The Physician Market Part 2
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The Physician Market Part 2






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The Physician Market Part 2 The Physician Market Part 2 Presentation Transcript

  • The 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 physicians
    • Increased clinical autonomy
      • Physician financially responsible for cost overruns
      • Eliminates 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 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
  • MCOs 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 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 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.
      • Capitation
      • Withholdings
      • Bonuses
  • Additional 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 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 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 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 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 physicians
    • Improved cash flow
      • Physician receives fixed payment per patient each month
      • Reduces 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 Contract 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 Terminology
    • 99201
      • Initial 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 Compensation
    • 57% of MCOs base pay on utilization or costs measures
    • Almost half of MCOs consider patient complaints and quality measures
  • Evidence on Physicians & MCO Compensation
    • 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 Performance
    • 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 Performance Revenue per Self-Employed Physician, ($1,000s) Increases in revenues are due to increases in expenses AND higher income for physicians
  • Physician salaries remain high
    • 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 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)
    • PPMs act as liaisons between insurers and doctors by acquiring physician practices
    • Advantages:
      • Economies of scale in operational costs
      • Improved risk assessment for managed care
      • Finance new information systems
      • Retain 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 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 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’ Reaction
    • MedPartners exited the PPM business and became Caremark, which is in the Pharmaceutical Benefits Management (PBM) market
  • The 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%