California HealthLine has an excellent roundup of Medicare news. Most significant is their take on physician reimbursement, which is slated to be cut by 4% on 1/1/2006. Lawmakers appear to be interested in rescinding the cut, which would be consistent with their actions the last time Medicare physician reimbursement cuts were slated to take place.
Expect changes late in the year or early next – I know, early next year would be after the cuts are scheduled to take effect. The political winds are moving in that direction, with the AMA and AARP staking out positions (no surprises there)
What does this mean for you?
1. With most state WC and other fee schedules tied to Medicare rates, cuts in physician reimbursement will directly affect payouts in these lines of insurance.
2. If Congress does not act until early next year, companies tasked with implementing fee schedule changes will find themselves burning the midnight oil to build fee schedule tables that can meet either eventuality -cut or no cut.
3. PPO discounts are often pegged to Medicare, so their revenues will either increase or stay the same, depending on what Congress does.
4. And most important, a decrease in reimbursement will lead to more physicians dropping out of Medicare, Medicaid, and any reimbursement program tied directly to Medicare. Today physicians ask for, and receive, reimbursement higher than the state fee schedule in WC in Massachusetts. Florida raised its fee schedule from 87% of Medicare (on average) to 114% in large part due to physicians refusing to take the lower reimbursement. Early evidence is physicians are returning to the system, and utilization has not increased.
Editorial statement – price controls simply do not work. When will the politicians, managed care “experts” and PPO companies learn this?
One of the more distasteful practices in the medical profession is the subject of an article in today’s Wall Street Journal. The practice is so-called self-referral of patients by a physician to an imaging facility where they stand to gain financially. Yes, there are laws against this. Yes, physicians and business folks make lots of money thinking up creative ways to circumvent these practices.
This is one of the more creative I have heard of. To quote the Journal;
Imaging centers “structure referral deals as leases, under which physicians, each time they send over a patient, are renting the scan center’s facilities and employees.” The physician then bills the insurance company whatever rate they deem appropriate, and receives payment directly.
Imagine what they could accomplish if they worked to create value and better health, instead of thinking up ethically-challenged ways to generate even more physician income.
What does this mean for you?
If you are contracting with physicians, be very careful about the language re self-referrals; although many tend to turn up their noses at the mention of contract law, this is a great example of why the details are critical.
If you are evaluating an upsurge in diagnostic imaging, tie the referrals back to referring physicians, and look for any sudden increases. Then, have a talk with the doc.
Even though it’s just a small one, it is stilll significant. Rep Nancy Johnson (R) CT (my home state) is promoting a drastic change in the way Medicare pays physicians. Rep. Johnson is calling for a pay-for-performance scheme to replace Medicare’s fee schedule arrangement.
Details below, but in case you can’t read that far, think of this.
1. many state workers comp fee schedules are based on Medicare’s. What are the implications for state programs?
2. Group health reimbursement is often tied to Medicare as well…
3. Medicare is based on paying for services needed for and delivered to a population that is over 65. If the reimbursement arrangement changes, and it factors in some kind of “performance” metric, will it even be possible to adapt that to younger populations?
Now that your head hurts, here’s the details…
According to California HealthLine;
“Johnson said that, although physician performance measures and systems to collect data on performance are not perfected, lawmakers must move to address the issue because of scheduled reductions in Medicare physician reimbursements over the next several years. Elimination of the SGR (Sustainable Growth Rate) system “is the only possibility,” Johnson said, adding, “It’s unfortunate that we have to do this two years in advance of the technology.”
Johnson also indicated that lawmakers could enact “a one-year fix of physician payment while a more permanent system is being designed,” although she hopes to enact permanent revisions to the Medicare physician reimbursement system this year, CQ HealthBeat reports. She estimated that the replacement of a 1.5% reduction in Medicare physician reimbursements for fiscal year 2006 with a 1.5% increase would cost $11 billion over five years.”
Two reports on so-called “specialty hospitals” were released yesterday in hearings on Capitol Hill. The Medicare Payment Advisory Commission’s (MedPAC) report calls for an extension of the ban on construction of new specialty hospitals. For those who have not been keeping up on this rather esoteric (but critically important) issue, there has been a Federal ban in place preventing the construction of these facilities, which are typically for-profit and partially owned by the physicians practicing at the facilities.
The rationale behind the ban was a concern that these facilities were “skimming” the profitable patients, leaving tertiary and primary hospitals the indigent, Medicaid, and less-healthy patients. According to California HealthLine, the report addressed this concern directly, noting:
“The MedPAC report, presented to the Senate Finance Committee on Tuesday, states that physician-owned specialty facilities could “corrupt clinical decisions and lead to inappropriate care.” The report also said that, relative to full-service hospitals, specialty hospitals generally treat healthier patients, focus on higher-cost procedures, treat fewer Medicaid beneficiaries and do not have lower costs.
The report recommends that Congress recalculate Medicare prospective payments to acute care hospitals to more accurately reflect the cost of care and prevent financial incentives for hospitals to select healthier patients (CQ HealthBeat, 3/8).
