Physician Income Relative to Hospital Revenue by Specialty

Wandering through the pages of Health Law Prof Blog, I found this post from a few months ago which looked at a WSJ Health Blog article which examined net hospital revenue derived per physician and compared such revenue generation among various specialties. The average revenue generation per physician amounted to “about $1.54 million based on 114 U.S. hospitals responding to a survey by physician recruiters Merrit Hawkins…. (Revenue here means net inpatient and outpatient dollars derived from referrals, tests and procedures done in the hospital.)”

We’ve looked at physician compensation in relation to physician shortages here at HRW before, noting that “over the course of ten career years, if calculated at a constant rate without regard to future increases in compensation, the median paid “Family Doctor, Branch” will have earned $1,900,182. During those same static 10 years….If that same Family Doctor were to then consult with someone from the lowest paid of the three categories of Radiologist, Not neural, Non-Interventionist, she would be doing so with someone who had made $4,208,580 during that time–which would be $2,308,398 more than she–or more than twice as much.

But this chart below offers a slightly different perspective, showing relative hospital income to specialty and raises some interesting questions regarding hospital finances and chosen areas of focus in relation to return on investment. A focus on kidneys, for instance, would not, it seems, be favored. The ratio of hospital income to physician salary in Nephrology is 2.91 to 1. For Psychiatry it’s 6.45 to 1. For Hematology/Oncology it’s 4.33 to 1. Additionally, in actual income generated, Psychiatry brings in almost 2x as much as Nephrology; Hematology brings in over 2x as much.

One hears often about shortages in dialysis facilities, but mental health clinics and cancer centers barrage the airwaves with their advertisements. Perhaps it is not a coincidence.

Hospital Annual Revenue per Doctor by Specialty Specialty Avg. Revenue Avg. Salary Neurosurgery $2,815,650 $571,000 Cardiology/Invasive $2,240,366 $475,000 Orthopedic Surgery $2,117,764 $481,000 General Surgery $2,112,492 $321,000 Internal Medicine $1,678,341 $186,000 Family Practice $1,622,832 $173,000 Hematology/Oncology $1,485,627 $335,000 Gastroenterology $1,450,540 $393,000 Urology $1,382,704 $401,000 OB/GYN $1,364,131 $266,000 Cardiology/Non-Invasive $1,319,658 $419,000 Psychiatry $1,290,104 $200,000 Pulmonology $1,204,919 $293,000 Neurology $907,317 $258,000 Pediatrics $856,154 $171,000 Ophthalmology $842,711 $282,000 Nephrology $696,888 $240,000

Reform Rodeo: A Sick Wellpoint; Performance; EHRs; and More

1. Really?: Reuters released an exclusive story about Wellpoint’s recent push to rescind contracts for those suffering from breast cancer.

2. Specialists: The New England Journal of Medicine has a piece on the role of specialists in performance-incentive programs.

3. EeeeekHR: In the New York Times, Pauline Chen describes her experiences as a physician attempting to come to grips with the unforeseen changes that EHR-based health care delivery has introduced into the doctor-patient relationship.

4. Myths of Health Reform: On The Health Care Blog, Maggie Mahar discusses the myths of health reform, including the belief that the reform measure was a hand out to industry.

4. When Skepticism Becomes Quackery: Steven Novella at Science-Based Medicine calls attention to the often hyperbolic demonization of the pharmaceutical industry.

5. That’s Just Your Opinion: Kaiser Health News gathers the latest opinions and editorials about health care, including pieces about children’s health care, RomneyCare, and the nursing shortage.

6. Resources: For those studying PPACA, George Washington University has released, among other things, a thorough provision-by-provision comparison of PPACA and subsequent reconciliation.

Is Medicaid a Right? Are Medicaid Rate Cuts Unconstitutional?

