Medical transcriptionists feel the heat of hospital cost cutting efforts.

Several hundred medical record "transcriptionists" in Los Angeles County, who comprise a cottage industry which sprang up as hospitals began outsourcing medical record keeping a few years ago, are being hit hard by industrywide cost cutting triggered by the federal government's health care reform efforts. Transcriptionists are similar to court reporters in that they transcribe audio records into written reports. Medical facilities are required by law to maintain written records of all surgeries. To comply, surgeons dictate information about each surgery into audiotape recorders. Through special high-tech gadgetry, transcriptionists, many of whom work from home-based offices, can access those audiotapes through their phone lines and download the tapes onto computers. Transcriptionists then play back the audiotapes, convert the tapes into written reports and mail the reports back to the medical facilities.

For this, transcriptionists are typically paid between five and 15 cents per line.

In California, where outsourcing is gaining momentum, at least one-third of the medical transcriptionists currently work as independent contractors out of home offices, with an average transcriptionist making about $30,000 a year by transcribing records on a per-document or per-line basis.

But many transcriptionists have been seeing their incomes reduced by 20 percent or more in recent months.

Pressure to cut costs in this segment of the health care industry is intensifying, confirmed Pam Giamario, chief operating officer of Record Plus Inc. in Manhattan Beach, one of the area's largest medical transcription companies. While many hospitals continue to maintain their own staffs of medical transcriptionists, Record Plus has taken over the task of transcribing medical records for several institutions including Daniel Freeman Marina Hospital in Marina del Rey, Brotman Medical Center in Culver City and South Bay Medical Center in Redondo Beach.

The 80 medical transcriptionists working for Record Plus grudgingly accepted pay reductions of about 16 percent last month. None of those 80 workers is an independent contractor. However, several of Record Plus' transcriptionists telecommute from home offices.

Record Plus officials said the company was forced to pass on its own contract reductions to its transcriptionists, some of whom are single parents.

"Clients are asking us to reduce our rates, or they'll go talk to another vendor. We find that we can no longer renew our contracts at the same rate," Giamario said. "We have been asked to make reductions in our costs. And in our industry, the No. 1 expense is payroll."

Transcriptionists work under one of three employment arrangements -- as full-time staff employees, as "statutory" employees with limited company benefits or as independent contractors. Some staff transcriptionists work on site at hospitals. But many more transcriptionists work as full-time or statutory employees or independent contractors of large transcription companies, like Record Plus. The vast majority of Southern California transcriptionists, however, work in one- or two-person shops that independently contract with doctors' offices and clinics. And many members of this cottage industry are struggling to survive the downward pressure on pricing. Giamario said the downward pressure began about a year ago, when President Clinton's health care plan brought industry cost cutting onto the national agenda.

"There is a lot of movement toward containing costs in this field. A lot of pressure is coming from the insurance industry, the people who pay for the nation's medical bills," she added.

The medical transcription industry includes a few companies which have up to $30 million in annual revenues, but even these employ a network of home-based workers. These days, Giamario said, many independent medical transcriptionists in Southern California are being asked to work for less money -- a trend which may begin spreading to other parts of the country.

Marie Stevens has been working out of her West Hollywood home office for the past three years. With 23 years' experience as a medical transcriptionist specializing in radiology, Stevens can generate about 250 reports per day.

Stevens has invested approximately $10,000 in equipment for her office, purchasing two IBM computers set up with high-speed modems and laser printers. Stevens works almost entirely by telephone and computer, turning verbal recorded comments of medical specialists into clearly written reports. Like many "statutory employee" transcriptionists, Stevens' rates have recently been cut by the primary company for which she works. The net effect will be to lower her gross annual earnings from $75,000 in past years to $50,000 this year, she said. "At least I'm paid on production, and thank God I still have a job," Stevens said, noting that by working at home she avoids the exposure to hospital germs and freeway traffic. "I'm still making $50 an hour, which is darned good money. This thing with Clinton hasn't really hit (with its full force) yet, but it will."

Most independent medical transcriptionists are one-person shops, with the average age of transcriptionists being about 43. The 600 hospitals or medical facilities between Ventura and Orange counties constitute a $20 billion industry, and medical transcription is a major expense for that industry, according to Charlotte Colburn, president and CEO of Record Plus.

The Joint Commission on Accreditation of Hospitals, a national organization charged with monitoring hospital quality and standards, requires that hospitals create written reports of all surgeries within 24 hours of the operation. During that 24 hours, a medical transcriptionist converts the audiotape record of the surgeon's comments during the operation into a written medical report. With some hospitals doing up to 60 elective surgeries a day, writing and updating surgical reports amounts to a daunting administrative task. Contracts which were previously negotiated for terms of three years are now being negotiated for only one year due to uncertainty over transcription rates, said Colburn.

Shorter contract terms increase the pressure and financial risk faced by medical record transcription companies, Colburn said, and are another factor in Record Plus' efforts to increase productivity and trim costs.

That pressure and risk, obviously, is being passed along to independent contract transcriptionists, sources said.

Although labor constitutes approximately 60 percent of Record Plus' costs, Colburn said, telephone costs are the company's second-largest expense. The company's startup costs of $150,000 per new hospital client include the purchase and installation of the high-tech gadgetry that allows transcriptionists to download through their phone lines a physician's audio recording. That downloading gadgetry costs about $100,000 for each transcriptionist. Mary Glaccum, an independent contract transcriptionist who works out of her home in Rancho Dominguez and who co-authored a book entitled "The Independent Medical Transcriptionist" in 1992, said she has also noticed that the recession and other factors are working to drive down costs and wages in the Southern California health care industry.

Glaccum argued that the cost cutting is currently confined to the larger transcription services, which have higher overhead than independent contractors. Glaccum said she has heard that independent medical record transcriptionists who work for large service providers are being asked to take pay cuts ranging from 20 to 50 percent. But she added that her own clients -- which include five doctors and one hospital -- have not asked her to reduce her rate of pay. However, Glaccum said, the volume of reports she transcribes has diminished in recent months because fewer people go to the doctor during a recession. But that slowdown will not last for long, Glaccum predicted. "When the Clinton bill goes through, everyone will have access to health care, and I think we will see a huge influx in people going to the doctor," she said. "If it's run like Medicare, where everything has to be documented, I think we'll have more work than we know what to do with."

One institution that has contributed to the work of third-party transcriptionists is Brotman Medical Center in Culver City. That hospital, which has an average population of about 200 patients, began outsourcing its entire medical records operation about two years ago to Record Plus, according to Carol Haydon, Brotman's administrative director responsible for quality management. Most of Brotman's staff transcriptionists are now full-time staff employees of Record Plus, and are earning the same pay as they were at Brotman, said Haydon. Outsourcing at Brotman has resulted in lower costs and faster turnarounds for the four to seven dictated reports generated during the stay of most patients, Haydon said.

Timely written reports are quite important, she added, because surgery must be postponed if the arrival of a pre-operation physical report is delayed.

Medical transcription companies like Record Plus typically bid out their services to hospitals after performing a cost analysis of the hospital's medical record keeping operations.

Giamario said outsourcing often pays off for hospitals struggling to keep up with expensive changes in computer technology. About 20 percent of the nation's hospitals now outsource all their medical record keeping, Giamario said, a sizable proportion considering such outsourcing was virtually unheard of just five years ago. Many hospitals, clinics and doctors' offices during periods of high demand also outsource a portion of their transcribing work, she added.