to get it worked out, which that was really important to me. Those people had been loyal to me. They were as big and as important part of this practice as I was because I couldn't do my job without them. We all recognized that and so they kept working, kept going. Those employees became hospital employees. Being in an underserved area from physicians in general, in orthopedic surgery for sure, the hospital let me basically write my contract. That's not the standard. In fact, in today's world the employers are multi-site and multi-area, in other words, I'm in my little isolated area to do this again it would probably still be with the hospital but the terms and things have changed. But what it allowed me to do was take my two partners at the time and integrate them into this practice. And we worked not for a salary, we worked just basically as we always had. A fee for service type of arrangement where I worked. We turned in our RVW's, the work component of this, and we had a conversion factor that would pay us on a sliding scale of what that was. If we reached a certain threshold then that put us in one level, the second threshold and then the top threshold. And that was on a 12 month basis and it would create our pay rate, if you will. So, it was a sliding scale, but it also gave us several things that if we reached this minimum amount of work then that gave us autonomy in our scheduling, our vacation time, anything else that we did.

Brian: Sure.

Dr. Lytle: So we were hitting national standards published by the MGMA and that's kinda where this came from is the MGA database and what they did. I would make sure that anybody considering this is familiar with that type of data and that type of work.

Brian: It sounds like you were in a situation to where you were almost able to blend both the benefits of being a private practice entity but then being physician employed by the hospital to where you could kinda have the best of both worlds there. Is that fair to say?

Dr. Lytle: That's exactly right, Brian, because we got to keep our same employees. Those ladies continued to work with us, the same nurses, the same people in the operating room. Nothing really changed except no longer did I actually own my accounts receivable, nor was I responsible for the billing and collecting side of the office, nor was I responsible for paying the bills. I didn't have to pay the electric company. I didn't have to pay the phone company or the water company. They bought the hard assets of the practice. There's no intrinsic value of what used to be the blue sky of a medical practice.

Brian: Mm-hmm.

Dr. Lytle: And I think in today's world the value of a medical practice has changed so dramatically that there is no value except for the hard assets.

Brian: Sure.

Dr. Lytle: And we learned that. That was hard.

Brian: I can imagine that is a hard lesson to learn. Do you think that it is possible in the climate we live in for certain business models of physician practices to still be okay and survive as a private entity practice?

Dr. Lytle: I do. The first one that comes to mind is a brand new physician right out of training came to my hometown and set up her dermatology practice and she's doing very well. She talked to all of us, lots of the old experienced people that have been there. Not certainly that I'm in that category but...

Brian: You're young, very young.

Dr. Lytle: She did come and ask some advice and look and this and she set up a practice. She started hiring all her employees knowing that she had to meet that payroll. She paid all the office expenses and understood the requirements of having to pay rent every month and having to pay all these other expenses. Like I said, the franchise tax for the practice and knowing all the licensing issues. You have to have Medicare numbers, Medicaid numbers. You have to do all this credentialing. It's hours and hours of paperwork just to do the credentialing to get to be on the networks to get paid. And so, she went through all those steps and is doing quite well and I'm very proud of her. On the other hand, that model may not work for a family practitioner today. You might not ramp up and be able to sustain it long enough to pay your bills and pay the rent.

Brian: Sure.

Dr. Lytle: And that's what's driving most new practices into an employment model right out of training now. I don't know the current data but it's above 50%.

Brian: So if I am a brand new physician, I'm just completing my residency and I'm getting ready to go out and have my first job. And I am trying to decide do I want to have an independent practice because of some of the things that we've talked about today are appealing, but then I also hear that there is certainly a draw to the employed physician part for some of the reasons that we have stated as well. What advice would you give a brand new physician coming right out of school as far as how do they need to assess this? What are some, just bullet point key things that they need to look at and know in order to make a very informed decision?

Dr. Lytle: Well the millennial physician that are coming out today look at things a lot differently than we did in 1992. Most have gone into medicine for the exact same reasons I did. It was something that proposed a significant challenge. It was something that they knew was exciting, it was dynamic and it had great personal rewards of being able to do things for somebody. The financial rewards of physicians these days are not quite the same. It will still and always be a highly respected, highly sought after, job. It is still a profession that is one of the greatest in the world. Being independent and controlling 100% of your life and your destiny is a little bit different now and I think most people, again, I don't know the data but I think it's way above 50, probably approaching 75%, going to an employed model. So, with that in mind you look at what's important to me. They already know… lifestyle, family, time off, these things are the first questions asked, not how much will I be paid? We know that. We watched this evolve so I think you have to go into it and ask those questions. Where will I work? Who will I work with? How will I be paid and why? If this is a model where you go into a busy clinic that has a set number of patients that you have to see per hour or per day, well understand that ahead of time. Today's physician is coming out of training computer literate. They've never seen anything but an electronic medical records system and so they're gonna figure out ways to make that work better than my generation did. It's gonna be there, let's face it that's not gonna change. That's not going away. They're going to make it better because they have been raised with computers their entire lives, where my first computer was in 1988. And so, it's gonna be almost just like what they expect of their bank. There's gonna be mobile. It's gonna be immediate and so they're gonna look at their lifestyle, their time-off, who they're working with is gonna be a real big important factor. And I think that one of the things that we've seen in certain specialties, hospitalists for example, they're gonna be more mobile than we were in the past.

