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:

 Click to enlarge image 

Leigh, J. P. et al. Arch Intern Med 2010;170:1728-1734.

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 

  Click to enlarge image 

Federman, A. D. et al. Arch Intern Med 2010;170:1735-1742.

Payment reform won’t be easy, and will be vociferously opposed by those who believe they will be the losers.

  

Read More

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. 

Read More

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.

Click to enlarge image

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.

Click to enlarge image

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?

Wrong!

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. 

Read More