Physician Payment Disparities, and Physician Point of View on Payment Reform

There were a few articles from Archives of Internal Medicine last month revisiting pay disparity among physicians –and showing physician attitudes toward changes in payment methodology.

Leigh et al show that many specialties, especially surgical specialties, make as much as twice per hour worked as primary care. Harvard Link 

Here are data on selected specialties:
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Federman et al review physician attitudes toward payment reform.

Physicians in general are leery of bundled payments. Physicians are split on incentives – with about half approving of these through general practice, medical specialists, and surgeons.    Primary care physicians are relatively enthusiastic about shifts in income from specialty to primary care. (67% in favor). Surgeons are adamantly opposed (17% in favor).  Harvard Link 
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Payment reform won’t be easy, and will be vociferously opposed by those who believe they will be the losers.


Paying for Neonatal ICU Saves, but Not the Followup Care

Today’s Managing Health Care Costs Indicator is 69%

I highly recommend a narrative article in this month’s Health Affairs about a pediatric hospital’s decision a decade ago to expand its neonatal intensive care unit capacity – while it refused to subsidize post-NICU services for the sick premature babies that continued to have chronic illness long after their hospital discharge. Harvard Link

John Lantos, who was the chief of general pediatrics, was unwilling to take financial responsibility for the money-losing followup care. He felt the outpatient clinic should continue to be subsidized by the uninterested NICU department (which represented 4% of total hospital system revenue, but was responsible for remarkable 69% of total hospital system profit).   The hospital, seeking to expand the money-making NICU unit as part of a hospital building campaign, wouldn’t subsidize the clinic – and nixed locating these services at a neighboring hospital that was willing to offer a subsidy.   A private company stepped up and offered to sponsor the post-NICU clinic, but soon declared bankruptcy and was unable to fulfill its pledge.

The hospital built its new building, expanded its capacity, and now must have higher revenues to pay off its bondholders.  Other nearby hospitals also recognized that NICUs had high margins, and also expanded their capacity. 

In the words of the author  

Each of the new hospitals costs more to run than the older ones did. Pressure to increase profit margins at each has increased. As a result, all are less likely to care for poor patients with complex diseases than they were before.

Amidst the riches of our system, we continue to make large investments in high technology high margin medicine to rescue the sickest of newborns.  But we can't figure out how to pay for the continuing care to be sure that the 'graduates' of the high-tech NICU get the ongoing care they need. 

Provider Clout

There have been a few excellent articles and studies on provider consolidation – and how much this impacts the overall costs of health care costs.

Kaiser Health News and NPR aired a 7 minute piece on Saturday demonstrating the impact of Sutter Health System in northern California.  It’s almost impossible for major insurance companies to sell policies for products that don’t include Sutter, which receives reimbursement that is now 37% higher than other providers in the area.   Sutter has a profit margin of over 17% - far out of line with most profit or nonprofit hospital systems across the country.  An insurance broker demonstrated that a small business with 20 employees could save $120,000 per year by purchasing health insurance that did not include Sutter.  But he can find few takers for this type of limited network.
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The Center for the Study of Health System Change published a study of 8 markets (including northern and southern California) showing that four large national health insurers pay hugely variable amounts for the health care they provide to their members.  In Los Angeles, the average commercial (employer-sponsored) health plan pays 118% of Medicare for inpatient care.  However, the 25%ile hospital receives 84% of Medicare payment, the 75%ile hospital receives 168% of Medicare, and the highest paid hospital receives over four times Medicare payment. 

The Boston Globe  noted last week that Massachusetts Attorney General Martha Coakley has promised to revisit the issue of provider market clout, worrying that proposed payment reform is not enough.  However, as the Center for Health System Change noted, once there are widely different allowed charges among facilities, it will be very hard indeed to roll these back.

The New York Times published an article today noting increasing consolidation of hospitals, ambulatory care centers and physicians.  The article outlines the fear that as providers establish accountable care organizations to service Medicare under health care reform, their influence will grow even larger, as will their ability to extract high prices.

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OK – that’s the doom and gloom.  In our class last week, we saw a graphic showing that hospitals have MUCH less consolidation (at least according the US census bureau) than health insurers.  Physicians have less consolidation than just about everyone except for florists.  So- this means there is no problem, right?


