Methodology

To start with, HUD uses household data to measures gross rents.  Gross rents include both the cost for shelter (i.e., rent) and utilities.  To measure these costs, HUD uses 5-year estimates from the American Community Survey (ACS).  For FY2012, HUD used 2005-2009 ACS data.  The advantage of using 5 years of data is that the sample size is larger, thus increasing the precision of the rent estimates.  However, rent information from 2005 may be out-of-date.

To correct this problem, HUD uses a recent mover adjustment.  The recent mover adjustment compares the rent estimates from the most recent 1-year ACS estimates (e.g., 2009) against the 5-year estimates (e.g., 2005-2009).  If the difference between the two is statistically significant at the 90th percentile (|Z score|>1.645)¹, then the rent estimates are adjusted to match the 2009 estimate.  Although HUD could simply use a weighted average of the rent estimates and give more weight to more recent years, HUD does not do this, but instead uses this discrete ‘recent mover adjustment’ instead.

Using the ACS data, however, means that county rent estimates are not up-to-date through 2012.  To update the rents through 2010, HUD uses an inflation factor.  Specifically, they use the CPI housing index through 2010.  They account for regional variation in inflation by using metro-area housing CPI estimates for large metro areas with CPI-housing data available and regional CPI-housing data where metro-level information is not available.² D

Why do I care?

Why does the Healthcare Economist care about rental data? The reason is that the practice expense geographic practice cost index (GPCI) estimate regional variation in office rent cost for physicians using rental data from the American Community Survey. Prior to using the ACS, the practice expense GPCI relied on the HUD estimates to calculate regional variation on office rents. More detail on how the GPCIs use ACS rental data as a proxy for regional variation in physician rental costs can be found in this report.

¹ HUD ensures that the recent mover estimate for each non-metropolitan portion of the state has at least 100 ACS sample observations. If any state non-metropolitan recent mover rent is based on fewer than 100 observations, the recent mover factor would be calculated based on the 1-year recent mover data and 5-year standard quality data for the entire state.
² From the final rule: The ACS data are updated through 2009 using the one-half of the change in annual CPI measured between 2008 and 2009. This data are further updated through the end of 2010 using the annual change in CPI from 2009 to 2010. As in previous years, HUD uses Local CPI data for FMR areas with at least 75 percent of their population within Class A metropolitan areas covered by local CPI data. HUD uses Census region CPI data for FMR areas in Class B and C size metropolitan areas and non-metropolitan areas without local CPI update factors.. From 1990 to 2000, rents increased by 3 percent on average. To pro-rate 2010 rent estimates to 2012, HUD applies this 3 percent adjustment to the 2010 estimates to arrive at the final 2012 FMR estimates. It may seem odd that HUD uses old data (1990-2000) to trend rents, but the recent volatility in the housing market may imply that pre-2000 data may better reflect long-run trends in housing prices.

The VBP program will evaluate physicians along two broad dimensions: quality and cost.  In the final rule:

Section 1848(p) of the Act requires the Secretary to ‘‘establish a payment modifier that provides for differential payment to a physician or a group of physicians’’ under the physician fee schedule ‘‘based upon the quality of care furnished compared to cost *** during a performance period.’’ The provision requires that ‘‘such payment modifier be separate from the geographic adjustment factors’’ established for the physician fee schedule. In addition, section 1848(p)(4)(C) of the Act requires that the value modifier be implemented in a budget-neutral manner.

Quality

The current quality measures to be used include:

1. The measures in the core set of the Physician Quality Reporting System (PQRS);
2. All measures in the Group Practice Reporting Option (GPRO) of the Physician Quality Reporting System; and
3. the core measures, alternate core, and 38 additional measures in the Electronic Health Records (EHR) Incentive Program measures.

Cost

The current measures of cost CMS is using are total per capita cost measures and per capita cost measures for beneficiaries with four chronic conditions (COPD; heart failure; coronary artery disease; and diabetes).

By January 2012, however, CMS will choose an episode grouper which can evaluate physicians based on episodes of care. Specifically:

Section 1848(n)(9)(A) of the Act requires us to develop by January 1, 2012, an episode grouper that combines separate, but clinically related items and services into an episode of care for an
individual, as appropriate.

