Physician Compensation

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The Impacts of Managed Competition in Netherlands

March 26, 2012 in Health Insurance, International Health Care Systems, Physician Compensation | 1 comment

Financial incentives matter.  If one had to give economists (and health economists as well) a slogan, this would be it.

In 2006, the Netherlands instituted a form of managed competition. According to Van Dijk et al (2012) ”Before 2006, inhabitants had either compulsory social (sickness fund, 62%) or voluntarily private (36%) health insurance depending, among others, on income (below a gross annual income of €33 000 people were socially insured).  This combined system of social and private health insurance was replaced by a compulsory single universal basic health insurance covering a legally defined package of basic benefits including GP care. GPs act as gatekeepers for secondary care…”

The implementation of a managed competition system in the Netherlands cause two major changes to the primary care payment system.   First, cost sharing was abolished for privately insured individuals.  Second, whereas previously doctors treating socially-insured patients received a capitation payment and physicians treating  privately-insured beneficiaries received a fee-for-service payments, after 2006 all physicians received a mixed capitation/fee-for-service payment system.

How did these changes affect the number of primary care visits in the Netherlands?  The authors of the study used a sample of GP practices participating in the 2005-2007 Netherlands Information Network of General Practice (LINH) study to conclude the following:

“Abolition of cost sharing led to a higher increase in patient-initiated utilisation for privately insured consumers in persons aged 65 and older. Introduction of fee-for-service for socially insured consumers led to a higher increase in physician-initiated utilisation.”

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Medicare Physician Payment Adjustments

November 21, 2011 in Healthcare IT, Medicare, P4P, Physician Compensation, Quality | No comments

The Medicare billing system is complex.  There an alphabet soup of acronyms, (e.g., RVUs, CPT, HCPCS, GPCI) and each of these affects payments in different ways.  In addition to the standard payment terms, Medicare is also creating additional payment incentives.  These payment incentives fall into three broad categories:

  • 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.

Year PQRS eRx
Incentive Payment MOC Incentive Sucessful
2011 1.0% 0.5% 1% N/A
2012 0.5% 0.5% 1% -1%
2013 0.5% 0.5% 0.5% -0.5%
2014 0.5% 0.5% N/A -2%
2015 -1.5% N/A N/A N/A
2016 -2.0% N/A N/A N/A
2017 -2.0% N/A N/A N/A

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.

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Do doctors tailor the care they provide based on the patient’s health plan?

October 12, 2011 in Physician Compensation | 1 comment

Many studies (including my own) have shown that physicians paid via capitation  perform fewer services than those paid via fee-for-service (FFS).  In the current health care world, however, most physicians treat patients from a variety of different insurance systems (notable exceptions are doctors working at Kaiser and the VA).

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.

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“Do Medicare patients have longer waits to see doctors than those with commercial insurance?”

May 5, 2011 in Medicare, Physician Compensation, Supply of Medical Services, Wait Times | 1 comment

…and three other questions about physician care.

Do Medicare patients have shorter waiting times than those with commercial insurance?

  • In the 2010 survey, among those seeking an appointment, most beneficiaries (75 percent) and most privately insured individuals (72 percent) reported “never” having to wait longer than they wanted for an appointment for routine care.
  • Another 17 percent of Medicare beneficiaries and 21 percent of privately insured individuals reported that they “sometimes” had to wait longer than they wanted for a routine appointment.Finding a primary care physician was more difficult for privately insured individuals than for Medicare beneficiaries.  Seventy nine percent of Medicare beneficiaries reported that they had no problem finding a PCP compared to 69 percent of privately insured individuals.

Is Medicare the new Medicaid?

The answer is not yet; providers are still accepting Medicare patients at high rates, but the trend is towards fewer PCPs accepting Medicare.

  • “For 2008, among physicians with at least 10 percent of their practice revenue coming from Medicare, 90 percent accepted new Medicare patients. By specialty, 83 percent of primary care physicians and about 95 percent of physicians in all other specialties accepted new Medicare patients. The rate of primary care physicians accepting new Medicare patients fell from 88 percent in 2007.”
  • Medicare’s payment for physician fee-schedule services in 2009 averaged 80 percent of commercial rates for preferred provider organizations (PPOs)

Is concierge medicine the wave of the future?

Not yet.  In the fall of 2009, researchers found that there were 750 retainer-based or “concierge” physicians.  Thus number represents less than 1 percent of the total number of physicians practicing in the United States.  However, there is a trend towards more concierge medicine.  There was a 50% annual increase in the number of retainer-based practices from 2005 to 2009.

Where types of physician care is growing the fastest (and slowest)?

