Physicians Aren’t Driving Up Health Care Costs

Physicians Aren’t Driving Up Health Care Costs

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Recent interest in variability of cost for medical procedures is justified and long overdue. In an article in the New York Times on June 2, 2013, “The $2.7 Trillion Medical Bill,” Elizabeth Rosenthal writes from the point of view of a patient who has received a bill for colonoscopy. She then researches costs of the procedure in a number of markets in the U.S., finding a range of pricing from an average of $1,185 to a high of $8,577. There is an implication within this article that “doctors” are charging these prices. The truth is that physicians are often pawns in much larger negotiations among other entities.

While charges for procedures performed in an office setting or practice-owned ambulatory surgical center (ASC) are largely under the control of physicians, many of the highest prices come from hospital owned facilities — an area that is not at all controlled by physicians.

I called the lead negotiator for payor contracts at my institution and asked him about price variability for colonoscopy. It was clear from my conversation that the current arguments about colonoscopy price variation miss some key components. We need to better explore the true drivers of price variation.Professional fees paid to physicians for Medicare services are set by the Centers for Medicare and Medicaid Services (CMS) or commercial payers and prices in dollars are multiples of the Resource Based Relative Value Units (RVU’s) defined by the AMA-sponsored Relative Value Update Committee (RUC). After all is said and done, professional fees for a specific procedure fall within a fairly narrow range — in the case of colonoscopy, about $220.

The larger range of technical fee payments for procedures actually drive most cost variation in addition to other factors, such as use of an anesthesia professional during colonoscopy or the number of biopsy specimens sent for diagnosis.

Within any large health-care system that contracts as a unit there might be a three- fold difference in technical (facility) fees even at the same location of colonoscopy, dependent on specific payor contracts. The reason is as follows:

  • One payor might negotiate a single standard rate for all ambulatory surgical procedures from colonoscopy to complex outpatient spine surgery. So relatively simple procedures (colonoscopy) become expensive because this is a blended rate that has to account for an enormous range of complexity. Payors sometimes do not have the ability to do line-item negotiations.
  • Other payors still pay on % of charge since they have not changed their software in decades. Since all providers and health systems have to inflate their master charge sheet (so that brokers can negotiate a discount), a procedure like the colonoscopy has price inflation.
  • Other payors negotiate a hospital rate based on ASC rates (with increase for hospital outpatient department, HOPD). But if ASC rates are high in the region, then HOPD rates also will be high.
  • Finally, professional fees (my fees) are negotiated by hospital systems that employ specialists and, in many situations health systems that are “must haves” negotiate professional fees that are especially high.

My point is, it’s wrong to assume the high prices are entirely due to physicians.

When physicians control costs and charges, we tend to compete on price and develop more of a free-market competition, compared to areas where hospitals and health systems dominate and there are few office or ASC choices.

The price compression in Minnesota is an interesting case study. In the early 2000’s Minnesota health benefit companies began to publish prices for various procedures. Concurrently, there were public education campaigns to alert people to price variation. Public pressure, as a result of price transparency, forced high-cost facilities to reduce their prices in order to maintain market share. There was significant pressure on several of the large health systems to reduce their hospital-based charges for outpatient procedures (like colonoscopy) so they could remain competitive with low ASC rates. It was enough of an incentive (especially with the consolidated purchaser and payor market in Minnesota) to force the colonoscopy technical fees to be separated from the large (30,000 different types of service) contracts that payors negotiated with health systems.

Price transparency and a market that might enhance competition based on cost and quality — as opposed to negotiating power — would go a long way to solve the financial crisis we are in. This would not solve all problems but it would recognize one aspect of medical bills that physicians have been trying to emphasize for some time.

John I. Allen, MD, MBA, AGAF, Clinical Chief of Digestive Diseases, Yale University, and President elect, American Gastroenterological Association (AGA) Institute.

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66 Comments on "Physicians Aren’t Driving Up Health Care Costs"


Guest
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Barry Carol
Jun 25, 2013

It’s true that physician and clinical fees account for roughly 20% of healthcare costs in the U.S. of which about half goes to doctors and half to practice expenses. However, doctors’ decisions to admit patients to the hospital, order tests, prescribe drugs, refer patients to specialists, consult with patients and perform procedures themselves drive nearly all healthcare spending. Some of these treatment decisions are money driven, some are intended to protect against potential lawsuits and some are aimed at meeting often unreasonable or unrealistic patient expectations. Most, hopefully, represent the doctor’s judgment about what is in the patient’s best interest. Often two or more factors may be at work.