By: Matt McKennan

Seton Hall Law
Class of 2011

Expanding Medicaid Rolls and Limited Access to Care

Medicaid beneficiaries have a difficult time accessing care.  Physicians are not required to participate in the program and due to low reimbursement rates, among other factors, many physicians choose not to join.  The President, federal and state lawmakers, physicians, hospitals, and patients (regardless of their political views) undoubtedly agree that access to care for Medicaid beneficiaries is a growing problem.  Notably, the Patient Protection and Affordable Care Act (ACA) will likely add approximately 16 million beneficiaries to state Medicaid rolls.  According to Senator Lamar Alexander of Tennessee, “it dumps 15 to 18 million low-income Americans into a Medicaid program that none of us would want to be a part of because 50 percent of doctors won’t see new patients. So it’s like giving someone a ticket to a bus line where the buses only run half the time.”

Interestingly, Medicaid’s “Equal Access provision” requires that participating states,

“assure that payments are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area.”

If Sen. Alexander is right — and there is substantial evidence that Medicaid participants face significant obstacles to access – then states are violating federal law, or the federal law is so lax in its enforcement or its mandates that it has become ineffective.  Health reform vests huge responsibility in the hands of the states, and the ability to enforce federal law or the willingness of states to comply will play a crucial role in achieving its goals.

In response to Medicaid’s expansion, states face a number of critical decisions.  Currently, states are contemplating cuts to already low Medicaid rates.  According to the National Association of State Medicaid Directors, “state budget shortfalls in the coming fiscal year . . . will total $140 billion.”  Adding additional pressure, state constitutions generally require that state governments maintain a balanced budget.  As Medicaid expands, states will face even more difficult decisions when balancing budgets and implementing Medicaid consistently with federal guidelines.

How Will the States Respond?  Are Rate Cuts the Final Answer?

In response to increasing federal demands and local financial pressures, states are pursuing legal action as a successful lawsuit would surely decrease future state obligations under Medicaid.  States are also enacting legislation to oppose the bill and according to the National Conference of State Legislatures, 36 states have legislation to oppose certain reforms.  Others are lobbying Congress for repeal and those interested have already attested “that if any federal health care takeover is passed in 2010, I will support — with my time, money, and vote — only candidates who pledge to support its repeal and replacement with real reforms that lower health care costs without growing government.”

States may eventually decide to drop the program altogether.  After all, Medicaid is voluntary.  States are not obligated to provide medical assistance if they choose not to participate.  According to the Heritage Foundation, states would save over $1 trillion by opting out and “failure to leave Medicaid might be viewed as irresponsible on the part of elected state officials.”   On March 18, Arizona dropped its Children’s Health Insurance Program, foregoing millions in federal aid and leaving 47,000 children without insurance.  Earlier this year, Governor Jim Gibbons of Nevada stated, “[b]ecause it appears Sen. Reid’s plan is no longer viable, this crushing additional cost to the state isn’t forcing us to seriously consider opting out of Medicaid at this time.  However, if Congress wants to pass the buck and shift the fiscal burden of health care reform directly onto the states instead of looking seriously at ways to reduce spending and costs, we will be forced to revisit the issue.”  Like the Reid bill, the ACA also increases state Medicaid obligations.  And even if it increases the federal share, it is still worth asking whether Gov. Jim Gibbons  is once again seriously considering opting out of the program.

Alternatively, States may decide that Medicaid is just not that bad.  They may decide that it might just be a good idea to take advantage of the federal government’s helping hand.  Realistically, it is highly unlikely that states will drop Medicaid.  Dropping a program that provides care to low-income families is morally indefensible, especially without an alternative safety net.  Moreover, dropping Medicaid is fiscally irresponsible as the uninsured would undoubtedly wind up in emergency rooms seeking high-cost care at the private payers’ expense.  However, even if states decide to continue participating in Medicaid, the requirements of Medicaid must be enforced to achieve success.  After all, states administer Medicaid and states set reimbursement rates.  Drastic rate cuts by financially strapped states will undeniably balance budgets, but at the same time cuts will likely limit access to care.  So what happens when states cut Medicaid rates? See here, here, and here.

Is Medicaid a Right?  Are Rate Cuts Unconstitutional?