  • Volume per beneficiary grew 3.3 percent in 2009.
  • However, there was a decrease in 2009 of coronary artery bypass grafts (CABG), cardiovascular stress tests, colonoscopy, standard chest imaging, hip fracture repair, brain MRIs, and coronary angioplasty.
  • Increases in service volume per beneficiary were found in advanced, non-standard computed tomography (CT) scans, outpatient rehabiliation, and spine surgery.

What recent legislation will affect the provision of physician services in the coming years?

  • Since 1991, physicians and other health professionals who practice in designated health professional shortage areas (HPSAs) automatically receive a 10 percent bonus (relative to the fee schedule amount) on all Medicare services they provide.
  • Starting in 2010, CMS no longer recognizes the billing codes for consultation services
  • Starting in 2010, CMS started a four-year transition to practice expense relative values that incorporate data from the Physician Practice Information Survey.
  • Starting in 2011 and ending in 2016, primary care practitioners will receive a 10 percent increase in payments for selected Medicare services, as will general surgeons practicing in HPSAs
  • Under the Physician Quality Reporting System (PQRS), physicians and other health professionals may qualify for a 1 percent bonus on all Medicare services they provide in 2011 and a 0.5 percent bonus in 2012 through 2014.
  • Starting in 2015, those who do not satisfactorily report PQRS measures will be subject to a financial penalty starting at 1.5 percent of their Medicare services.
  • EHR incentive programs provides physicians with incentive payments for meaningful use of electronic health records (EHR).
  • Starting in 2015, eligible physicians who do not satisfy the EHR criteria will be subject to a financial penalty starting at 1 percent of their Medicare services.
  • Reimbursement changes from Health Reform (PPACA) can be found here.

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History of the Medicare Economic Index (MEI)

January 27, 2011 in Medicare, Physician Compensation | 5 comments

The Medicare Economic Index (MEI) is a measure of practice cost inflation that was developed in 1975 as a way to estimate annual changes in physicians’ operating costs and earnings levels. Today, I review a timeline of how Medicare has paid physicians over time and also describe some adjustments CMS makes to the MEI to either improve its accuracy or reduce its growth (depending on who you talk to).

Timeline

Read the rest of this entry »

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To Curb Repeat Hospital Stays, Pay Doctors

December 2, 2009 in Hospitals, Medicaid/Medicare, Physician Compensation | No comments

Much of my own research has focused on how physician financial incentives affect the quantity and quality of medical care. It should come as no surprise that I found a recent New York Times article on the topic stimulating.  Dr. Sandjeep Jauhar examines how hospital and physician financial incentives affect the length of a patient’s hospital stay.  An excerpt is below.

My hospital, like all acute-care facilities, receives a set payment per admission based on the patient’s diagnosis. So the longer a patient stays in the hospital, the more money the hospital stands to lose. Of course, the longer a patient stays, the greater the likelihood of hospital-acquired infections or harm from tests and procedures, which means timely discharge in most cases is good for hospitals and patients alike.

But doctors, paid separately by Medicare, have little motivation to discharge patients quickly. As long as their patients are in the hospital, they can bill and be paid for each visit they make.

I discussed this issue with an internist in private practice, who requested anonymity because of the sensitive nature of the subject. His patients, it seemed to me, were often staying longer in my hospital than necessary. “I understand why hospitals want to cut down length-of-stay,” he told me matter-of-factly. “But if I discharge a patient early, I don’t get paid. It’s O.K. if you have enough patients in the hospital, but if you don’t, you sometimes have to drag out the stay. I don’t like to do it, but sometimes you have to.”

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Medicare Doc Paycut Reversed

November 30, 2009 in Current Events, Medicaid/Medicare, Physician Compensation | 1 comment

In 1998, Medicare enacted the sustainable growth rate (SGR) which would slowly bring down Medicare physician compensation.  However, each year, it gets reversed by Congress. Now, instead of a gradual decline, the implementation of SGR would  result in a 21.2% pay cut for Medicare docs.

Before the Thanksgiving holiday, however, Congress once again reversed the SGR.  Megan McArdle gives some solid reasons of why the reform of the SGR should be included in any health reform bill.


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Doctors’ Pay: A Key to Health Care Reform

June 20, 2009 in Physician Compensation, Supply of Medical Services | 2 comments

There is an interesting debate at the N.Y. Times discussing how to reform physician payment to increase quality and decrease cost.  Below is an excerpt from a Seattle emergency room doctor.

