Medicare payments to doctors: the big issue is the underpayment for primary care

The Center for Medicare and Medicaid Services (CMS) just published how much money individual doctors get paid from Medicare. This initial version is without names, but undoubtedly the names will eventually be revealed. Enough information is available for Reed Abelson and Sarah Cohen, who wrote the article for the New York Times on April 9, 2014 �Sliver of Medicare Doctors Get Big Share of Payouts�,   to identify many of the specialties and locations. About � of all Medicare payments, the article tells us, go to about 2% of all doctors. �In 2012, 100 doctors received a total of $610 million, ranging from a Florida ophthalmologist who was paid $21 million by Medicare to dozens of doctors, eye and cancer specialists chief among them, who received more than $4 million each that year.� The largest amount of money was accounted for by office visits, $12B, but this was for 214M visits, with an average reimbursement of $57, in contrast to the Florida ophthalmologist, or to the �Fewer than 1,000 radiation oncologists, for example, received payments totaling $1.1 billion.�

Much of the discussion in the article, and in the comments attached, relates to why so few doctors get so much of the $77B Medicare pays out each year. There are, obviously, concerns about fraud; not only is Medicare seemingly fixated on looking for fraud everywhere but there is good evidence that it has occurred, at least historically. For example a highly paid (by Medicare) Florida ophthalmologist is apparently linked to a previous Medicare fraud scandal in which there was some implication of New Jersey Senator Robert Menendez. �The Office of Inspector General for the Department of Health and Human Services, which serves as a federal watchdog on fraud and abuse for the agency, released a report in December recommending greater scrutiny of those physicians who were Medicare�s highest billers.� I would have to say that this is a much wiser, fairer, and probably more productive strategy than simply trying to find largely unintentional errors in coding for outpatient visits, or checking each hospital admission to see if it could have been an �observation�, which is reimbursed less because it is considered outpatient status, as is done by Medicare�s Recovery Audit Contractors (RACs, or as I have called them, bounty hunters). Also, as I have previously discussed, these efforts are harmful to the patient in a direct financial way; as an �outpatient�, a Medicare recipient in the hospital has much higher out-of-pocket costs than if they are admitted as an inpatient. This is, of course, why CMS wishes to limit some stays, but if a person medically needs to be in the hospital, Medicare should pay for a hospitalization, and not play these games that not only financially penalize the hospital and doctors but more importantly the patient.

The other big area discussed is whether, if not exactly fraud, there is substantial difference in practice (e.g., getting CTs before each procedure, using more expensive drugs, etc.) that some specialists who are highly reimbursed by Medicare are doing more of than others. In addition, the question is �are they doing more procedures� or doing procedures with less strict indications? It is worth looking at; there is no guarantee that, even if some doctors are doing more procedures, having looser criteria for them, using more expensive drugs and tests, that this is not the better way to practice, but there is no guarantee that it is the better way to practice. If some doctors are outliers in their specialty, and their practice characteristics �happen� to end up making them a LOT more money than others, then this is certainly a reasonable basis on which to look more closely at how they are practicing, and what is the evidence basis of appropriate practice.

A third issue is that many of the recipients of the most money from Medicare, particularly oncologists (cancer doctors) and ophthalmologists are using very expensive drugs, which they have to buy first and which Medicare reimburses them for. Thus, this skews their reimbursement upward even though the money (or most of it) does not go to the doctor, but rather to the pharmaceutical company. The article refers to a drug called ranibizumab, injected into the eye by ophthalmologists monthly for age-related macular degeneration. It is very expensive, as are many drugs which are made through recombinant DNA (a lot end in �-ab�) used by oncologists, neurologists, rheumatologists, and gastroenterologists as well. One comment notes that he as a physician only makes 3% on the drug. While it can be argued that this is a significant markup (for example, making $3000 on a $100,000 drug), and that this doesn�t include the doctor�s fee for administering it (substantial), it is unfair to count the full cost of the drug as income for the doctor. Of course, it is income for someone (the pharmaceutical company) which suggests there needs to be substantial investigation into pricing of these drugs. And, of course, if a physician is found to be using a lot of a drug where he (or she) makes a 3% markup rather than prescribing an equally effective drug (if there is one) where there is no markup profit, this would be a bad thing.