Health care delivery is hyperlocal.    Sutter has very high prices and very high margins, and Sutter has high market penetration and importance in its limited geography. It doesn't matter that Sutter provides under 1% of all health care delivery in the US, while  United HealthCare is responsible for insuring 70 million Americans.  In Northern California, Sutter has far greater dominance than any health plan, and is able to use that to drive very high prices.  Limited or tiered networks can exert at least some downward pressure on these prices. 

CT Screening For Lung Cancer: Right For SOME Smokers

Today’s Managing Health Care Costs Indicator is 20%

The National Cancer Institute  announced a few weeks ago that spiral CT scan for smokers with at least 30 pack years (Number of packs per day times number of years smoked) lowered risk of death from lung cancer by 20%.  

This is genuinely good news. There is a long history of trials of screening smokers and former smokers for lung cancer showing that the risk of death was higher in the screened group than the nonscreened group, presumably because of the harm caused by biopsies and surgeries in a group with limited lung capacity due to the ravages of smoking.  The current study is huge (53,000 patients), and it is well-designed.  It was not funded by any party with a vested interest in a positive result. I’m surprised at the results – but good science doesn’t always confirm our prior beliefs.

Here’s bad news, though.  One imaging center in California put out a press release the same day saying “"It is clear that in patients at risk, particularly those who have smoked for over 10 years, this is an indispensable part of your annual examination.”   

This misstates the results of the trial significantly, and would lead to a large number or spiral CT scans, with much expense and radiation exposure. Screening can be effective with a high prevalence of disease.  When the same screening is applied to a lower risk group, the risk of false positives climbs dramatically.  At some point, the cancer from excess radiation outweighs the benefit of potential earlier cancer detection –although we don’t know what that point is. The New York Times had a well-balanced article on this. 

The medical director of that center said “We know from our own anecdotes that we have saved a lot of lives.”   That’s a highly unscientific statement.  Anecdotes don’t tell us we’ve saved lives – well designed trials do.  We need more comparative effectiveness research.  Once we’ve done the research, we should provide coverage for effective diagnostics or therapy.  We should NOT pay for services that have not yet proven to be effective except as part of a trial to determine whether these services bring benefits to patients.

Why Medicare Recipients Shouldn't Have More Skin in the Game

Today’s Managing Health Care Costs Indicator is 16.2%

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I recommend a column by Drew Altman of the Kaiser Family Foundation, who points out that on the average Medicare beneficiaries spend 16.2% of their income on health care.  That’s on top of the federal funding for Medicare. 

There’s a lot of conversation in the policy world about how patients with inadequate “skin in the game” might demand low value services. Such patients want too much because they are paying for these low value services out of the public trough, a classic problem of moral hazard. 

However, almost half of all Medicare beneficiaries have income at or below 200% of the federal poverty level. Therefore, increasing out of pocket costs substantially would be likely to price many elderly Medicare recipients out of health care.

We all know that we deliver many health care services in this country that are of low value (like ordering tests that are unlikely to inform a clinical decision) , or even value destroying (such as performing unnecessary procedures that have some risk).   We might be pressing too hard on increasing patient liability, and we are not going to ‘solve’ the problem of low value services without addressing the provider side of this equation.

The Low Unit Price Fallacy

Today’s Managing Health Care Cost Number is $121

Propublica, a nonprofit investigative reporting organization, published a carefully-researched article on kidney dialysis  in the United States last week. The article will be in next month’s Atlantic magazine, and I learned about it from an interview on NPR’s Fresh Air.

We initiate dialysis a lot of people in the United States – more proportionately than any other developed country.  We’re obese and getting more so, and diabetes is a major cause of renal failure. Renal failure disproportionately afflicts African-Americans and the poor; part of this is because those with poor access to health care are more likely to have uncontrolled high blood pressure.  However, our patients on dialysis die more quickly than those in other countries --

The article focuses on the poor care offered in the US compared to other developed countries.  Reporter Robin Fields documents renal failure patients who exanguinated when their dialysis catheters were hooked up incorrectly, and centers that were repeatedly cited for safety violations.  She points out that in other countries kidney failure patients get longer dialysis, and have more physician supervision.

No surprise – we spend a lot of money on dialysis too.  On average, we spend $77,000 on dialysis per patient per year – more than any other country

Here’s the surprise.  We spend less per dialysis session than all other developed countries except Australia - $121 per session in 2003 -  even though the resource cost to deliver dialysis is substantially higher.