In this, they are half right: over-utilization is a driver of cost, and it is in part driven by doctors’ economic incentives. The underlying cause, however, is a bias within the physician compensation system that extravagantly rewards surgical procedures performed compared to “cognitive” services like diagnosis and medical management.
In the E.R., for example, sewing a facial laceration pays far better than accurately diagnosing a heart attack. The same principle applies to any procedure — from angiograms to colonoscopies.
The predictable consequence is that physicians gravitate toward lucrative procedural specialties. They perform more and more procedures, using expensive new technologies, driving costs ever higher.

In this, they are half right: over-utilization is a driver of cost, and it is in part driven by doctors’ economic incentives. The underlying cause, however, is a bias within the physician compensation system that extravagantly rewards surgical procedures performed compared to “cognitive” services like diagnosis and medical management.

In the E.R., for example, sewing a facial laceration pays far better than accurately diagnosing a heart attack. The same principle applies to any procedure — from angiograms to colonoscopies.

The predictable consequence is that physicians gravitate toward lucrative procedural specialties. They perform more and more procedures, using expensive new technologies, driving costs ever higher.

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Medicare: Primary Docs to get more money, Specialists less

February 26, 2009 in Medicaid/Medicare, Physician Compensation, Public Policy | 1 comment

Joe Paduda of Managed Care Matters has a two great posts on Medicare’s new payment structure.  

The first post reports how exactly Medicare is changing its reimbursement for medical services.  ”It looks like reimbursement for cognitive services – the 99xxx codes for readers expert in CPT-4s…office visits and similar services for others – will be increased while payments for surgeries, imaging, and other ‘procedures’ will be reduced.”

The question remains, will these changes stick?  For years, policy experts have advised CMS to increase primary care compensation and decrease specialist compensation.  However, specialists are a smaller, more cohesive group.  This facilitates the formation of compelling lobbies for specialists.  Mr. Paduda accurately predicts that these Medicare reimbursement changes will create a “loud, violent, and ugly” political backlash from specialists.

In the second post, Mr. Paduda reveals some insight as to how Medicare reimbursement changes will affect Medical care contracting in the short- and long-term.

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Physician Compensation and Productive Efficiency

November 23, 2008 in Physician Compensation | No comments

How do financial arrangement between physicians within a medical group affect efficiency levels?  This is the question Gaynor and Pauly (JPE 1990) attempt to answer.

Theory

 The authors assume that the quantity of medical services is produced by the following production function:

  • qi = f(hi, ti, ki, ei, θi)
  • h: physician hours, t: non-physician hours, k: capital, e: effort level, θ: other factors.
The authors assume that physician and non-physician hours, capital, and other factors are measurable but effort is not.  What determines physician effort?  Physicians get utility from income, y, and disutility from exerting effort and working more hours.  The authors assume physicians have the following utility function, ui:
  • ui = yi – vi(ei, hi)
  • yi = α(P-C)qi + n-1(1-α)(P-C)Σ(1 to n) qi
    • The variable α represents the percentage of work that physicians receive 100% of the net profit they generate and (1-α) represents the net profit generated shared among the n physicians in the group.
  • ∂ui/∂ei = [α + n-1(1-α)](P-C)(∂fi/∂ei) – ∂vi/∂ei) = 0

So know we’ve done some math.  Who cares?  What do we get out of all these equations?   The first order equation, ∂ui/∂ei, shows that when physicians optimize their effort level, they trade off the benefit from extra effort (more money) versus the cost of more effort (they’d rather be golfing). The authors can also use comparative statics to to predict how they will affect physician effort.

  • α: An increase in the percentage of work where the physician receives 100% of the profit generated will increase effort.
  • P: An increase in the price of a medical service will increase physician effort.
  • C: An increase in the cost of a medical service will decrease physician effort
  • n: As the number of physicians increase, effort decreases.  This is because physicians will have to share more of their income with other doctors.  This results falls in line with the finding of Newhouse (1973).  This paper found evidence of “behavioral diseconomies of scale” whereby physicians shirk more as the number of physicians in the group increases.
Empirical Work
How do Pauly and Gaynor test this hypothesis.  First, they used data collected by the Mathematica Policy Research on 957 medical groups and 6353 physicians.  They have data on physician and assistant hours, capital, and other information.  They estimate effort using a maximum likelihood production frontier estimation.     
One problem is that physician compensation structure may be endogenous.  Physicians who are more active may decide to choose medical groups where α is large and n is small.  To try to correct this problem, the authors use physician tastes as an instrument.
 
Results
The authors find that “incentives affect the quanity [of medical services] produced but not measured technical efficiency…Specifically, relating compensation to productivity does increase production as theory would suggest. The number of members in a group decreases the quantity produced, and experience leads to greater productivity.”

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