However, the most important thing revealed by this data, I believe, is the enormously skewed reimbursement by specialty. It is an excellent window into the incredible differences in reimbursement for different specialties, with the ophthalmologists, radiation oncologists, etc. making huge incomes while primary care doctors (and nurse practitioners) are making $57 for an office visit. This is major. The fact that Medicare pays so fantastically much more for procedures (and, as a note, it is likely that all of the doctors, including the 202 family doctors in the highest-paid 2%, are getting it for doing a lot of procedures) leads to private insurers paying similarly more. And makes these specialties very attractive to medical students because they are lucrative (and often, though not in the case of many surgical specialties, involve fewer hours of work). Which leads to fewer primary care doctors, and a dramatic shortage in this country.

Medicare could change this. It could dramatically, not a little bit, change the reimbursement for cognitive visits to be closer to the payment for these procedures. If it did, so would private insurers. If the income of primary care doctors was 70% of that of specialists (instead of say, 30%) data from Altarum researchers and from Canada suggest that the influence of income on specialty choice would largely disappear. More students would enter primary care, and in time we would begin to see a physician workforce that would be closer to what this country needs, about 50% doctors actually practicing primary care.

It is fine if CMS and the OIG look at these highest billing doctors to make sure that they are not committing overt fraud. It is also fine to look at them and see if they are using criteria for procedures that are not supported by current evidence, or doing too many other tests, or taking kickbacks. It is also a good idea to look at the cost of drugs, especially the portion going to the drug company, as well as the markup for physicians, and to re-present the data excluding that portion of the money the doctor does not get (goes to the pharmaceutical company) from their income.

But the most important result of this report should be to be shocked at the way Medicare enables the continued practice of reimbursing for procedures at such high levels, and to kickstart a complete revision of the Medicare fee schedule to bring reimbursement for different specialties into better balance.

That would be a great outcome!

Integrating health systems must be to improve quality, not increase cost

The February 13, 2014 article in the New York Times by Elisabeth Rosenthal, �Apprehensive, many doctors shift to jobs with salaries�, more or less just presents the facts. It notes that the medical placement firm, Merritt Hawkins, says that 64% of jobs this year are salaried as opposed to 11% in 2004, and that it expects it to go up to 75% in the next two years. She cites AMA figures that ��about 60 percent of family doctors and pediatricians, 50 percent of surgeons and 25 percent of surgical subspecialists � such as ophthalmologists and ear, nose and throat surgeons � are employees rather than independent.� In some places it is more dramatic; in Kansas City, there are no longer any cardiologists (a type of internal medicine subspecialist) who are not employed by hospital systems, and oncologists (cancer specialists) are not far behind.

So, is this a good thing? The article suggests yes, but maybe not entirely. It states that �Health economists are nearly unanimous that the United States should move away from fee-for-service payments to doctors, the traditional system where private physicians are paid for each procedure and test,� and I agree, and that �When hospitals gather the right mix of salaried front-line doctors and specialists under one roof, it can yield cost-efficient and coordinated patient care. The Kaiser system in California and Intermountain Healthcare in Utah are considered models for how this can work,� with which I also agree. However, not all health systems are Kaiser or Intermountain Healthcare. The article continues: �But many of the new salaried arrangements have evolved from hospitals looking for new revenues, and could have the opposite effect. For example, when doctors� practices are bought by a hospital, a colonoscopy or stress test performed in the office can suddenly cost far more because a hospital �facility fee� is tacked on.�

