Kurt Schoppe, MD: On Radiology’s Nearest Threat, Commoditization, and the Misguided Notion That You Will Be Paid for Everything You Do

The threat that is always there is the radiologists themselves. We have to participate in patient care, and if we don't stay part of the team, no one will notice when we are gone.

Kurt Schoppe, MD
Radiology Associates of North Texas
May 8, 2018

A self-described militant pragmatist, radiologist Kurt Schoppe, MD, the ACR’s RUC advisor, is not one to shy away from unpleasant economic truths about medicine. Schoppe, a body radiologist with Strategic Radiology member practice Radiology Associates of North Texas in Dallas/Fort Worth, shared some plain-speak on medical economics in a recent column called “Unpopular Opinions” in the Journal of the American College of Radiology.  

His myth-busting targets included fair and equitable reimbursement, the dubious marketability of quality, and the corporatization of radiology. His unique and pragmatic view is shaped in part by prior experience as an analyst in private equity prior to returning to school to study medicine. He agreed to expand on the views shared in the journal article for Hub readers. 

Q. You bring a unique perspective to radiology as a former analyst at a private equity firm. Was that prior to medical school and did that experience influence your view of the business of radiology?

Schoppe: I grew up in a medical household, my dad’s a doctor and my mom’s a nurse. I tried out business and some other things and worked as a private equity (PE) analyst for a bit, but I found it relatively uninteresting because it really was just data manipulation—you weren’t doing anything fun or fancy, you weren’t building anything, it was just working with numbers. However, it has helped me better understand the business of health care and radiology through exposure to financial analysis and metrics and becoming numerate in the tools of finance and financing.

When I went through medical school, it was frowned upon to discuss finances and reimbursement in health care and you certainly had that discomfort passed down to the medical students from attending physicians, upper levels, and even some of the administrators. Maybe they were uncomfortable with the subject, or it challenged certain parts of what they think of as the ethics of medicine.

I have an opposite view. I don’t think you can truly take care of the whole patient unless you are considering the finances. As physicians, we have abdicated our responsibility for dealing with finances both for administering our practices in the larger health care environment and for individual patients. Somebody is going to step in and take advantage of that gap, and they have. That really started in earnest in managed care in the ‘80s and ‘90s and has taken us to where we are today.

Q. With respect to the corporations and private equity firms that are acquiring radiology practices, is Wall Street a threat to radiology?

Schoppe: It’s a good question, but it is a complicated question. Asking if PE is a threat to radiology is, I think, a little too simplistic. The purchase of physician practices by publicly traded companies or PE groups is potentially fraught.

Physicians benefit financially by owning their practices and, yes, they may make more money than some people are comfortable with, but it comes back to the motivations.

Through training and as a profession, physicians’ motivations are a lot more altruistic than others, whereas the stated motivation of corporate or PE ownership is to make money. No matter what the marketing materials say, no matter what spin is offered in media or how they sell themselves for potential hospital or imaging center contracts, they have to make money for their investors. 

Corporate ownership is fairly straightforward—they are publicly owned and on the stock market. They have shareholders who expect returns, and they have to show both short-term and long-terms-gains, but most importantly short-term gains, otherwise shareholders complain and the leadership of the company gets pressured or replaced if it can’t meet those metrics. Therefore, they must make compromises to meet financial goals.

Private equity motivation is not as simple as just making money, and it really depends on the fund. Private equity firms are not single-minded entities, they raise money for different funds with different purposes, and that may affect their timeline and behavior. It may be a technology fund or a health care fund; it may be a fund for capital gains or for cash returns. 

When I was in private equity, we were what is called mezzanine-level financing, which is $5 to $25 million deals, much smaller than a lot of the PE firms that are buying physician practices. We were like some of the venture capital firms in the returns we expected because we knew many of our investments weren’t going to pan out. We weren’t looking for 20% returns, a frequently stated figure that some of the more mature private equity firms seek. We were looking for 100%, 200%, 300% returns, so it affected how we invested and the kind of businesses we looked at.

