The irony is quite staggering. On the same day that Barry Bonds gets the San Francisco Giants to bid against themselves–appalling the local baseball columnists–and give him $16m for one season in his tarnished chase of Hank Aaron, the Congress after a lot of high falooting talk, cancels the fee cut for Medicare Part B and gives a tiny P4P boost. Obviously like Bonds and the Giants management, the AMA still has Congress where it wants it — even though Bond’s numbers for the last two years have not exactly been worth $6m a year let alone $16m, and the cost to Medicare of Part B physician services has gone up despite previous fee cuts, while all the wonks agree that access to physicians for Medicare patients is not a problem (or at least not one affected by across the board fee increases or decreases).
Still let’s not look to baseball teams or Congress for rational decisions, especially with other people’s money. And I won’t even comment on the potential abolition of the limit to which people can put tax-free money in HSAs, other than to note that as they can be used for any spending after age 65 Congress may have just created the biggest tax avoidance scheme of all time!
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Tom,
Good points. I had neglected to consider that Matt might be talking about the share of physician fees rather than the share of total medical expenditures. If that’s what he meant, then he’s much closer to right, though the average is somewhere around half of what he proposed. 15% might be right for Ob/gyn.
Even granting 15% of physician fees, that translates into at most 5% of total medical expenditures. 7% of physician fees translates into around 2% of total expenditures.
> that’s the number i’ve heard
> before from a couple doctors.
Well, not all doctors are equally well-informed about the business aspects of medicine. MedMal premiums vary by specialty. Surgeons pay more. If the couple doctors you heard from were obgyns especially in a “litigationally-risky” area like East St. Louis they might pay 15% of their total billing in MedMal premiums. But MedMal premiums don’t come close to 15% of the sum of doctors’ gross incomes, much less 15% of total medical spending.
Perhaps I was not clear enough in my first post. I said: “Feel free to comment if you don’t agree.” i’m not fighting you here, jd.
i said i wasn’t talking about causes. excellent. you don’t agree. that’s the number i’ve heard before from a couple doctors. you think it’s wrong and controversial. gotcha.
Matt,
Our claims about facts do not agree, that’s why I assumed you must be talking about causes when claiming 15% contribution from malpractice. In fact the total for all malpractice awards and premiums is less than 2% of all healthcare dollars. It is not 15%.
There simply are no facts to support your claim for 15%. When people do make claims for 15% contribution from malpractice, what they mean is that some portion of the costs for other segments (drugs, hospital, physician fees) is generated by defensive medicine. This is a causal claim. It is also highly suspect, however. Doctors are motivated both by carrots and sticks. Of the many carrots, perhaps the most important are provided by fee for service medicine in which every additional procedure provides additional revenue. There are dozens of other causes as well, of course.
So, if you aren’t talking about causes, you are wrong for certain when you claim 15% of medical expenses go to malpractice. If you are talking about causes, then you are using another kind of accounting for medical costs from the others in your list. And on top of that, the number you provided is controversial as an estimate of causal influence.
JD,
i’m looking at overall money by sector for all the categories i listed from the _coverage_ perspective only. i.e., where i think reimbursement dollars are spent by payers. i separated out malpractice only because it was topical. had i omitted it, all of that money would have rolled up into the doc bucket, because it’s all one pie – where reimbursement dollars are spent – so the percents can be added.
my apologies..should have been more specific.
the causes aren’t at issue – there’s little i can do about whether it’s flu season or not. i just want to see where the dollars are going as a % of all reimbursement dollars available. had i expanded out to include causes, you’re right, and i would have put an estimate about the admin costs of the third payer system, the admin costs of the malpractice insurance itself, etc. the point of my breakdown was to show the docs here to focus on the hospital.
did i ever use the word “causes” or “cause?” i’m commenting on which slices are which sizes, not why.
Matt S.,
You didn’t address my main point: it is not appropriate to compare estimates of the share of total cost that measure where the dollars go with those that try to identify the causes directing the money into the various components. Is that distinction clear? There are so vastly many different causes (medical causes, economic causes, social causes) that these estimates will sum to a number far higher than 100%. So talking about percent contributions of causes, though widely done, is quite misleading unless you are very careful about exactly what you are claiming in terms of counterfactuals and ceteris paribus conditions.
In contrast, when you look at where the money is going by sector, you will get a sum that equals 100%. What you did was conflate these two kinds of estimates, one of which is not controversial while the other is inherently so.
The not controversial part is that malpractice expenses amount to less than 2% of total expenses when you total malpractice awards and premiums and divide by total medical expenses. Where do I get that? There have been numerous studies (I thought I saw one in Health Affairs, but didn’t locate it after a quick search). But the best known recent study was done by the Congressional Budget Office (and this was when the Republicans controlled congress!).