Rosenthal has written about facility fees before, as has Alan Bavley of the Kansas City Star in his �Doctors, Inc.� series (��Facility fees� add billions to medical bills�, Dec 29, 2013), and I have commented on it in Changing the structure of health care delivery systems: to benefit the patient, the providers, or the insurers?, January 14, 2014. The new arrangements promise more money, or at least stable incomes, to physicians, and continue to pay the currently-most-highly-paid specialists the most money, with primary care doctors getting less. This is not because hospital systems have anything against primary care, but rather that they are following the money, and these acquisitions have occurred precisely while we are still under fee-for-service reimbursement in most locations. If cardiology or orthopedic or radiologic or neurosurgical procedures bring in great amounts of money to the hospital (�technical fees�) the hospitals like this, and are willing to share some of that money with the doctors to ensure that they keep their patients in their hospital or health system. Primary care does not generate such largesse. Relatively intelligent systems recognize that they need a locked-in �primary care base� to create referrals to their subspecialists, but will pay as little as they can, and demand �high productivity� (which could be seen as �patient churning�), and it is not just primary care: �many doctors on salary are offered bonuses tied to how much billing they generate, which could encourage physicians to order more X-rays and tests.�

Bloomberg News has a more direct take on this phenomenon, stating firmly in an article by Shannon Brownlee and Vikas Saini that �Bigger hospitals mean higher prices, not better care�, February 18, 2014. They cite data from sources such as the Dartmouth Atlas of Health Care, a recent article in Health Affairs[1] which demonstrated that �On average, higher-priced hospitals are bigger, but offer no better quality of care,� and a variety of lawsuits by public agencies (such as the Massachusetts Attorney General) to demonstrate that hospital acquisitions are about market share and control of practices and, ultimately, about money, not quality. �If you think of value as some combination of needed services delivered for the right price, large hospitals are no better than small hospitals on both counts.� As I have written about before, doctors control a lot of costs in the health system, by choosing the tests that they order, deciding whether to admit to the hospital or not, and where they refer. By employing the physicians, hospitals can not only control the latter, but can set criteria requiring physicians to abide by hospital policies on the others. The doctors then become, in the words of this article,  ��another cog in the corporate machine, and many physicians have told us they feel they must skew their medical judgment to keep their jobs.�

This is the nonsense that occurs when things are done piecemeal. Intermountain Health Care and Kaiser are not perfect, but they have used their status as integrated health systems to control costs and increase efficiencies. To the extent that they are also the insurer, it is in their interest to do so. Efforts by the federal government to have others emulate these models through the creation of Accountable Care Organizations (ACOs), without changing the manner of reimbursement, are bound to fail. As Paul Baladian is credited with saying �every system is perfectly designed to get the results that it gets.� If we are getting a system in which hospitals are buying up physician practices so that they can charge insurers, from Medicare to Blue Cross, more; if we are getting a system in which medical decisions are being made in the best financial interests of hospitals rather than the best health interests of patients; if we are getting a system in which we continue to favor some patient over others based upon their income, insurance status, or their type of disease (middle-aged well-insured person who needs a single joint replacement = �good�, older person with multiple chronic medical conditions and �just� Medicare or worse yet uninsured because they are under 65 or undocumented = �bad�), it is because we have perfectly designed it to be so.

Brownlee and Saini offer some suggestions for solutions. They suggest that Medicare expand its �Advance Payment Model,� a program that provides capital to small or rural physician groups, and also particularly about forming multispecialty Accountable Care Organizations driven by primary care.

�Until we give primary-care groups control over what happens to patients, large hospital systems and specialist-dominated groups -- those with greatest access to capital -- will be able to keep raising prices, even as they issue press releases about their plans to control costs and improve care.�

Sounds like a good idea to me. Combine that with a single-payer system that covers everyone, �everybody in, nobody out!� and we may be able to reverse the trend toward higher profit at the expense of lower quality.

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[1]White C, Rechovsky JD, Bond AM, �Understanding Differences Between High- And Low-Price Hospitals: Implications For Efforts To Rein In Costs�, Health Affairs, January 2014 10.1377/hlthaff.2013.0747.