Pricing of services, tests and procedures is a separate issue. Hospital consolidation, including buying up physician practices, is driving up costs by increasing hospital market power and enabling them to extract higher prices from insurance companies. I think Medicare needs to change its rules to reimburse hospitals at the same rate as what independent doctors are paid for services that can be performed perfectly well in a doctor’s office. I’m also not sure that facility fees are appropriate for outpatient care like imaging and colonoscopies when performed in a hospital setting.

Price and quality transparency would be enormously helpful in making it possible for both patients and referring doctors to identify the most cost-effective high quality providers in real time and direct more of their business to them. At the same time, we need reasonable limits on how much hospitals can charge insured patients seeking out of network care as well as uninsured patients for care delivered under emergency conditions, which, by definition, cannot be scheduled in advance. Some modest percentage above the Medicare rate seems most reasonable to me.

The single payer crowd doesn’t appreciate that government can probably do little to drive down healthcare utilization though it may be able to reduce reimbursement rates in the short term. There would probably also be adverse intermediate to longer term effects on medical innovation and we could easily wind up with much longer wait times for non-life threatening surgical procedures like hip and knee replacements.

There are a lot of interesting things happening in healthcare and health insurance these days which actually make me quite optimistic that we will be able to bend the medical cost growth curve over time mainly by bringing more price discipline to hospital based care. Tort reform that would give doctors safe harbor protection from failure to diagnose lawsuits would also be helpful as would a more sensible approach to end of life care. Recently introduced bipartisan legislation in Congress that would make the Medicare Claims Database available to the public for free could help to mitigate fraud. Large employers are starting to embrace reference pricing for standard procedures like MRI’s and colonoscopies. Stay tuned.

Guest
Jun 23, 2013

As a doctor who once accepted Medicare and left, I can say that Medicare did nothing to “put doctors more in charge.” I’ve written about this in detail (much of which has been/will be posted on this blog. Besides the obvious fact that Americans will have no part of a single-payer system (mistrust/fear of government being one of our most consistently held beliefs), my perspective says that we need to change it far more radically than turning it over to the government.

I guess you could say I do believe in a single-payer system, but I think that payer should be the patient, and they should pay the doctor, not the “payers.”

Guest
MD as HELL
Jun 23, 2013

Yes!!!!!!!

Guest
Jun 23, 2013

Rob, as a doctor you must know that when patients themselves must pay, they will delay treatments until they are more serious and costly. NO savings will be had, except for those who die early.

I know… let’s eliminate campaign bribes and then see what the politicians decide!

Guest
Jun 23, 2013

Rob, follow the money. The guy at the top is the politician that pockets the bribes. $125 million just to keep single-payer off the table and pass an insurance industry dream.

Guest
Jun 23, 2013

It’s not who’s writing the checks that’s the problem. It’s the size of them. Single-payer will simply give the Titanic another captain. It will have some good to it and some bad. The problem is more basic than you say. We are paying for sickness, drugs, procedures, and documentation. Guess what our system produces? All of the above.

We don’t need a new boss. We need a new business.

Guest
Jun 23, 2013

I disagree Rob. Single-payer Medicare-for-all is 95% private. The bosses will create little or no change, except that it will put doctors more in charge. (PS, I’m not a doctor, and at 75 you wouldn’t want to go to me anyhow.)

Guest
Jun 23, 2013

Who is more to blame: the mafia boss, the triggerman who does the dirty-work for that boss, or the corrupt system that makes organized crime possible? In truth, they are all to blame. None of them has any moral high-ground on which to stand. But the way to fix the system is not to go after the triggermen, or even the bosses, as they will simply be replaced by others. The way to get rid of the problem is to create a system in which mafia bosses and triggermen are not profitable lines of business.

Hospitals, health systems, and perhaps insurance companies are the bosses. Doctors are the triggermen, ordering the tests that cost so much. We all share our own portion of the blame. But focusing too much on the players in the game ignores the reality that the game itself is the problem. I left the system because the only docs who survived were the ones willing to play the game, and the ones most rewarded were the ones who had the least conscience.

