Today’s Managing Health Care Costs Indicator is $1.6 million
A story from cnn.com last week has been getting a lot of attention, especially among physcians in private practice.
This quiet reality, which is spreading nationwide, is claiming a wide range of casualties, including family physicians, cardiologists and oncologists.
H/T to Shimul Shah for pointing this article out.
One oncologist profiled says that he was ‘stuck’ with $1.6 million of oncology medications that Medicare wouldn’t reimburse after chemotherapy reimbursement rules were changed. The article goes on to point out that steep cuts in reimbursement for noninvasive cardiac tests have taken a bite out of cardiologist income, too. The potential Medicare 27.4% SGR is said to be a Damocles sword hanging over the heads of practicing physicians.
Reimbursement cuts are tough for physicians with office practices. Overhead often runs 50%, so a 10% fee cut yields a 20% reduction in physician take-home pay.
Some of the reimbursements that have been cut by both Medicare and private payers represented excess margin, often from self-referred procedures. Cardiologists who own nuclear imaging machinery order more stress tests, and orthopedists who own MRIs do more imaging test. That’s simply not a good idea. I don’t want an oncologist to depend upon margin from chemotherapy to pay for a mortgage or a her child’s college tuition.
There are some jolting changes going on among physician practices, and solo physicians and small groups are becoming increasingly endangered.
- Electronic medical records require scale, capital investment and support infrastructure. Small practices are at a huge disadvantage.
- Hospitals and large groups are scurrying to coalesce to form accountable care organizations and accept bundled or capitated payment. This requires meaningful financial integration of many physicians.
- The President of the American College
- The Medical Group Management Association (MGMA) estimated that the portion of physician practices owned by hospitals exceeded those owned by physicians in 2008.
- Kaiser Permanente has been a hiring powerhouse in Northern California , and physician groups there report difficulty recruiting new grads.
Payment changes and the disruption of small, nonscalable, “cottage industry” practices is jarring –especially for physicians close to retirement. The practice community will indeed look very different in ten years than it does today. But the current office practice arrangements meet patient needs poorly if at all. Patients have little access to their own medical records, and getting advice often means losing a half day by coming into a fee-for-service oriented office that doesn’t want to ‘give away’ free service on the phone or by email. We expect to be able to do banking 24 hours a day from our mobile phones, but I can’t even set up an appointment with a physician except during regular business hours. We spend far too much on imaging, specialty diagnostics, and emergency department visits, and far too little on primary care and public health.
We should expect compensation changes aimed at increasing health care value will be hated by many practicing physicians. But we’re not meeting patient needs especially well now, and there is a real opportunity to improve this through the coming payment reform.
By the way - I can't say how scary I find it that a single oncologist had purchased that much chemotherapy medication when it was associated with high profit margins.
4 comments:
After taking your class, I am convinced that the reason why health care costs are growing rapidly is because of price inflation. But if you look at physician income over the last decade, it has been fairly flat for a lot of specialties. Wouldn't this suggest that whatever economic rents that health care providers extract out of payers are being consumed by surging overhead costs? If this is the case, what are the components that are driving the growth in overhead?
Nathan,
Physician income has been flat in some specialties, but has gone up substantially in some others (although this is being attenuated by changes in Medicare payment). Spending on ancillary services (especially imaging) has also increased substantially -and much of this does not show up as physician income.
Remember that price inflation is a combination of unit prices going up and a change of service mix (where an MRI costs much more than the plain film it might have replaced).
Many other industries are much more effective at controlling their overhead than the health care system. The pressure to control overhead will only increase going forward.
Why do you think it is difficult to control overhead in the health care but not in other industries. Also, could you elaborate on what you mean by ancillary service spending not showing up as physician income? Do you mean to say that physicians generate income from such operations, but it never gets reported in the surveys?
It's tough to control overhead in health care because we historically haven't had to - it's always been pretty easy to increase revenue, and it's much less painful to increase revenue than to cut expenses. See the Adam Davidson article in The Atlantic I referenced yesterday.
If physicians order an MRI, the professional billed component is under 20%. So there is a large amount of incremental cost which is not physician income, but is ancillary expense.
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