Health care systems should not be run for profit, but rather for people's health

I wrote in a recent blog (�How can a health care system lead not to ruin but to, actually, health?�, December 28, 2013) that our health care system ��is a parallel to our financial services industry: private enterprise is given a license to make money from everyone, and the government finances it. The only difference is that for financial services, the government steps in to bail them out only after they have already stolen all our money, while in health services the profit margin is built in from the start.� A recent article in the New York Times, �Hospital chain said to scheme to inflate bills�, by Julie Creswell and Reed Abelson (January 24, 2014) takes this a bit farther.

Discussing the Department of Justice�s decision to join several whistleblower (�qui tam�) lawsuits against the for-profit hospital chain HMA (not to be confused with the nation�s largest, HCA) for aggressive policies that seek to maximize profits by �encouraging� (at threat of termination) doctors to over-admit patients, they quote Sheryl R. Skolnick from CRT Capital, who wrote �Investors seem to think that D.O.J. investigations, qui tam suits and allegations of serious Medicare fraud are simply a cost of doing business.� That�s right. Illegal activity has a price � fines � but the fines are small enough that they do not discourage the illegal activity. The authors write �Many settlements run only into the tens of millions of dollars. That�s a corporate slap on the wrist for companies whose stocks typically soar when executives push the profit envelope. Only if the penalty is at least $500 million, Ms. Skolnick said, are corporations likely to find the cost a deterrent.� Or, of course, if the heads of these corporations are sent to prison, but in another parallel with the financial services industry, this is not happening. Not to Lloyd Blankfein of Goldman Sachs or other financial titans (such as CEO Jamie Dimon of JPMorgan, featured in the same issue of the Times, �JPMorgan, fined billions, approves raise for its chief�!), or to Rick Scott, former head of Columbia/HCA when it was fined $1.7 billion in 2003 for massive Medicare fraud). Scott, of course, is now the Governor of Florida.

It is difficult to imagine the hubris and arrogance of the �masters of the universe� who run the financial services industry, or the large hospital corporations. At least, it is for me, and possibly for other people who believe that the health care system should be first, second, third, and last about benefiting people�s health. It does not seem to be for the C-suite executives of even moderate-sized hospitals, who often come from accounting and finance backgrounds. The argument is that if there is �no margin� there is �no mission�, and that in the competitive environment of health care it is necessary to have good business managers to make it possible for a hospital � or hospital system � to even survive, not to mention to prosper.

Good management is important. Good management means the ability to run an organization efficiently, to create effective systems and effective working relationships, to enhance quality and limit unnecessary costs. It is absolutely necessary to build a system that is about benefiting the health of people. This includes financial knowledge and financial management ability. But increasing profit, increasing market share, taking �desirable� customers away from �competitors� has no such place; the health system has no business in being organized in such a way that these things are even possible.

This statement is so completely at odds with the way the health system is currently structured that it bears repeating. There should be no financial incentive for competition in health care. There should not be more services available than a community needs because every hospital wants to provide it and take �customers� from their competitors. If, for example, a community is large enough that it needs one MRI scanner, there should be only one (or 2, or 3, or whatever the medical need is). In the current structure, however, the hospital with that one would have a competitive advantage over other hospitals in the community, so everyone needs one. The same is true for any profitable service: cancer treatment, heart procedures, neurosurgical procedures, etc. Profitable �product lines� are, thus, in oversupply, and this means that they are overused, often with risk to the recipients, and certainly the cost to everyone is increased. Conversely, necessary services that are not profitable, such as burn and trauma care, are rarely in oversupply, frequently relegated to the community�s public hospital, and sometimes not available at all.

A community should have all the health care resources its people need, but should not duplicate � and triplicate � services so each can compete. It is bad in terms of the overall cost, and the oversupply of profitable services, and it is arguably worse in that all these hospitals are competing to get the same patients � those who are well-insured with �high profit� diseases, and to not care for others � uninsured, poor, and those needing services that are not well reimbursed.