I cringe at discussions like this because they try to make individual groups the villains in the story. This is why I am no longer in this game. I couldn’t ignore the fact that the loser in all of this is the one for whom the game was invented in the first place: the patient.

Guest

Just wanted to weigh in on two separate points:

First, the NYTimes article was critical of physicians, sure, but it was clearly not making the case that high physician costs solely explain the cost of a colonoscopy in the United States. I doubt that’s what the average reader would take away.

More likely, the reader would be astonished at the systemic imbalances and failures that lead to both the use of the colonoscopy procedure (and its subsequent overuse) and the way in which the procedure itself is carried out.

I don’t have the background or the time to research to understand if a colonoscopy is qualitatively better for a patient when it comes to screening for colon cancer. That’s part of the reason why organizations such as the US Preventative Task Force exist, and physicians should help patients understand what options are available and what their recommendation is.

For the sake of this, let’s assume that the author is fairly explicating the prevailing medical consensus (let me know if she’s not!) and that a colonoscopy is truly no more effective than other methods. It’s remarkable, then, that the procedure is carried out as often as it is.

Why that is would take more research, but I suspect that it has to do with a) public perception – the “Katie Couric Effect” writ large; b) rent-seeking lobbying groups with an interest in keeping the status quo – and yes, that does include some organizations that act on behalf of physicians; and c) a lack of patient understanding of what’s effective and what’s not (as an aside, I can guarantee you that my father would not be getting a colonoscopy if he knew there was a diagnostic just as effective – and I imagine many other patients are the same way).

But let’s grant that a colonoscopy is going to be used often in American diagnostic medicine. Then, I suspect the next piece of the article that would astonish the reader is the use of an anesthesiologist in the procedure; except for rare circumstances, it seems like this is unnecessary for the safety of the patient and the efficacy of the procedure. Again, some of the above reasons may contribute to why this occurs – in addition to the paeans to safety that lobby groups expound.

What this boils down to, then, is that payers are paying for procedures that are unnecessarily expensive and include unnecessary clinicians. It’s a situation where the green pill and the purple pill have the same effect, but the purple pill is multiple times the cost of the green pill.

This is why many are hopeful about PCORI, the IPAB, and comparative effectiveness research in general; with enough of a mandate (which they don’t currently have, it should be noted – but may in the future) they can drive payers to pay only for what’s necessary.

Guest
Botetourt
Jun 21, 2013

This used to be a blog that was interesting, topical, and civil. What happened, and where did the people who used to post here go? Matthew, this is neither information nor entertainment.

Guest
Bobby Gladd
Jun 21, 2013

I have to disagree. THCB is one of my priority daily stops. In general it is way more civil than before in the comments (some of the more absurd resident trolls having departed). This post is a bit of an anomaly, but still, these potshots are way less acrimonious than those of prior years.

THCB provides a ton of timely relevant info from a breadth of perspectives. You have plenty of alternative choices for “entertainment.” Use them.

Guest
MD as HELL
Jun 22, 2013

Yes. Where did DeterminedMD and Nate go anyway?

Guest
Peter1
Jun 23, 2013

“I just pop up now and then for a connection to the past.”

Bring back the work houses and debtors prison.

Guest
MD as HELL
Jun 24, 2013

Not what I was thinking, but if you think it will work, I’m game.

Guest
Peter1
Jun 22, 2013

They’re leaving the Dickensian viewpoint to you MD.

Guest
MD as HELL
Jun 23, 2013

I am neither as vitriolic nor as statistical as they. I just pop up now and then for a connection to the past.

Guest
tom
Jun 21, 2013

That is the wrong question. It is clearly doctors who order unnecessary and redundant tests and increasingly perform utterly unnecessary surgery on patients.

Guest
THCB Staff
Jun 21, 2013

Friendly reminder from THCB to keep conversation civil.

Thanks!

Guest
Jun 21, 2013

Not easy to do when you have some idiot doctor/staffer making wild accusations about someone he/she/it knows nothing about.

Guest
Eric E
Jun 21, 2013

Jack,
I worked for 9 years at a small diagnostics company, and what you say is entirely true. This also fits with what Dr. Allen says about areas where ASCs or other private entities set the price.