In physician practices, private equity firms are looking at businesses that are much more mature, with longer histories and more predictable cash flow. The funds that are investing in these practices are best thought of as absolute return funds.  They capitalize on cash flows, then potentially lever some access to capital or just market dominance in the ability to return a high rate to investors who want a greater return than what a stock or bond fund offers.

Q: So, corporate owners may have a longer timeline, but greater short-term pressure for returns. PE-funded entities require greater returns than corporate providers do.  Where do those returns come from?

Schoppe: The PE firms are going to be able to capture fees from the people who invested in their funds, as well as a portion of the excess returns delivered to their investors. With physician firms, this is not technology or products—the only revenue generated is reimbursements for professional services. It is very hard to ramp that up in a big way, so to generate cash flow they must pay the physicians less.

One of their favorite marketing lines is “physician owned or physician operated.” That’s really a misdirection because, frequently, they set up a holding company under which the physician group is a wholly owned subsidiary. Yes, the physician group is owned and operated by physicians, but it is not controlled by physicians because, as a wholly owned subsidiary, the parent corporation, or the holding company, is going to have absolute control. That holding company is not majority-owned by the physicians. The wording on the contracts is going to be such that the PE firm or the corporate entity is going to have control over the parent entity when it needs it.

The fundamental difference, then, between corporate and PE ownership is the ultimate disposition of the physician group. A corporate owner will control the physician group presumably for the long term while extracting cash flows via management fees or profit sharing. A private equity firm is going to position the holding company, which may own or manage physician groups, for an eventual sale and hopefully at an increased multiple of earnings.

This multiple is created by their top-line growth and earnings trajectory, as well as the non-quantifiable, but even more important brand recognition: Are they the next best thing in medicine or physician management? If so, they can create a higher multiple, because whoever the buyer is—which is frequently a corporate entity or even a large PE firm—will be more interested in a company that is ‘disrupting’ the industry…think technology stocks in the late ‘90’s.

Q. You suggest in your column that “eventually everyone will see that the emperor is wearing no clothes.” What is finally recognized?

Schoppe: What I’m getting at is no matter what the marketing says, no matter what they are telling people when they are selling services, these entities must make money for their owners/investor as their primary objective. Changing the economics of radiology group ownership is not fundamentally about the patients or saving money for the payers. They do these things to make money for their investors. This is not a negative judgement, it’s just a fact. If physicians want to sell their practice, if someone is only 4 or 5 years from retirement, and they only have a 4- or 5-year hold on their contract after they sell their group, well, that is just logical. From a purely personal economic point of view, it makes sense for them to sell, because they are not looking at a 15- to 20-year timeline.

The people who need to look out for this are the people in training, the people coming out of training, and the younger physicians in the group who have a 15-, 20-, 30-year timeline. If your goal when you came out of medical school was caring for patients, positively affecting the health care environment, or doing things for the greater good, I think you are better able to do that as a physician group in which you decide, as a group, how much money you need to make, what sacrifices you choose to make, and for whom you will charge less. If you cede control of your decision-making to a group that will only be motivated by its ability to make returns for its investors, you’ve put someone else in that conversation who does not necessarily share your values and ethics as a physician.

Q. What are the greatest threats to radiology right now?

Schoppe: We do have a bit of a Chicken Little problem in radiology. I remember coming out of training and hearing that teleradiology was going to be the end of radiology because people in other countries were going to read all of the imaging studies. We need to have some perspective on threats. Some people consider machine learning to be a threat. Many others see it as a potential augmentation of radiology. I think the prospects there are mixed. My opinion is that AI will probably roll into and be a part of what we do, but I don’t think it will replace the specialty entirely. Could it? Sure. Will it? Probably not.