Thankfully, Medicaid’s “Equal Access provision” requires that states pay reimbursement rates that are sufficient to assure access to care.  Unfortunately, it is not easily enforced and the remedies are limited.  On the one hand, the federal government can withdraw its support from states that fail to live up to the statute’s demands.  On the other hand, providers and beneficiaries can also pursue legal action.  Legal action, however, is not that easy.

Shortly after the Civil War, Congress enacted the Civil Rights Act of 1866, providing equal rights to all “persons within the jurisdiction of the United States.”  In response, many Southern Governors refused to comply, frustrating Congressional intent as the KKK violently opposed the bill and terrorized the South without state intervention.  Congress then enacted 42 U.S.C. § 1983.  It provides a private cause of action against state or local actors that violate federal rights.  At its most basic level, the cause of action reins in rogue states and local actors.  A plaintiff that pursues a Section 1983 claim to enforce Medicaid’s requirements is in essence alleging that a state is violating federal rights by failing to comply with the federal law (Medicaid).

Initially, the Supreme Court adopted this line of reasoning.  In Wilder v. Virginia Hospital Association, the Supreme Court held that Medicaid providers can file suit under Section 1983 when a state fails comply with Medicaid by setting unreasonable and inadequate rates.  Notably, Chief Justice Roberts, as deputy Solicitor General at the time, filed a brief in Wilder arguing that private citizens cannot force states to comply with Medicaid under Section 1983.  After Wilder, courts consistently held that Section 1983 provided a cause of action to enforce state compliance with Medicaid.  Over time, the circuit courts split regarding what the “Equal Access provision” requires.  Some courts held that it requires states to conduct a study before setting rates, while others held that it requires states to achieve results, such as setting rates that actually achieve equal access to care, regardless of a study.

However, in Gonzaga v. Doe, the Supreme Court  limited the availability of a cause of action under Section 1983.  Interestingly, now-Chief Justice Roberts argued before the Court in Gonzaga as well, this time successfully.  Since Gonzaga, circuit courts throughout the country have refusedto allow Medicaid providers and beneficiaries to file suit under Section 1983 to enforce Medicaid’s “Equal Access provision” holding that Medicaid does not confer individual rights.  Compare pre-Gonzaga Orthopaedic Hospital with post-Gonzaga Sanchez.  In effect, Roberts’ argument in Wilder is now law and private citizens can no longer file suit under Section 1983 when states cut rates and limit access to care.

Fortunately, providers and beneficiaries have one more option.  Rather than filing suit under Section 1983, providers and beneficiaries are now successfully pursuing claims under the Supremacy Clause.  Under this theory, a state law that cuts reimbursement rates and decreases access to care conflicts with the “Equal Access provision.”   Therefore, because the state law conflicts with federal law, and federal law is the supreme law of the land, the state law is null (unconstitutional).  Plaintiffs have filed successful actions under the Supremacy Clause in California, resisting attempts to cut Medi-Cal payments for purely budgetary reasons.  A similar suit was filed in Washington last year.  On January 28, the Connecticut Association of Healthcare Facilities also filed suit, pursuing a Supremacy Clause action to enforce the “Equal Access provision.”

Although plaintiffs are experiencing success under the Supremacy Clause, there are a few drawbacks.  Unlike a suit under Section 1983, an action under the Supremacy Clause does not generally result in legal damages or attorney’s fees.  Instead, a plaintiff simply enjoins the unlawful state action.  Moreover, Justice Scalia and Justice Thomas have observed that the Supremacy Clause does not provide a cause of action to enforce Medicaid.  Rather, the Justices note that the only remedy is the withdrawal of federal funds.  Therefore, under the only legal theory available to enforce Medicaid at this time, states generally face no financial responsibility for cutting rates and decreasing access.  Further, the only cause of action to enforce Medicaid may rest on shaky ground.