From what I’ve seen the exact same dynamic applies with ablation of Barrett’s esophagus. Once an ASC or practice gets the Halo equipment, their incentive is to maximize the number of procedures they can do This applies even without purchasing the equipment, as I believe the arrangement with the Halo equipment is that the machine is leased or loaned and the practice buys the consumables from Covidien.
This is perfectly sensible way to run business, but in medicine its in bad form to say that one does this.

Eric

Guest
Jun 21, 2013

Eric, let’s compare medical business with the auto service. If a garage buys an equipment, e.g. for wheel alignment, they also want to maximize its usage. But the difference is that when I go to a mechanic and have to pay my own money I am way more concern if it is trully necessary than if it cost me nothing (or very little).

Guest
Jun 21, 2013

There is no argument, actually, between what Jack Lohman says about Holter monitors and what Dr. Allen says about colonoscopies, and taking a look at why offers a further insight into the real economics driving healthcare costs. A colonoscopy is something that your doctor tells you that you need, but it’s not an emergency (usually), the procedure is pretty standard, it’s quite separate from any other therapy or test you are getting, and you can get one at any facility you choose. Such a unit of healthcare is perfect for real price/quality competition at the customer level, and I am not surprised to hear that pricing transparency in a market with significant high-deductible plans would lead to lower prices.

A Holter monitor, as I understand it, is usually prescribed as part of a larger cardiovascular investigation. In other words, you are already at your cardiologist’s office getting examined. And it takes an expert to get it on right, and properly set up. You are much less likely to go comparison shopping, and go to someone else’s office because it costs less.

Most of the huge price variations we see in healthcare are not due to underlying costs, they are due to the “deal,” the nature of the contract negotiations with insurers. So they are not, in their current form, very susceptible to real competition on price and quality.

Guest
Peter1
Jun 21, 2013

Insurance – it’s not us, pharma – it’s not us, hospitals – it’s not us, doctors – it’s not us. Sure wish I could find nobody because it’s got to be him.

Guest
platon20
Jun 21, 2013

This isnt rocket science — doctors are NOT the primary reason for high healthcare costs.

Dont take my word for it — here’s a graph:

http://www.aarp.org/health/medicare-insurance/info-10-2009/fs144_costs.html

Physician reimbursements account for 20% of total healthcare spending. Out of that 20%, 50% goes to nurses, secretaries, billers/coders, clinic utilities, etc.

That means that doctors pre-tax incomes account for only 10% of total healthcare costs. You could cut their income by 50% and yet total costs only go down by 5%. Hardly any kind of real savings.

Guest
Peter1
Jun 21, 2013

“Physician reimbursements account for 20% of total healthcare spending. Out of that 20%, 50% goes to nurses, secretaries, billers/coders, clinic utilities, etc.”

Not sure where you get those %s but at my wife’s hospital, the docs belong to a group. The group pays for the docs group support staff, billing etc. The hospital pays the nurses 100%. The doc billing is that portion (determined by the docs) not covered by insurance. But that’s beside the fact since you think docs are exempt from adding to the total cost of health care inflation. Separate out any component from total input and you find know one is to blame yet we pay the highest prices in the world – including docs compensation.

Guest
platon20
Jun 21, 2013

“my wife’s hospital”

1. If your wife is not a doctor, then you have no clue how the billing works (which I’ve already proven). So quit lying and making up BS.

2. If your wife is a doctor, then you need to tell her to give half of her income back to the group (after all, arent you claiming that doctors are paid too much)? Put your money where your mouth is.

Guest
platon20
Jun 21, 2013

“The doc billing is that portion (determined by the docs) not covered by insurance.”

Right. What you are describing is known as balance billing. I’d like the name of an insurance company that will allow “balance billing” above and beyond the insurance reimbursement.

Here’s another hint: insurance company contracts outright ban “balance billing” and the only way docs can do that is if the patient is out of network.

Guest
platon20
Jun 21, 2013

“The group pays for the docs group support staff, billing etc. The hospital pays the nurses 100%.”

Right. The group just conjures money out of thin air to pay for all that stuff (roll eyes)

Here’s a hint: the “group” is using the doctors’ reimbursements to pay for all the overhead.

A Medicare 99213 level code pays $75.32 in Boston. Out of that $75.32, the doc only gets about half. The rest goes to all the supporting staff/overhead.