This is craziness. Health care is not luxury condominiums, or expensive watches. It is something that every single person should get all of that they need, and no one should get what they do not need. There should be competition between hospitals to be excellent, and measures of excellence should include comprehensiveness, quality, cost-effectiveness, and caring for everyone equitably (not equally, but based upon their health care needs). And, if there are to be financial rewards, they should come for doing this well. There must be no services that are particularly �high-profit�, nor patients whose economic status makes them �undesirable�.

We have a long way to go. Various strategies have been tried in the past, from certificate of need (CON) programs that decided whether a community needed a new pieceof capital equipment in the 1970s and 1980s, to disproportionate share funding for hospital caring for higher percentages of uninsured people and quality improvement organizations more recently. But all of these efforts have been gamed, because there was no comprehensive plan in place to ensure that no patient, and no disease, was more or less profitable than another. We need to have a system in which each person with a health care problem is provided the care that they need. No gold cards. No profitable conditions. Not hard to understand.

The time for this to happen is now.

Changing the structure of health care delivery systems: to benefit the patient, the providers, or the insurers?

In an important series of 3 articles beginning on the Sunday before the New Year, �Doctors Inc.�, Alan Bavley of the Kansas City Star looked at the increasing acquisition of physician practices by hospitals, and the impact this has on access to, quality of, and cost of health care for patients. The first article, �Medicine goes corporate as more physicians join hospital payrolls�, describes the �what�, that:

�Since 2000, the number of doctors on hospital payrolls nationwide has risen by one-third, according to the American Hospital Association. In the Kansas City area, fully 55 percent of physicians are now employed by hospitals, Blue Cross and Blue Shield of Kansas City estimates. That includes virtually all cardiologists and most cancer specialists.� 

These changes are not limited to the KC area; he cites both national data and that from disparate regions such as Spartanburg, SC and Phoenix, AZ. Part of the reason, the "financial model", which is described in this first article, is that such �integrated� practices generate internal referrals, keeping patients within the system, as well as generating lucrative procedures. Physicians get a piece of the action; they get guaranteed salaries paid in part by the hospital or health system which is getting downstream revenue for their referrals.

And it makes these hospitals and health systems a lot of money, because they can now charge a lot more money. Bavley quotes �Robert Zirkelbach, vice president of America�s Health Insurance Plans, the industry�s trade association. �When a hospital buys a practice, its rates will increase in the following year�s contract. Increases of 20, 30 or 40 percent are not uncommon. It�s not 3 or 4 percent, that is for sure.�� 

It is also not always good for patients, as Bavley illustrates with examples of people who were referred internally and had delayed diagnosis. (One story discusses a woman discouraged from going to the academic medical center at which I work � full disclosure � for a second opinion regarding her lung cancer; the "reasons" given were both that she �didn�t have time�, and because she would see �young doctors still in training�.) Sometimes it is fine to see doctors within the system, and certainly this can be, and is, encouraged, but discouraging people from seeking outside referrals can also be hazardous to their health.

The Affordable Care Act (ACA) encourages the creation of �Accountable Care Organizations� (ACOs), which would be responsible (at least hopefully, in the best of scenarios) for the health of a population. At a minimum, they would seek to decrease the degree to which the delivery of health care is a series of episodic events paid for individually, instead taking on a global responsibility including inpatient, outpatient, and long-term care. This would, in theory, change the usual patient experience from seeing one (or many) doctors or having one (or many) ER visits, each charged and paid separately, culminating in a hospitalization, and then discharge to one (or many) doctors, or a long-term care facility (paid separately), and failure of care resulting in readmission to the hospital (paid again). The idea is that all levels would be coordinated to provide the best care at the most appropriate (inpatient, outpatient, long-term, home based) level.  In some settings, particularly for fully-integrated plans (where the providers of care are also the insurers) such as Kaiser, this works relatively well.