MedPAC’s findings were not entirely echoed by a CMS report presented at the same hearing. (Source California HealthLine)
“CMS “unexpectedly released” its preliminary report on specialty hospitals. Thomas Gustafson, deputy director of the CMS Center for Medicare Management, said the CMS study shows “measures of quality at [physician-owned] cardiac hospitals were generally at least as good and in some cases better than the local community hospitals.”
In addition, “[c]omplication and mortality rates were lower at cardiac specialty hospitals even when adjusted” for patient-sickness levels, he testified. CMS conducted its study by examining six markets, which represent 11 of the 59 cardiac, surgery and orthopedic specialty hospitals approved in 2003 as Medicare providers.
The CMS report also found that doctors who have invested in specialty facilities do not refer patients exclusively to the specialty hospitals but they do refer a greater share of patients to specialty facilities than to full-service hospitals. ”
Out here in the real world, there is evidence that specialty facilities do skim the patient pool. A full-service, multi-hospital health care system (client of Health Strategy Associates) has been losing patients to a physician-owned ambulatory surgery center for over a year. Anecdotal information strongly indicates that the patients seen at the doc-owned ASC are more likely to be privately insured or covered by workers’ comp (a profitable payer in this state).
Fed Chairman Alan Greenspan’s recent gloomy pronouncements about the potential impact of the federal deficit have focused even more attention on entitlement programs. Interestingly, Greenspan specifically mentioned governmental health programs, such as Medicaid and Medicare, noting that their contribution to the deficit may well outstrip that of Social Security.
Pres. Bush’s efforts to rein in Federal expenditures on Medicaid has focused on cutting drug reimbursements; eliminating some of the ways seniors have shifted assets to qualify for governmental funding of long term care; and closing “accounting loopholes. As of today, these recommendations have run into a stone wall, as Republican and Democratic governors alike have strongly resisted any Federal cuts to Medicaid funding. Their resistance, combined with less-than-overwhelming support from Congressional Republicans, make it unlikely that Mr. Bush will get all, or much, of what he desires.
If Bush is unable to cut Medicaid significantly, today’s $300 billion in annual costs will continue to escalate at near-double-digit rates. Combine that bad news with the Administration’s refusal to consider any changes to the new Medicare Prescription Drug program (slated to start next year), and it is clear that any progress in reducing governmental expenditures on health insurance programs will have to come from other sources.
So, who’s going to feel the pain?
In a word, providers.
Doctors are slated to receive an automatic 5% fee cut in 2006. Historically, Congress has eliminated or reduced these cuts in the past
A very good discussion of the contentious relationship between (and among) hospitals, employers, and insurers can be found on healthsignals new york.
The article refers to recent developments in the Denver market that are worth reflecting upon.
Why do doctors contract with large networks to provide care at a deep discount? Do they expect to get more business from those relationships? If so, does that additional business ever arrive at their examining room? How many other physicians in their area are also contracted with that network? If there are many, are they merely joining to maintain their patient base?
Have they actually done the math to determine the impact of the discount on their finances?
Here’s an admittedly simplistic analysis of the financial impact of a discounted patient visit.
- The “non-discounted” price would be $100
- The discount is 20%
- The net profit on the average patient visit (non-discounted) is 30% (an unreasonably high number, but easier to work with for our purposes)
The doctor makes a profit of $10 per discounted patient visit, and therefore must see three times as many patients to justify that 20% discount. And that’s before one factors in the additional fixed costs associated with the larger patient load – more parking, more staff, a larger waiting room, more examining rooms, and more of his/her professional time.
Perhaps more physicians are “doing the math”, and that is why managed care firms are having a much tougher time getting discounts.
The network deep discount model has other fundamental flaws, flaws that are only now beginning to be fully appreciated.
The wide geographic variation in treatment has received extensive coverage in the Medicare and group health arenas, with one of the most-cited studies coming from the Dartmouth Medical School. The Dartmouth Atlas of Health Care uses Medicare data to illustrate the difference in frequency and utilization across states and MSAs, and is required reading for anyone pursuing this subject.
One of the questions raised by the Atlas is “does this variation also occur in other lines of coverage?” While there is not nearly as much data available on this subject, two fairly recent studies in Texas indicate that disparities in cost are not limited to the Medicare world.
The Research and Oversight Council’s (ROC) Analysis of the Cost and Quality of Medical Care in the Texas Workers’ Compensation System provides an excellent (and brief) summary of the two studies, one by the Council itself and the other by the well-respect Workers Compensation Research Institute (WCRI). Of note, the ROC’s study indicates that the average annual medical cost per claim range from $4242 in the Dallas/Fort Worth area to $2835 in San Antonio/Austin.
Undoubtedly this variation exists in other states as well. This raises some interesting issues, including:
–In states with regulated rates, do underwriters select risks based on lower-cost medical areas? If not, why not?
–Can payers focus their managed care efforts on high cost areas and away from low cost areas, and if not, why not?
–What is going on? Are treatment patterns different? Are costs higher? Are injuries or illnesses different? Is there a different mix of providers?
Clearly, medical care is delivered in different amounts, by different types of providers, via different procedures, in different areas. That being the case, why are managed care programs so generic? And could that be one of the reasons why they are both frustrating to the provider and ineffective at moderating health care cost increases?