Brian: Based on what you're talking about it sounds like they're going to need to be very involved upfront in the negotiation of a contract or something of that nature certainly, if they're going to be an employed physician, they're gonna have to be actively involved in that.

Dr. Lytle: There's no question about it. They have to at least understand terms of the contact. Now, if they join a large practice they probably won't have much negotiation going in.

Brian: That's one of the things you give up, I guess?

Dr. Lytle: It's already established. The last 10 physicians that joined that practice have a contract and so you're not gonna go in and substantially change that contract by your negotiation, but you have to understand what that contract says and whether you're willing to accept working with and for hospital A versus hospital B, if you will.

Brian: Gotcha.

Dr. Lytle: Or you know, exactly what your options are inside that. One of the important things I know I've been talking about with medical students is having women write into their contract some time off for family and having children. That needs to be specified upfront so all the sudden they don't come back say "hey you're not doing the terms of your contract. We can't keep this up." Well everybody's anticipating that now. We're working that into the system and so those kind of questions are being answered but to say that you're gonna alter the contract individually probably is not accurate except in real small and isolated cases. Then you need to understand what that means and the terms of that contract. There's practice managers all around that are specializing in that. You're gonna need to have some help professionally to going into this to have it looked at and reviewed.

Brian: If you take a look back and things certainly over the years seem to at least be changing from all that you read and that you hear, healthcare is a moving target these days of what it looks like going forward as far as policy and healthcare political policy. Taking that into consideration do you have a recommendation on people that are either in school now or new physicians that are looking to maybe make a change in the type of model they're in now? How would you say is the best way to go about that? And what are some pros and cons of doing that?

Dr. Lytle: The first thing is be active in the management of your own practice. Be responsible for your own business, if you will. This is a business. You have to get paid to go take a paycheck home and pay your bills. Something that my father encouraged me to do early on is be active in the state and national practice groups. The AMA, the Arkansas Medical Society, the Tennessee Medical Society, those are things that affect policy. I also joined my orthopedic academy, the American Academy of Orthopedic Surgery. With that, I worked my way through the system and I ended up being the counselor, which was sort of like the board of directors, if you will, from Arkansas. And from that I continued to volunteer, I ended up being chairman of the Communications Committee for about three years of our academy. I spent nine years as a counselor. Well, what that did to me was keep me abreast of the changes. That was early in my career. Never did I dream that the changes of medicine would happen so fast. I knew they were coming. I didn't think it would happen in my career. Well it caught up in 20 years of practice, but 15 years before I expected it to, maybe 10 years. The changes at this point are gonna be dramatic and it's gonna probably be fast. It's all dictated at the national level. The affordable care act was an important piece of legislation that affected everybody.

Brian: Sure.

Dr. Lytle: The physicians obviously from the business side, patients on another side in another way. I don't think that that's gonna be significantly changed. It will be tweaked there are things that need to be changed with that, but I think the next phase of this, and it will eventually come, is that we're gonna end up with a single payer system.

Brian: Mm-hmm.

Dr. Lytle: I'm not necessarily in favor of that, but I'm not necessarily at this point opposed. I've learned to look at both sides of this before you speak up and render a hard opinion one way or another and take a side if you will, because it's gonna affect us all. Health policy on a national level triggers down from CMS, Center for Medicare/Medicaid Services, to the private insurance companies, the Blues and Aetnas of the world.

Brian: Right.

Dr. Lytle: But that's where the health policy is and health policy will dictate how the practice of medicine happens in the future.

Brian: Do you believe that, that model or that policy that's coming down with maybe the inevitability of a single payer, does that benefit or hurt one of these two models we're talking about today? An independent practice versus being an employed physician?

Dr. Lytle: Well I don't think you can really say. If we truly end up with a single payer system, which is very debatable, there's lots of issues. And we're a long way to go before we get to that, I admit. Then this argument may be completely mute because we'll all be working for the federal government...

Brian: Mm-hmm.

Dr. Lytle: ...in one sense or another. And that probably is one of the negatives to that. It'll be a big VA system or a big Medicare system if you will, we'll all have it. There's models of that in Europe. France, for example, has a single payer system and different entities would buy super insurance on top of that, if you will. There's gonna be a blended model of that somehow that ends up and when that happens I don't think we can truly say at this point, but will continue to evolve and that's gonna continue to impact the way physicians practice medicine. Let me say that better. It's not how they practice medicine, it's how they operate their business of medicine.

Brian: Yes.

Dr. Lytle: The practice of medicine is not changing. It's gonna be excellent. America has the best trained physicians of anybody, but the business of medicine continues to evolve.

Brian: Dr. Lytle, I certainly appreciate your insight from a physician who's actually been there and done this that hopefully we'll provide some really good information for those people trying to make those decisions. Thank you.

Dr. Lytle: You're welcome. Thanks for having me.

Speaker 1: Thank you for listening to this episode of Your Practice Made Perfect with your host Brian Fortenberry. Listen to more episodes, subscribe to the podcast and find show notes at SVMIC.com/podcast. The contents of this podcast are intended for informational purposes only. Do not constitute legal advice. Policyholders are urged to consult with their personal attorney for legal advice. Specific legal requirements may vary from state to state and change over time.