Other Issues

One of the main problems of the physician VBP is attribution of patients to doctors. In managed care organizations, patients are assigned a primary care doctor or gatekeeper who are responsible for the patient’s overall care. In Medicare, the patient can see any willing provider; because the primary care doctor cannot restrict the patient’s choice of care, it is more difficult to hold them responsible for the care. Specifically, Medicare beneficiaries never have to choose a primary care doctor, so identifying the doctor to be ultimately responsible for each patient’s overall care is difficult.

Physicians require additional information to understand why the received the VBP scores they did. For this purpose, CMS will create Physician Feedback Reports, confidential reports providing more detailed information of the underlying factors which produce these scores.

For the VBP modifier in 2015, CMS will use 2013 as the initial performance period 2013. This means that payment adjustments in 2015 will be on care provided 2 years ago. Although evaluating physician performance, allowing for appeals and adjusting payments takes time; two years is a long lead time.

“Cesarean delivery rates in both California and the United States as a whole rose by 50 percent between 1998 and 2008, climbing from 22 percent to 33 percent of all births in just a decade. This upward trend, which is seen for every type of woman regardless of race/ethnicity, age, weight, or the gestational age of the pregnancy, shows no signs of reversing. The increasing rates are largely the result of two factors: a significant rise in first-birth cesareans done in labor, and a marked decline in vaginal births after a prior cesarean (VBAC).”

As any good economist would say, there are two factors affecting the change in Caesarean rates: demand and supply. On the demand side, women are more comfortable having a Caesarean than ever before. When a woman is pregnant, more of their peers will have had a Caesarean and the are thus their fear of this major surgery may decrease. Further and with the tremendous amount of faith most women place in modern medicine and their physicians specifically, Caesareans may seem like a more ‘advanced’ way to give birth.

On the supply side, there is a simple reason why Caesareans have risen: money. Physicians get paid more when they do Caesareans. Further, a vaginal birth takes a long time and involves a lot of watchful waiting and monitoring. The Caesarean procedure–although much more intensive and generally worse for the women–is much faster. According to the CMQCC report, “Many nurses talked about the timing of cesareans done during labor, citing the competing demands on physicians for clinic appointments and their desire for balance between work and the rest of life”Kaiser Permanente, where physicians are paid a salary and beneficiaries receive all services from KP docs, generally have among the lowest Ceasarean rates in the state of California.

Doctors do not find it profitable to supervise vaginal birth. And to be honest, I don’t blame them. A typical vaginal birth without complications may not require much direct supervision of a physician. Substituting more labor (i.e., time spent with the patient) by using a midwife in place of more capital (i.e., human capital that the physician accumulated) is more likely to produce better birth outcomes for the average women. Physicians could be brought in only for complicated cases which require additional expertise and surgical skills.

Source:

• Main EK, Morton CH, Hopkins D, Giuliani G, Melsop K, Gould JB. Cesarean Deliveries, Outcomes, and Opportunities for Change in California: Toward a Public Agenda for Maternity Care Safety and Quality. CMQCC White Paper 2011

Earning a living is not as simple for doctors as other professions.  Sure doctors make a lot of money.  But knowing how much they get paid for a particular service is complex.

I provide an overview of the physician reimbursement system here.  That overview does not take into account all the payment modifiers in the Medicare’s physician reimbursement system.  Consider the following payment modifiers:

