The Worst Business in America

Tweet

Weeks after the demonstration, at one of their regular Thursday-morning partner meetings, Faust and Levine report that their chances of finding an affordable new insurer for fiscal year 2004 aren't good. The malpractice segment of the industry appears to be abandoning New Jersey. One insurer, nearing bankruptcy, has stopped writing new policies. Another, Princeton Insurance, is rumored to be taking only those obstetricians who have never been sued--and only one Valley Center ob-gyn, Monica Meyer, at 38 the youngest one, can make such a claim.

A new company, calling itself NJ Pure, had seemed a hopeful prospect at first, because it is a so-called "bedpan mutual" insurance company, meaning it was formed by doctors for doctors. But NJ Pure told Valley Center's agent that it already has enough obstetricians. Like neurologists, obstetricians get sued a lot more than do other specialists, and at $2.05 million per case (according to a trade group), the median obstetrics malpractice award runs higher than that of any other specialty. NJ Pure is seeking more "low-risk" physicians, internists for instance, to balance its portfolio.

The final prospect is Conventus, another bedpan mutual start-up that has already made Valley Center an offer. The annual policy price of about $100,000 per ob-gyn would match Zurich's current rate, but the offer comes with a condition that Levine is reluctant to swallow: Conventus requires its policyholders to put up an additional one-year's worth of premiums--about $600,000 in Valley Center's case--to capitalize the start-up.

Though there's a potential upside to the investment, the Valley Center doctors have learned to expect the worst. "We'll never see that money again," Levine says with dismay. "It feels like extortion." They decide to have their insurance agent keep looking.

The six ob-gyns at Valley Center share two office sites, one near Ridgewood, N.J., not far from Manhattan in the moneyed Bergen County suburbs, and the other in Ramsey, just 17 miles away, at the fast-growing western edge of northern New Jersey's suburban sprawl. It is an ideal spot for a growing business, and they've done a lot of things right, hiring salaried internists, psychologists, even massage therapists to increase cash flow. The very name, Valley Center for Women's Health, is an attempt to rebrand the practice as something more than a traditional ob-gyn office.

At $4.7 million last year, revenue at Valley Center has never been higher, but that's mainly because each partner's workload has never been heavier. Meanwhile, their individual incomes drawn from the practice have been flat at about $200,000 each over the past three years--largely due to escalating malpractice insurance rates. Zurich, which had wooed them with low rates in 2001, nearly doubled the tab the following year, raising premiums for the practice from $370,000 to $710,000. The $340,000 difference came right off the bottom line. Having held longer office hours and seen more patients per hour, the partners might have been able to give themselves a raise, but the rate hike consumed all of the prospective profits--almost $60,000 per partner.

Meanwhile, the doctors' earnings per hour worked actually dropped last year, which sent the partners on an internal hunt for pennies to pinch. They closed the smallest of their three offices, laying off two employees who had been with Levine for 15 years. They stopped taking credit card payments at the front desk to save on service charges and fees. At the urging of one partner, Dr. Roger Coven, they canceled their spring-water deliveries. "Some of the medical assistants still haven't forgiven Roger for that," says Levine.

At one point last year, Levine briefly considered the drastic move of leaving obstetrics, hoping to save the practice $40,000 or more in insurance costs by taking only gynecology appointments. "I didn't think that at this point in my life that that's what I'd want to do," he says. "I still get a rush when I deliver a baby. But it's starting to creep into my mind: Is it worth working from January to July just to pay my malpractice insurance?" Ultimately, he concluded that dropping deliveries and prenatal exams would shift too much of his workload onto the other partners.

Similar scenes are playing out in doctor's offices across the country, with soaring rates and stiffened underwriting standards throwing balance sheets so far out of whack that many medical partnerships have split up, relocated, shut down, or sold out to nearby hospitals. A Johns Hopkins study shows that over the past decade, the percentage of doctors who are self-employed has dropped from 85% to barely 55%--and that was before the current crisis. Once emblematic of self-reliant, small-town America, the M.D. shingle is in danger of going the way of the buggy whip. For some specialties, obstetrics in particular, medicine may be among the worst small-business sectors in America.

 PREV  1 | 2 | 3 | 4 | 5 | 6  NEXT 

Read more:

Sign-up for our Innovation Newsletter

Email Address: