the physician market part 2
TRANSCRIPT
The Physician Market, Part 2The Physician Market, Part 2
Professor Vivian Ho
Health Economics
Fall 2007
These slides draw from material in Santerre & Neun, Health Economics, Theories, Insights and Industry Studies, Thomson Press 2007
Advantages of capitation for physiciansAdvantages of capitation for physicians
• Increased clinical autonomy Physician financially responsible for cost
overrunsEliminates need for external review
• Increased income Physician compensated by risk pools
created from withholds if can reduce utilization of hospital, outpatient, diagnostics, other ancillary services
MCOs and Physician ConductMCOs and Physician Conduct
HMOs combine the insurance and production functions in health care.
They are different from traditional indemnity (FFS) plans, in that they attempt to control how health care is provided.
How do HMOs influence physicians?
Types of Managed Care Orgs Types of Managed Care Orgs
S ta ff M od e l G ro up M o d e l N e tw o rk M o d e l IP A M o d e l
H M O P P O /P O S
M a n ag e d C a re
MCOs and Physician ConductMCOs and Physician Conduct
Staff model HMOs pay physicians a salary. No incentive to over-provide care.
IPA HMOs usually pay physicians discounted FFS. Physicians have incentive to over-provide
care. How can the HMO control costs?
MCOs and Physician ConductMCOs and Physician Conduct
Caution: Distinctions between different types of HMOs are blurring over time.
28% of staff HMOs pay based on salary only (Gold, 1996).
90% of PPOs use discounted FFS.
Financial Risk Arrayed on a Spectrum from Full Risk for the Insurer to Full Risk for the Provider
HBS Case Study 9-698-060, Note on Managed Care
Additional MCO Compensation ToolsAdditional MCO Compensation Tools
Risk sharing - The insurer can make the physician bear some of the risk of insuring the patient, so that the physician will also feel the need to restrain medical costs.
CapitationWithholdingsBonuses
Additional MCO Compensation ToolsAdditional MCO Compensation Tools
Capitation - Physician receives a fixed payment per person in return for providing medical services regardless of the quantity of medical care delivered.
e.g. A physician may receive $9 per member per month for each enrollee who chooses an HMO plan and elects him to be their primary care caregiver.
Additional MCO Compensation ToolsAdditional MCO Compensation Tools
Capitation Physician has an incentive to restrict # of
patient visits.
Problem - Physician can reduce visits by referring patients to other providers in the same HMO plan.
e.g. If the patient has high blood pressure, refer her to a cardiologist.
Solution - Withholding
Additional MCO Compensation ToolsAdditional MCO Compensation Tools
Even if docs paid thru capitation, HMO responsible for costs of hospital services, outpatient diagnostic tests, physician referrals.
How can the HMO limit these costs?Withhold a portion of physician payment
(PMPM) until end of fiscal year.
HMO Reimbursement StrategiesHMO Reimbursement Strategies
Assign these funds to specific expenditure categories (e.g. lab tests).
At end of year, return a portion of the withhold to physicians if surplus exists in that expenditure category.
Can even change next year’s withhold or capitation based on this year’s performance.
Additional MCO Compensation ToolsAdditional MCO Compensation Tools
Bonuses - MCOs can give a portion of their profits at the end of the year to physicians who elect cost-effective behavior.
e.g. Pay bonuses to primary caregivers who reported lower number of specialist referrals.
Advantages of capitation for physiciansAdvantages of capitation for physicians
• Improved cash flow Physician receives fixed payment per
patient each monthReduces bad debt expenses
• Better budgeting Steady cash flow - well-defined budgets Easier to identify and correct sources of
cost overruns
4 Components of a Capitated Contract4 Components of a Capitated Contract
SERVICE CPT CodeOffice visits 99201-99215Emergency room visits 99281-99285Preventive services 99381-99429Simple blood tests 85018-85048
1) Covered Services
Definitions such as “primary care services within the physician’s scope of practice” are too vague
Examples of capitated primary services:
Examples of Current Procedure TerminologyExamples of Current Procedure Terminology
99201Initial office visit for an out-of-town patient
requiring topical refill (Dermatology)
Initial office visit for a 65-year-old male for reassurance about an isolated seborrheic keratosis on upper back (Plastic surgery)
Initial office visit for a 10-year old male, for limited subungual hematoma not requiring drainage (Internal Medicine)
Carve outs - specific services or patients singled out in the capitation contract for special consideration
Usually for expensive, infrequent services
e.g. HIV+ patients, mental health, organ transplants
Can be paid on fee-for-service (FFS) basis, or separate providers may contract for carve outs
Components of a Capitated Contract
• Payment methods
Capitation rate/schedule - Managed care organizations employ actuaries who predict the cost of care as a function of population characteristics
Timing of payments
Payment of carve out services Payment withholds used to fund risk