How could it be that in a country where unit price is almost always the problem, we are paying such a low unit price for dialysis?

Well – this price is set by the US Congress – which has been aghast at the total cost of dialysis, about  $20 billion per year. Congress lowered the price per session in the 1980s after noting very high margins for dialysis providers. The two companies that dominate the dialysis industry remain very profitable. 

AND while the unit price is low, the aggregate cost of dialysis per patient per year is much higher than elsewhere.   How can this be?

In the US, we pay a single price for the dialysis, and we pay separately for medications that are administered intravenously during the dialysis.  This has meant that dialysis units facing a large cut in their reimbursement for their core service were able to be profitable by administering large doses of erythropoietin (epo), a medicine to combat the anemia associated with renal failure.

As a result, the US has used far more epo than other countries – good news for Amgen, the manufacturer.  This has been bad news for patients, though, as we’ve learned that higher doses of this medicine don’t simply mean less anemia, they also cause higher risk of heart attacks and strokes. 

CMS has announced a new plan to bundle payments for dialysis. The total stated cost will be higher –but the dialysis center will no longer be able to gain margin from administration of medications.   That’s good news.

As the Congress debates legislation that would once again reverse the physician SGR (sustainable growth revenue) 23% Medicare physician fee cut, it’s important to remember that too low a price in a fee for service world can lead to overutilization of other services.   Simply cutting prices can lead to results that can be expensive, and can hurt patients.   

These graphics and data for top graphic are from this article in the International Journal of Health Care Finance 2007. Click images to enlarge 

The Republican Health Care Plan

Today’s Managing Health Care Cost Indicator is 239

The election is over, and while the Democrats retain a narrowed majority in the Senate, they lost 60 House seats.  John Boehner will take over as Speaker of the House in January.  There are 239 Republicans as of now in the next House; the NY Times reports that there are seven seats still undecided.

The election season had plenty of overheated rhetoric about health care – and Republican whip, Eric Cantor, has released a health care plan with some detail.   

Here’s a summary of that plan:

  1. Establish high risk pools for those who are difficult to insure, and fund this with $25 billion.
    The funding is small, and there is a promise to cap their premiums at 50% more than regular premiums, which would be actuarially expensive.
  2. Extend HIPAA so that employees would be protected from exclusions of preexisting illness even if they did not exhaust their COBRA coverage
  3. Eliminate annual or lifetime maximum
  4. Prohibit recissions (where an insurance company withdraws coverage that has already been in force and paid for because of an often-minor error in the original application.)
  5. Fund $50b for a state innovation fund
  6. Establish state health plan “finders,” a marketplace for health plans, as opposed to exchanges, where consumers can purchase health plans
  7. Administrative simplification
  8. Allow small businesses to band together as “association health plans.”
  9. Cover dependents on their parents’ plan until age 25 (instead of the 26 in Affordable Care Act)
  10. Eliminate legal barriers to auto-enrollment, or “opt out” insurance, where employees will be enrolled unless they refuse.
  11. Allow interstate sale of insurance
  12. Make health care savings accounts more attractive, through tax credits and by allowing their use to purchase high deductible health plans (HDHPs), to fund some past expenses,  and by requiring greater HDHP-HSA coordination
  13. Malpractice reform, including caps on noneconomic damages ($250,000), proportional damages (meaning that the party with deep pockets or generous insurance would only pay her share of damages), and limits on attorney billing.
  14. Eliminate comparative effectiveness research.  The cost of this research is small, and it could help us figure out what health care is most valuable.
  15. Allow higher discounts for wellness.  This effectively allows higher penalties for those who do not have healthy lifestyles.
  16. Increased funding for antifraud efforts, as well as better subrogation to recover claims from other responsible parties and tracking banned providers across state lines.
  17. Prohibitions on taxpayer funding for abortions and protections for health care professionals who don’t want to participate in certain procedures, such as pharmacists who believe the “morning after pill” is equivalent to abortion and therefore immoral.
  18. FDA approval for biosimilars. This is similar to the Affordable Care Act

There is a lot missing from this bill.   There is no employer or individual mandate, and no big bucks for subsidizing health care purchases by those of low and modest income.  It’s likely that the bill will have little effect at decreasing the number of uninsured Americans.  There is no Medicare Payment Commission to help reign in costs if the market "doesn't work."

