The B & O Tax Increase Harms The Independent Physician

In 2014, 67% of physicians in Kitsap County were independent. Today, fewer than 20% of physician practices are owned and operated independently. That may not matter to you, but it should if you believe that competition leads to better care and lower prices. 

If you have never read my column before, please read this one. Because a proposal included in the governor's state budget could drastically change things for independent physicians, like my practice, and lead to the complete monopolization of healthcare in markets across the state. 

In his 2019 budget proposal Gov. Jay Inslee increases the business and occupation (B&O) tax by 20%, from 1.5% to 1.8%, on service-oriented industry sectors, such as professional, engineering and technical occupations. This specifically places independent physicians at a competitive disadvantage against physicians employed by hospitals, because non-profit hospitals are tax-exempt, and therefore unaffected by this tax increase.

Here’s why that matters to a community's health care: independent physician practices lower healthcare costs for all consumers. They are, quite simply, the last barrier to complete monopolization of a health care market. 

Hospital-based clinics — known as hospital outpatient departments (HOPDs) — charge a “facility fee," or a bill in addition to the one levied for the doctors’ services. A hospital executive once told me to think of a facility fee like a “room rental” charge. Independent practices are forbidden from charging facility fees. For one 15-minute visit with your doctor, Medicare pays $124.40 if it takes place in a hospital-based outpatient department. Medicare reimburses only $68.97 for the exact same service delivered at an independent physician-owned clinic — an 80% difference!  

Over the past decade, this payment inequity forced physicians to close their doors and sell their practices to large hospital corporations. Prior to 2000, approximately 60% of physicians in the U.S. were “independent practice owners or partners” and by 2016 that number had fallen to less than one-third of physicians. Solo physicians – like myself — are predicted to become extinct, like the dinosaurs.

Locally the consolidation trend mirrored that of the nation, as I mentioned above, because most could not remain economically viable on their own. Currently, every neurologist, endocrinologist, cardiologist, pulmonologist, urologist, and vascular and orthopedic surgeon in Kitsap County is employed or contracted with CHI Franciscan.

The Wall Street Journal recently exposed a second reason hospital-employed physicians increase healthcare costs for consumers. The more primary-care doctors that work for hospitals, the more they are being pushed to keep lucrative specialty referrals in-house. In contrast, independent physicians are free to make referrals to those physicians they would choose for their own family members and themselves. 

Research shows that physician-owned practices provide better quality of care. For example, in comparison to organizations employing more than 100 physicians, practices with 3 to 9 physicians had 27% fewer preventable hospital admissions and those comprised of one or two physicians had 33% fewer preventable hospital admissions.  Fewer days spent in the hospital leads to fewer bills for consumers to pay.

There is no doubt that communities need hospitals — they provide essential emergency services 24 hours a day and a full spectrum of specialty care that would be unavailable otherwise. But certainly not at the expense of independently-owned and operated physician practices. 

It is understandable, due to the provision of charity care and other critical healthcare services, that nonprofit hospitals are tax-exempt. Private practices provide charity care too — albeit on a smaller scale than non-profit hospitals — yet are not afforded the same economic amnesty. At a bare minimum, those private practices treating Medicare and Medicaid patients should be allowed an exemption from this tax increase, if only to equalize the odds for their economic survival. 

A Democratic Presidential hopeful should not prioritize the needs of large corporations over small medical practices, which can deliver high quality care at a lower cost.  Otherwise, Gov. Inslee is showing the nation that he is no fan of providing affordable care to the masses. 

After making many phone calls to Olympia this past week, I have learned that Rep. Steve Tharinger (D-Port Townsend), chair of the Capital Budget Committee and a member of the Health and Wellness Committee, and Rep. Eileen Cody (D-West Seattle), chair of the Health and Wellness Committee, are the most important legislators with whom to voice your concerns. They can help create the exemption to lessen the pressure on independent doctors. 

If Washington legislators blindly vote to increase the B&O tax on the few independent medical practices struggling to survive, without realizing the detrimental impact of their decision, they are turning their backs on patients, independent physicians and our communities. Please call members of our state delegation as well, and let them know that you do not want independent practices, and the valuable services they provide, to disappear. 

Contact state legislators 

Rep. Tharinge: 360-786-7904, Steve.Tharinger@leg.wa.gov. 

Rep. Cody: 360-786-7978, Eileen.Cody@leg.wa.gov. 

23rd District: Rep, Sherry Appleton, 360-786-7934, sherry.appleton@leg.wa.gov; Rep. Drew Hansen, 360-786-7842, drew.hansen@leg.wa.gov; Sen. Christine Rolfes, 360-786-7644, christine.rolfes@leg.wa.gov

26th District: Rep. Michelle Caldier, 360-786-7802, michelle.caldier@leg.wa.gov; Rep. Jesse Young, 360-786-7964, jesse.young@leg.wa.gov; Sen. Emily Randall, 360-786-7650, emily.randall@leg.wa.gov 

35th District: Rep. Dan Griffey, 360-786-7966, dan.griffey@leg.wa.gov; Rep. Drew MacEwen, 360-786-7902, drew.macewen@leg.wa.gov; Sen. Tim Sheldon, 360-786-7668, timothy.sheldon@leg.wa.gov