• For many procedures, Medicare pays providers for the professional and technical component.  The professional component is the physician’s work and expertise; the technical component provides reimbursement for equipment and supplemental staff needed to perform the procedure.  If the procedure is billed globally, then the physician receives both components.  If another entity performed the technical component, then the physician is only paid for the professional component.  For instance, for lab tests, the lab may run the test (technical component) but the physician would be the one interpreting the test (professional component).
• If you assist in a surgery, you receive 16% of the fee the primary surgeon does.Under some circumstances, the individual skills of two surgeons are required to perform surgery on the same patient during the same operative session.  If you are a co-surgeon (rather than an assistant at surgery), you receive 62.5% of the typical reimbursement for that surgery.
• If you perform a bilateral surgery–a surgery done on both sides of the body (e.g., right arm and left arm)–then you receive 150% of the payment you would have received from doing a unilateral surgery.
• When multiple procedures are performed through the same endoscope, payment will be made for the highest valued endoscopy (100% of the allowance) plus the difference between the next highest and the base endoscopy.
• If you perform multiple surgeries in the same day on the same patient, you do not get paid the same amount as if these were performed on multiple days.  The highest valued procedure is paid 100% of the allowance.  For the second through the fifth highest valued procedures, the physician receives 50% of the typical payment amount.
• If you are a physician assistant, nurse practitioner, or a registered dietitian or nutritionists; you receive 85% of the payment an MD would receive for performing the same service.
• If you are a clinical social worker, you receive 75% of the payment an MD would receive for performing the same service.
• If you are a certified nurse midwife, you recieve 85% of the payment an MD would receive for performing the same service.  If you are a midwife, you only receive 65%.

If you don’t think Medicare is bureaucratic, just take a look at those rules.

As I previously noted, this delaying the cut to physician payment is not a long term fix. Either Medicare should remove the sustainable growth rate (SGR) provision and acknowledge the fiscal impact of paying doctors more or they should impose the SGR or (more likely) a modified SGR.

The current two month delay makes it seem as if Congress will cut Medicare payments to physicians by 27 percent on March 1, 2012, even though this will of course not happen.

With respect to the ‘doc fix’ issue, more transparency is needed.

In the meantime, I pose to you, my reader, a bet.  Do you think the ‘doc fix’ gets passed?  Before you read on, make your predictions in the comments section below.

Healthcare Economist’s Prediction

What is the doc fix?  In 1998, Medicare implemented the Sustainable Growth Rate (SGR) system.  Medicare intended that the SGR  was intended to slow the rate of growth on Medicare physician spending by decreasing reimbursement to physicians over time (for more information, see here).  Each year since 1998, however, Congress has reversed the decrease in physician payment rates.  It did not, however, abolish the SGR.  Abolishing the SGR would create a huge shortfall in Medicare spending.

Instead, Congress temporarily removes the SGR for the upcoming year without abolishing it.  Because the gradual decreases in physician payments were never implemented,  if the SGR is not overturned, Medicare physicians would see a 27.4 percent decrease in their reimbursement rates.  Ezra Klein’s WonkBlog notes that this may in fact be a good idea.

This is unlikely to happen.

Although the Washington Post questions whether it will actually happen, physicians are a strong lobbying group and a 27.4 decrease in anyone’s salary is enough to cause Congressmen to have their inboxes filled with letters and emails from angry physicians.

If you ask most Americans if they want to have their payroll taxes lowered, they will say they do.  If you ask most Americans if they Medicare physician fees should be cut, they will say no.  The recently passed payroll tax cut, however, funds Medicare physician salaries; payroll taxes in part are used to fund Medicare.

By passing the doc fix, Medicare finances will be placed into peril.  By failing to pass the doc fix, reimbursements will be cut and Medicare may begin to look more like Medicaid–a insurance benefit where finding a doctor willing to accept low reimbursement rates is difficult.

In my opinion, Congress will do what they always do: pass the buck to the next generation. The doc fix will pass.

• Quality reporting
• e-Prescribing (eRx)
• Electronic Health Records (EHR)

CMS’s Physician Quality Reporting System (PQRS) allows physicians to report the quality of care their patients receive. Physicians can report PQRS measures through claims, registries, or EHR systems.  To incentivize physician participation in the PQRS, CMS has adopted incentive payments.  In 2012-2014, Physicians who meet the PQRS participation requirements will receive a 0.5 percent payment bonus.  In 2015 through 2017, however, who do not submit a sufficient number of PQRS measures actually will receive a payment reduction.

In addition to the PQRS incentive, beginning 2012, Medicare eligible professionals who are not successful electronic prescribers under the eRx Incentive Program to a payment adjustment. This payment adjustment applies to all of the eligible professional’s Part B-covered professional services under the Medicare Physician Fee Schedule (MPFS). From 2012 through 2014, the payment adjustment will increase with each new reporting period. Accordingly, for 2012, eligible professionals receiving a payment adjustment will be paid 1.0% less than the Medicare Physician Fee Schedule (MPFS) amount for that service. In 2013 and 2014, the payment adjustment increases to 1.5% and 2.0% respectively.