Link here, snippets below:
Malpractice costs amount to “less than 2 percent of overall health care spending. Thus, even a reduction of 25 percent to 30 percent in malpractice costs would lower health care costs by only about 0.4 percent to 0.5 percent, and the likely effect on health insurance premiums would be comparably small.”
“…some so-called defensive medicine may be motivated less by liability concerns than by the income it generates for physicians or by the positive (albeit small) benefits to patients. On the basis of existing studies and its own research, CBO believes that savings from reducing defensive medicine would be very small.”
Thanks for the feedback jd. Where do you get your figures? I think if you take my malpractice number (which does take into account the defensive medicine portion) and re-allocate it to the doc group, we’re very close…which is pretty great, actually!
Gwest: I think your argument is a separate issue, and your India argument is, well, um, yeah. I completely disagree. But the outsourcing thing is a highly controversial, off-topic aside, so I’m not touching that.
thanks for the props, pgbMD!
as for Mr. Holt, he’s pretty much spot-on.
licensure studies, anyone?
http://healthcare-economist.com/category
/supply-of-medical-services/licensure/
spam comments are automatically deleted, moron …
– J
I actually wrote about this back in April. I know it says “Healthcare Savings” Account, but that’s just packaging. HSAs are really IRAs. The logic is that most medical expenses occur in later life; and whether you save money in an IRA or an HSA, when you turn 65 and need it, the doctor isn’t going to care which account it came from, so why should you?
Let me respond to Gadfly, who certainly voices the criticism of many others: I full acknowledge this does almost nothing to solve the problem of expensive healthcare and an aging population. However, I submit to you that that isn’t what it is for. And it isn’t for gazillionaires, it’s for “hundred-thousandaires” anyone making enough to be able to put away 14k (IRA) + 2700 (HSA), which (roughly) would be anyone making 100k or more. Anyone making millions of dollars will not be using an HSA (not at a max of 2700, anyway.)
http://thelastpsychiatrist.com/2006/04/healthcare_savings_accounts_em.html
Matt S.,
Your percents are a bit off.
Hospital expenses are now about 45%
Physician expenses are now about 30%
Drug costs are now 12-15% (the higher number includes over the counter)
Medical equipment costs are 5-10%.
Malpractice premiums/claims are only about 1%!
Some analyses claim that defensive medicine triggered by malpractice fears generates up to 15% of expenses, but this kind of charge is about causes of expenses, not where they go. Only 1% of the medical dollar goes to pay malpractice premiums/claims.
When you start talking about underlying causes, it is kind of b.s. to talk about percent contributions. What is the percent contribution of fee for service payment vs capitation? What is the contribution of a fragmented, largely private system vs. single payer or some other uniform system? What is the contribution of the lack of electronic processing? What is the contribution of cultural expectations for aggressive care? What is the contribution the lack of coordination between parts of the system? I see no reason to believe that studies of these components and more will ever add up to 100%.
Better to talk of dollar savings from specific changes than percent contributions to total costs.
Thank you for keeping your eye on the tax shelter ball. That’s all we need – more gazillionaires avoiding taxes as if the gap between the top one percent everyone else weren’t already excruciating.
“the big, 400lb gorilla in the room is the hospital.”
“physicians, focus on the hospital. find a way to move business out of the hospital”
excellent. medicare and the insurers already know this. patients like it and much of the care is moving away from the hospitals (ie IMRT, etc, etc).
My only comment to the posting from Matt S. is that almost every other profession in the US makes more than their counterparts in other countries. Look at the highly skilled, highly educated workers in India that are taking our jobs because they make barely minimum wage. I think you have unfairly singled physicians out as a profession here.
I know the AMA is not 100% behind P4P, but many physicians and healthcare leaders feel it is the right way to go. Lets pay the providers with proven better results and quality outcomes and not reward the marginal providers for marginal clinical outcomes. Unfortunatly the system will be built by the payers and the feds who don’t recognize what needs to be rewarded and what doesn’t. It will be built around financial results not clinical.
And I will say it again, the studies are flawed and there is an severe and growing access issue for Medicare patients. Survey family practice docs anywhere in the US, and 85% are closed to new medicare patients.
It may of course be that Scott R has moved the market and faced down Congress on his own…. 🙂
My point is not that doctors should be forced into begging in the street. And in no way is the current system of physican payment (or any of Medicare’s payment schemes) defensible. No one is going to pretend either that the other players on the Part A and Part D side are in any way not milking it and probably are doing so more than the physicians.
However, the facts are that physician costs as a component of Part B are rising because of service volume increases, and if there were fee/price cuts (and you can argue that in real terms there still will be) then we can expect more service volume to make up for it. My point is that after many months of being told by the AMA and others that Congress was going to enforce the cuts, at the last minute they pull back.