The more proximate threat is corporatization of physician practices, not just because someone else is controlling radiologists, but because of the potential to become even more of a commodity as a specialty. When you acquiesce to the business model of having to churn out more and more for less and less, it is hard to justify doing the things that make radiology valuable when you must meet short-term finance goals.

For radiology to be part of the future of health care, we need to be part of the clinical decision-making team. That means doing a lot of things that are not reimbursed. You are never going to be paid for everything you do—conference time, seeing patients in clinic as an IR or diagnostic radiologist, spending time with referring physicians, outreach to clients. If your time horizon is quarterly or even just one year, it’s extremely hard to dedicate very expensive physician time to doing activities that are not reimbursed when that physician could be sitting there reading studies.

The threat that is always there is the radiologists themselves. We have to participate in patient care, and if we don't stay part of the team, no one will notice when we are gone. 

Q. One of the “unpopular” opinions expressed in your column is that even though the government has constructed an elaborate program to reward quality, no one in health care is likely to ever be paid for quality. Do you agree with MedPAC that MIPS should be dismantled?

Schoppe: I would agree with Medicare that we need to create systems that incentivize quality and get people focused on delivering value in health care services. Whether MACRA, MIPS, and the QPP can do that, I don’t know. Those are very hard programs to administer. You have to have deep understanding of the specialties and the environment for which you are trying to administer a quality program, and that is difficult to achieve, even with the feedback that Medicare receives from the specialties.

Take the cost metrics they use for radiology: Medicare spend per beneficiary and the attribution rules they use for it don’t make sense. When a trauma patient gets a full scan in the ER, is admitted, has no surgery, has no problems, has a few consults, and then gets discharged, the costs for the entire inpatient stay will be attributed to the radiology group because the patient got a pan scan in the ER and at the group level, we billed more Part B Medicare than any other physician provider.

Medicare wants to use these cost metrics to hold us accountable, but we had no input on any care that was provided. The ER decided to pan scan the low-risk trauma patient, the patient was admitted for various reasons, had only E & M services, and those consults were performed by other physicians at their discretion. The same thing happens with stroke patients.

 How can it influence behavior in participating in value if you are attributing a patient’s hospital visit to a group that had no direction on most of the care choices that occurred in that visit?  

Then, we get to the fundamental problem of defining quality. Since we don’t know what it is, we can’t measure it, so the best you can do is choose things you can measure. Those things may or may not closely approximate quality, so you choose to measure them. 

What MIPS is doing for radiology is measuring your administrative team on how well they can execute a program, not whether it demonstrates quality. Do I like CMS’s purpose and goal? Yes. Could we edit or arrange the quality program to get there? Probably, which is what it seems they want to do, but I think we are going to get there slowly.

Q: You contend that quality is a cost of doing business and that —as in other businesses—if you do not produce quality work, you will not be in business for long. Where do you think the greatest opportunities are in radiology to improve quality and value?

Schoppe: Utilization management does not necessarily result in cheaper health care, but it is part of quality. I do think radiology and radiologists need to take a greater role in helping with the utilization management of radiology services. We talk about clinical decision support being a part of that, but I really think it means inserting yourself back into the conversation with other physicians when they are selecting studies.

When those physicians I read a lot of studies for question whether to order something or not, they will call me and ask me about it because we have a relationship. If you can expand that relationship to broader numbers of physicians and radiologists, then we can participate in that decision making. That’s where you get into quality. 

Another area of quality is the use of subspecialization. This is really important for quality, but it also gets down to efficiency. As a body imager who specializes in complex oncology patients, I frequently interpret complicated abdominal or pelvic MR or CT studies in patients with biliary or gynecological malignancies; I can do that at a higher quality level, communicate with the surgeon on the parts of the study that they want to know about, and probably do that more efficiently or quicker than one of my colleagues who doesn’t read these exams as much. In that sense I have provided value. 

Those are avenues for value: Participating in utilization management, but doing so through conversations with the physicians, and providing the quality that is inherent in subspecialization, with the added value that it is usually a more efficient interpretation.

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