pools, and method for risk pool distribution
Methods for limiting risk (e.g. reinsurance, stop-loss)
Insurer may agree to assume treatment costs that exceed a predefined threshold amount
• List of other requirements
Quality assurance activities May require reporting detailed patient data More sophisticated, costly record keeping
Required office/call hours Use of physician extenders Copayment procedures “most-favored-nation” clause Additional professional liability insurance
coverage
• Process for termination Provisions for termination without cause
Can be financially risky to physician
Provisions for termination with cause Should specify specific conditions e.g. failure to comply w/ quality assurance
requirements
Contract should specify physician responsibilities if managed care organization insolvent
“Continuation of care” requirements Usually must complete patient’s course of
treatment until satisfactory arrangements made to secure treatment elsewhere
Evidence on Physicians & MCO Evidence on Physicians & MCO CompensationCompensation
57% of MCOs base pay on utilization or costs measures
Almost half of MCOs consider patient complaints and quality measures
Evidence on Physicians & MCO Evidence on Physicians & MCO CompensationCompensation
MCOs paying physicians a salary had 13.1% fewer hospitalization days per 1,000 enrollees per yr. relative to FFS
Capitation led to 7.5% fewer hospitalization days
Physicians faced w/ withholds had 10.5% fewer visits per enrollee
Caution: The studies did not determine whether profits rose, or whether quality of patient care was affected
Physician Market PerformancePhysician Market Performance
Total Expenditures
Annual Rate of
Increase*Per Capita
Amount1980 47.1b --- 2051990 157.5 12.9% 6201993 201.2 8.5% 7651995 220.5 4.7% 8202000 288.6 5.5% 10202005 421.2 7.9% 1418
*Average since previous year listed
Physician expenditures have slowed in the 1990s, more in line with the growth of the overall economy. But they may be on the rise again
Physician Market PerformancePhysician Market Performance
1986 1990 1995 1997 1998Practice Expenses
per physician 118.4 150.0 201.6 228.6 261.9Before-tax income 131.1 185.6 230.8 228.2 224.3
249.5 335.6 432.4 460.1 496.7
Revenue per Self-Employed Physician, ($1,000s)
Increases in revenues are due to increases in expenses AND higher income for physicians
Physician salaries remain highPhysician salaries remain high
MeanInternal Medicine $191,525Family Practice $178,859Pediatrics $188,496
2006 PHYSICIAN SALARIES
When managed care grows, salary growth for specialists slows, while pay for primary care docs rises
Physician groups getting large enough to want their own specialists
Female docs’ salaries exceed males in a dozen or so specialties
Employed vs. Independent PhysiciansEmployed vs. Independent Physicians
Employed physicians worked 5-7 fewer hours a week
Employed physicians’ median net income was $142,000 in 1996, vs. $198,000 for all private-practice physicians
Practice mgmt. Companies typically pay physicians $300,000-$400,000 per physician for practice assets (land, equipment) Tradeoff: 20% of practice’s net revenues
Physician Practice Management (PPMs)Physician Practice Management (PPMs)
PPMs act as liaisons between insurers and doctors by acquiring physician practices
Advantages:Economies of scale in operational costsImproved risk assessment for managed
careFinance new information systemsRetain patient revenues by keeping
referrals within the PPM network
Fortune Magazine, March 3, 1997
MedPartners Provider Network acts as an intermediary, accepting capitated payments from HMOs & paying claims to the company’s network providers
Patients buy insurance from PacifiCare Health Systems, Foundation Health Systems Inc., etc.
Had up to 19,200 doctors in the PPM division in hundreds of physician clinics at one point
MedPartners posted a net loss of $1.26b on revenues of $2.6b in 1998
Loss of $821m on $2.4b in revenues in 1997
What Went WrongWhat Went Wrong
Failure to integrate its operations or provide systems to operate more efficiently than they had done independently Lacked actuarial expertise to predict medical
costs California: Plan underestimated incurred-but-
not-reported claims liability & could not estimate a dollar value for the large backlog of unprocessed claims
Failed to invest in information systems, medical equipment, or expansion of medical services to boost a group’s internal growth
What Went WrongWhat Went Wrong
MedPartners bought new practices at a furious rate, often at hefty prices Industry buying spree boosted the prices of
physician practices
Doctors didn’t react well to becoming employees of remote national companies Physicians who sold their practices didn’t feel
the need to work as hard, younger doctors’ salaries lower due to cut taken by the PPM
MedPartners’ ReactionMedPartners’ Reaction
MedPartners exited the PPM business and became Caremark, which is in the Pharmaceutical Benefits Management (PBM) market
The Future of PPMsThe Future of PPMs Doctors will continue to organize in larger
groups to avoid hassles of office admin and managed-care contracting
Smaller single-specialty PPMs seem more committed to improving operations
# of publicly traded PPMs (~30) may shrink by 50%