In addition, with the exception of central coastal California where Scott R hails from, Medicare recipients access to physicians is impacted very little by Medicare Part B payment rates, and a whole lot more by their geographic location and the general spread of physicians between urban, suburban and rural areas.
So if ever there was a time for Congress to face down physicians and the Giants to tell Bonds to take his act elsewhere, yesterday was that time. And what happened?
I’d like to propose a breakdown of what I think our healthcare costs are. Feel free to comment if you don’t agree. However, based on my experience, it’s something like this. i’m talking about the entire universe of US healthcare now. i think Holt may have already posted on something similar numerous times, but this is how i see it. these numbers get thrown around a lot:
55% occurs in a hospital, excluding physician fees.
15% is malpractice
10% is drugs
20% physician fees
ok, i’m fine with the drug part. the drug part has extended our lives a bunch. yes, we need more generics and yes, a lot of the legal games in pharma are pretty silly, but mostly, it’s ok. the good stuff eventually drives out the bad stuff, which is a unique virtue in our system.
the malpractice part is a problem. in other countries, doctors don’t pay nearly as much malpractice…however, in most other countries and indeed in the vast majority of the world, doctors are paid less. they simply make less money – and there’s little data (at least, i haven’t seen any) to say that the quality suffers as a result, in the aggregate.
so honestly, Dr. X and Dr. Y, if you don’t like it, why don’t you leave? oh, that’s right. because you make much, much (much) more money in the US. you have every right to complain – but you’re not entitled to a Medicare handout and if malpractice rates fall, don’t expect your income to stay the same. if you want to complain, complain about how higher value and higher quality doesn’t lead to higher pay. i have many doctors in my family, all of whom are brilliant physicians who went to incredible med schools and residency programs – and i wonder every day how many sub-par doctors they’re carrying on their back.
the sad fact is the best doctors have a small voice, because like any profession, skill follows a distribution – a few are very bad, some are bad, most are average, some are good, and a few are very good. and we can’t tell which is which. doctors say this is false (that they’re all good), but that doesn’t stand to reason. some are better. some are worse. (however, complaining about P4P may be a good indicator of which bucket a doc is in, har har).
the big, 400lb gorilla in the room is the hospital. focus on the hospital, especially big systems with lots of market power. they’re sucking up reimbursement at incredible rates, make insane profit margins (despite the fact that many are “non-profit”) and don’t compete with each other based on value. they have a vested interest in moving money away from doctors and liability towards the doctors. this is not new knowledge. this is widely available, extremely obvious stuff.
physicians, focus on the hospital. find a way to move business out of the hospital (specifically US hospitals). Medicare will ultimately break. the government won’t save you forever. Medical CPI outpaces income. if i was a doctor, i’d either get on board at a huge system hospital or open an ASC to compete at what i know are higher-than-market rates, since hospitals don’t compete on value and are therefore not pricing at Price = Marginal Cost…which is what many physicians are doing. then slowly increase efficiency, engage economies of scale and scope, get better at your business model, and slowly lower rates over time as marginal cost falls to maintain (or even increase) volume.
I find your article short sighted and very ill informed. The cost of providing outpatient care continues to rise (27% over the last five years) but you feel the physicians can afford the cut from the feds. per you, let’s not look at drug companies, hospital costs, technology costs, or the malpractice issues but cut at the heart of our healthcare system.
I not sure what planet you live on, but here on earth in the US in every major city there is a severe access problem that was going to grow with the looming cuts. Put your studies away and listen to the Medicare patients who can’t find a primary care provider to see them. I see the problem every day in Spokane, Seattle, Los Angeles, and Portland.
Matt,
Do you want to know the real truth?
My office stopped taking new Medicare patients on December 1st and just a week later – the cuts are recinded.
The pull I have in Washington is mind-boggling.
Have a great holiday!
-SR
It’s amazing to me that you can conclude that “the AMA . . . has Congress where it wants it.” The AMA’s biggest legislative priority — malpractice reform — went down in flames and is now a distant memory. P4P is enormously unpopular among physicians and the AMA is only reluctantly embracing it in an attempt to rein it in lest it be *too* physician-unfriendly. So the small P4P sweetener in the bill is hardly a sign of legislative mastery on the part of the physician lobby.
And the potential freeze in the medicare cuts? Come on, everybody KNOWS the SGR formula is fatally flawed. Nobody has the gumption to try to fix it (not that I blame them — it’s a daunting prospect), so stop-gap fix after stop-gap fix is about the best we can expect. Unless you’re going to contend that the 30% cut in MD reimbursement over then next five years is a good and necessary thing, it seems disingenuous to imply that the doctors are somehow controlling the terms of this debate.
A better question, and one I have never had answered to my satisfaction, is why there is no limit to the rate of increase in Part A expenditures, but a cap (the SGR formula) was placed on Part B. It’s like thinking capping the pay of carpenters is going to slow the increase in the cost of real estate.