However, as Bavley makes clear in his series, written as part of a yearlong Reporting Fellowship on Health Care Performance sponsored by the Association of Health Care Journalists and supported by The Commonwealth Fund, particularly in the second article, ��Facility fees� add billions to medical bills�, there is often a great cost to those who are paying, the patient and their insurer (including Medicare and Medicaid). This is because Medicare (and, following their lead, private insurers) pays an additional fee (the "facility fee") for services, and especially procedures, done in a hospital outpatient facility beyond what they would pay for it to be done in a doctor�s office. (This is also addressed in the series by Elisabeth Rosenthal, "The $2.7 Trillion Medical Bill" in the New York Times.) 

Why? The original intent (as is often the case) was good, intended to both save money and improve care, by having many procedures done in outpatient rather than inpatient settings, where the cost would be even higher. And (as also so often is the case) the providers realized that this system could be gamed as well. The physician fee for a visit or procedure done in an office is greater than that done in a hospital clinic, but is expected to include all the overhead. In a hospital-based clinic (which just has to be owned by the hospital or health system; it doesn�t have to be on the campus and can be in the same doctor�s office that used to be separate) there is a somewhat lower doctor's fee, but there is also a facility fee that, together with the doctor�s fee, is much higher in total than the office-based reimbursement; indeed, the facility fee can be far higher than the physician fee. Thus, the hospital makes money, and can share some of that with the physician, allowing the physician to make a lot more money without the overhead and risk. Voil�! Physicians are incented to become employed by hospitals!

I am a doctor and work in a medical center, so I understand the impetus for this from the point of view of providers, both doctors and hospitals. Medicare is ratcheting down its reimbursement, and a particular form of support for hospitals caring for a disproportionate share of uninsured is being cut back, and operating margins for many hospitals are getting thin or negative. Doctors are making less money (arguably some of them were making far too much, but they still don�t like making less) and will thus endorse efforts to have hospitals support them and maintain their incomes. The problem is that the cost to consumers goes up, especially when co-pays and co-insurances that come out of patients� pockets, even when they are insured, go ever upward. 

Medicare is, sadly, responsible for much of this situation, as illustrated by the following: seeking to reduce costs for unnecessary admissions, Medicare has empowered bounty hunters (called �RACs�) to go after Medicare �fraud� by reviewing admissions to hospitals for patients who could have been care for in the hospital on �observation� status, which will save Medicare money. Hospitals are thus very careful to only officially �admit� people who meet very strict criteria. However, because �observation� status is officially �outpatient�, while Medicare saves money the patient pays more out of pocket, because this is under Medicare Part B, not the Part A that covers hospitalization. Complicated, but what it comes down to is what is financially good for Medicare is financially bad for the patient. Is this what we want?

I hope not. Yes, some of the fault is Medicare, and the fault is also providers (hospitals and doctors) seeking to maximize profit (even if �not-for-profit�) by manipulating the rules of the system. The fault is that we have Rube Goldberg-type complex constructs put in place to encourage behavior by providers, and providers are figuring out ways to work the system to their benefit. The real problem is that we do not have a straightforward system to deliver the highest-quality, necessary, health care to all people but a mess of conflicting incentives where gain to one component (i.e., insurers) is a loss to another (i.e., providers) and that they then take actions that benefit them and the overall loser is the patient. Bavley quotes an email from a board member of a hospital system to the Chief Financial Officer that said �Let�s be realistic. Employing physicians is not achieving better cost, it�s achieving better profit.�

That is not what our national health policy should be doing. A health system that did not permit gaming but straightforwardly paid for health care,  and eliminated the profit motive, would solve these problems. The answer is to put everyone in Medicare, in a single-payer system, so some patients are not �more desirable� than others. And to have Medicare, which is now covering everyone, pay for the appropriate level of care for every patient, where doctors and hospitals have no incentive to label a person�s hospitalization as �admission� or �observation�, or an outpatient visit as �hospital based� or �office based� because there is a difference in the reimbursement.

It can be done. It is done in Canada. It is done in some fashion in every other developed country. If we decide that the health of our people is more important than the profit of the health care industry, we can do it also.