In summary, history demonstrates that federal preemption will play a major role in implementing health reform, and these lessons must not be ignored.  The ACA expands Medicaid rolls and relies greatly on state compliance.  States have a limited number of options in response to their increasing responsibilities.  Eventually, constitutional challenges will end and states will likely continue to provide Medicaid assistance.  However, financially strapped states may end up administering a watered down program that denies access to care.  Therefore, to achieve the goals of reform, it is vitally important that states face realistic consequences if they refuse to administer Medicaid in compliance with federal law.  Ultimately, however, if states continue to cut rates, a strict federal standard regarding Medicaid reimbursement may be necessary.

Study Demonstrates Link Between Physician Surgicenter Ownership and Volume of Surgeries

There has long been a concern — reflected in the federal Stark Law and its state law analogues — that a conflict of interest arises when a physician refers patients to an ambulatory surgery center he or she owns.  Prior research established that a doctor’s rate of referrals of patients for surgery and other hospital-based services is positively correlated with an ownership stake in a specialty hospital; now there is similarly concrete, empirical evidence of the deleterious effect of the conflict created when doctors own surgicenters.

In an article in the April issue of Health Affairs, John M. Hollingsworth and his co-authors present the results of a study comparing “the practice patterns of physician-owners of surgicenters, before and after they acquired ownership, to those of physician-nonowners over the same time period.”  Using data from Florida for the years 2003-2005, the authors identified all patients who underwent one of five ambulatory procedures — carpal tunnel release, cataract excision, colonoscopy, knee arthroscopy, and ear tube surgery.  The procedures were chosen because “substantial variation exists … in their use,” making them “susceptible to the influences of financial incentives associated with surgicenter ownership.”  After accounting for differences in the populations served by physician-owners and physician-nonowners, the authors found that “the mean annual caseloads for owners … were at least twofold greater than those for nonowners.”  Even more telling, using earlier data, from 1998-2000, the authors found that, even after accounting for the fact that some of the eventual owners had higher-volume practices before they invested in a surgicenter, for four of the five procedures studied, “acquisition of ownership status kicked owners’ already high volumes even higher.”

In an earlier post, I noted that a 2009 New Jersey law conditions physicians’ ability to refer patients to surgicenters on the following: (1) for patients they refer, they personally perform the surgery; (2) they be paid in proportion to their ownership interests, not the number of patients they refer; (3) they and their physician partners make all healthcare decisions, leaving non-physician partners without a say; and (4) they inform their patients in writing of their ownership interest at the time they make the referral.

The work done by Hollingsworth and his co-authors suggests that while the first and second conditions might eliminate certain especially troubling payment arrangements, a “relationship between surgicenter ownership and surgical volume” can persist even when physician-owners personally perform the surgeries.  Similarly, while the third condition would require that physicians make healthcare decisions, it would do nothing to ensure that those decisions are uninfluenced by conflicts of interest.  The fourth condition — which puts the burden on patients to suss out which referrals are medically necessary and which result from a physician-owner inappropriately lowering his or her threshold for intervention due to a financial conflict of interest — is also unlikely to reduce “physician-induced demand.”  There is no evidence that patients are able to perform such a sifting function.  To the contrary, existing evidence suggests that they are not.

Ultimately, as Hollingsworth and his co-authors suggest, the government may need to “intervene through physician reimbursement.”  “[P]artial capitation or global payment schemes, or both, implemented in the context of proposed delivery system reforms (such as accountable care organizations) may be needed to discourage the over-use that fee-for-service payment rewards.”

Medicaid Cuts: Where’s the Outrage?

If Medicare services or provider rates were cut, or threatened to be cut to balance the budget, the firestorm would be epic.  Republicans would accuse Democrats suggesting such cuts of stealing from the elderly.  Democrats would accuse Republicans suggesting such cuts of trying to abolish Medicare.  AARP would express outrage, and if it didn’t do so loudly enough tea partiers would urge seniors to burn their AARP cards in an incongruous support of a government health care program.  So where’s the outrage when states faced with budget cuts look first to cut Medicare’s sister program, Medicaid?