A table summarizing these incentive payments is below.

CMS also offers physicians incentive payments to adopt EHR.  Incentive payments can be as high as $18,000 per year or $44,000 over a five year period.

As physician wages have grown over time, however, the home visit has made less economic sense.  Consider the table below.  Primary care physician median wages are five times as high as the typical earners wages.  If it takes 30 minutes for the physician to drive and set up his equipment for a home visit, the incremental cost for the typical physician visit would be about $40 compared to only a time cost of about $8 if the patient visited the doctor. Having physician assistants or nurses make a home visit would be relatively more economical, but still is not economically efficient given the current labor market.

Nevertheless, home visits may be making a comeback.

A number of physicians in Great Britain’s National Health Service already make home visits. Further, Health Reform (specifically Section 3024 of the Affordable Care Act) mandated the creation of the Independence at Home (IAH) Demonstration. The IAH demonstration will begin in January 2012. Do home visits make economic sense?

According to the Medicare website, the IAH “…utilizes physician and nurse practitioner directed primary care teams to provide services to certain Medicare beneficiaries in their homes. Participating practices will be accountable for providing comprehensive, coordinated, continuous, and accessible care to high-need populations at home and coordinate health care across all treatment settings.”

The Demonstration sites will be required to:

• Have experience providing home-based primary care to applicable beneficiaries
• Make in-home visits
• Available 24 hours per day, 7 days a week
• Furnishes care to at least 200 applicable beneficiaries
• Uses electronic health information systems

Certainly the IAH increases the cost of physician visits. The IAH, however, could be economically efficient if it reduces the likelihood sick patients require hospital or nursing home care. Although in most cases it is more efficient for the patient to visit the physician, in some cases when the patient is very ill, the cost to patient to travel to the physician’s office should not be their hourly wage. If they are in serious pain, the would be willing to pay much more than the difference between their hourly wage and the physician’s hourly wage to have the physician visit them in their home.

If this is not an economical option, patient may simply forgo preventive care or regular check-ups. Failing to make these periodic visits to the physician could allow diseases to fester untreated and thus result in unnecessary hospitalizations.

Thus, the IAH demonstration will certainly improve convenience for patients, but will only be cost-effective if it can reduce the likelihood patient’s require hospitalization or long-term care.

You can read the full report here.

• Thomas MaCurdy, Jason Shafrin, Mallory Bounds and David Pham. “Revisions to the Sixth Update of the  Geographic Practice Cost Index: Final Draft” October 2011

Two important research questions come to mind:

• Do doctors tailor the care they provide to individual patients based on their insurance or is care provided based on the overall mix of a physician’s panel?
• Are these same effects observed for physicians who own their own practice compared to those who are employees?

According to a paper by Landon et al. (2011), “ Physicians in highly capitated practices had the lowest total costs and intensity of care, suggesting that these physicians develop an overall approach to care that also applies to their FFS patients.”  The authors used data from the Community Tracking Study Physician Survey to reach this conclusion.

This result, however, was only shown to hold for primary care physicians.  The reimbursement differences for each individual patient may be smaller than the physician’s time (and psychic) cost to determine each patient’s payor and alter their recommended treatment regimen accordingly.  Thus, this conclusion makes sense for PCPs.

For specialists, however, this conclusion may or may not hold.  Particularly, for specialists who generally provide expensive procedures, altering care recommendations for individual patients based on their insurance coverage could have a very significant effect on the practice’s bottom line.

Thus, although I think this is an interesting study, it would also be interesting to see how the results were similar or different in the case of specialist compensation.

Source:

• Landon, B. E., Reschovsky, J. D., O’Malley, A. J., Pham, H. M. and Hadley, J. (2011), The Relationship between Physician Compensation Strategies and the Intensity of Care Delivered to Medicare Beneficiaries. Health Services Research. doi: 10.1111/j.1475-6773.2011.01294.x