What would the Republican plan do to health care costs?

Malpractice reform could help lower the cost of health care a bit, although these changes could make it harder for genuinely harmed patients to receive legal assistance for a tort claim.  More systems to detect and prevent fraud can also lower health care costs.

Allowing interstate sale of insurance would essentially eliminate state regulation of health insurance, since all health plans could simply move their domicile and be subject to regulation by a different state.  Just as most businesses prefer the corporate regulation of Delaware, we could see most health plans relocating to a low-regulation state.   This could lower the cost of health care, to the extent that many states have expensive coverage mandates.  It would likely lower consumer protection, especially in the northeast and on the west coast.

There are no cuts to Medicare, so Medicare would remain on track to have an “insolvent” hospital trust fund by 2017.  It’s ironic that many Republicans including Newt Gingrich have suggested that Americans should be weaned from Medicare, while this plan actually means Medicare costs will be substantially higher than with the Affordable Care Act. 

There are no cuts to Medicare Advantage plans, although a number of studies have suggested that many of these are overpaid, especially the private fee for service plans.  Further, the bill includes no taxes on providers, pharmaceutical companies, medical device companies, and insurers.

Overall, the Cantor plan would lead to fewer Americans insured and higher federal deficits than the Affordable Care Act.  Overall health care trend is not likely to bend significantly because of the Medicare provisions of this proposal. 

Another article of note: The NYTimes reports that some employers are charging differential insurance rates for highly compensated employees compared to lower compensated employees.   As premiums go up, those with lower income have suffered from both increased premiums and increase in out of pocket costs at the point of service.   Keeping health care affordable for those of modest means will require that the premiums be affordable and that copayments and coinsurance aren't ruinous.   Thanks to Wing Lee of HPM235 for pointing out this article . 

New Prostate Cancer Vaccine : Quadrant Four Medicine

Today’s Managing Health Care Cost Indicator is $93,000

The Washington Post has a thoughtful article this morning about a new prostate cancer vaccine, Provenge.  The vaccine must be individualized for each patient, and the price has been set at $93,000 per person (each receives just a single dose). Average life expectancy increase using Provenge is 4 months.

This is great news. Individualized medicine is here!  The promise recounted in Jerry Groopman's Dr Fair's Tumor (1998,  New Yorker) is finally available for the masses.   This drug will be very desirable for people with terminal metastatic prostate cancer, their families, and their providers.   It's also good news for those of us who will get other cancers - where this type of technology could be life-saving or life-prolonging.

The good news, of course, carries a steep price tag.  The increased life expectancy means that Provenge will cost substantially over $300,000 per quality adjusted life year. ($93K *3, and assume that for someone with terminal prostate cancer, each surviving month will be at least slightly discounted because of suffering or disability associated with the cancer).     That's far more than we usually spend -and a price point that could leave us unable to invest in other health care initiatives with as much or more promise.  Even this steep price tag can be good for those with cancer, though.  Such a high price encourages more investment in future biologics to treat cancer.

Most prostate cancer is in those over 65, so Medicare's payment approach for Provenge will determine whether this drug is used commonly, or whether it is available to only the superrich.   Medicare has established  a  national coverage analysis for this product, and will have a public hearing later this month.  If Medicare makes a national coverage determination, it will be binding on all Medicare intermediaries across the country.

This is a good example of a "quadrant four" decision. It's much like Folotyn, another recent cancer therapy priced similarly.

It's easy to decide to push more quadrant one therapies (increase quality while decreasing costs). The problem is that we don't have enough of them!  It's easy to decide to prevent quadrant three therapies (increase cost while lowering quality).   It's tough to decide to push medical decisions in quadrant two (where quality is lowered a tad for a huge price savings).   It's also tough to forgo incremental quality at any price - even a high one. 

There is rumbling that having a national coverage analysis is akin to having Don Berwick, the head of CMS, convene a 'death panel.'    We need to have a sensible national discussion about what price we can afford to pay for incremental health . But it's hard to do that, especially when patients have much more compelling stories than a bunch of dry statistics that only an accountant could love.   

The conversation about limits to the resources we want to dedicate to health care will be a difficult one.  We're likely not ready for it.