A front page story in the New York Times on Tuesday describes cuts in Michigan’s Medicaid budget, resulting in the elimination of some services and reductions in provider fees.  As Medicaid fees were already absurdly low in Michigan, as in many states, the predictable response was that the pool of doctors available to Medicaid beneficiaries shrank even further.  Those lucky enough to find a doctor willing to take the low Medicaid reimbursement must be willing to travel long distances, and give up days of work to get necessary care for their sick children.  The Times described one such case:

Medicaid enrollees in Michigan’s midsection have grown accustomed to long journeys for care. This month, Shannon M. Brown of Winn skipped work to drive her 8-year-old son more than two hours for a five-minute consultation with Dr. Mukkamala. Her pediatrician could not find a specialist any closer who would take Medicaid, she said.

Later this month, she will take the predawn drive again so Dr. Mukkamala can remove her son’s tonsils and adenoids. “He’s going to have to sit in the car for three hours after his surgery,” Mrs. Brown said. “I’m not looking forward to that one.”

Those who can’t locate a participating physician either do without or wait for the condition to become emergent, at which time they seek more expensive hospital care.  How can this program be so dysfunctional?   The Kaiser Family Foundation, in a report posted last month, described the countercyclical nature of Medicaid’s finance structure:

During an economic downturn, unemployment rises and puts upward pressure on Medicaid. As individuals lose employer sponsored insurance and incomes decline, Medicaid enrollment and therefore spending increase. At the same time, revenue losses make it more difficult for states to pay their share of Medicaid spending increases. Specifically, a 1 percentage point increase in the national unemployment rate is estimated to result in 1 million more Medicaid and CHIP enrollees and an additional 1.1 million uninsured at the same time as state revenues are projected to fall by 3 to 4%.

So, states need to increase funding for Medicaid just when they are losing tax revenues and are facing pressures in other public service settings.  As KFF describes in the report, the problem this year was lessened somewhat by the addition of federal stimulus funding; the funding was apparently not enough to support the program in Michigan, and in any event will not persist nearly as long as states’ projected budget problems.

This is not a new problem.  It has often been noted that a health care system for poor people is a poor health system.  The reasons are, unfortunately, quite clear.  Medicare serves (mostly) the elderly of all income groups.  This is a politically powerful bloc: its members vote, and enough of them are financially and socially powerful to protect their turf.  Medicaid covers low-income people, including our lowest wage-earners, poor children, and people with permanent disabilities.  They have little social clout, by definition little money, and not much in the way of a lobby.  So, when times get hard, their programs are on the line.

That brings us to health reform.  The current bills rely heavily on Medicaid to bring coverage to the uninsured.  That is, as the above discussion makes clear, a risky proposition.  In its several forms, current reform bills have promised some increases, often temporary, to the federal share of states’ Medicaid costs.  And in a letter to Congressional leaders following a summit earlier this month, the President acknowledged the precariousness of the network of providers on whom we’ll rely to render that expansion more than a charade:

At the meeting, Senator Grassley raised a concern, shared by many Democrats, that Medicaid reimbursements to doctors are inadequate in many states, and that if Medicaid is expanded to cover more people, we should consider increasing doctor reimbursement. I’m open to exploring ways to address this issue in a fiscally responsible manner.

That would be a good step.  So would increasing the federal share of Medicaid’s costs.  If the current fiscal crisis has shown us anything about our federalist system, it is that the federal government, with its ability to borrow,  is much better at responding to emergencies than are the states, with their obligations to balance budgets annually.  But ultimately, a program for poor people will always have political, and therefore fiscal problems.

For reform to stick, for expansion of coverage to the poor and near-poor to genuinely serve their health needs over time, we have to tend structurally to our funding system.  The achievement of expansion to near-universal coverage would be a statement of solidarity, proclaiming that we’re all in this together.  To make that stick, we have to be in our health care financing system together.  There will be a list of clean-up work and next steps if and when reform passes.  High on that list should be the repair of Medicaid’s shaky fiscal foundation, integrating the interests of Americans across class and income levels.  When they’re considering reductions in access to health care, legislators should be just as cautious about harming kids in Flint as they are about harming elders in Scarsdale.

A Guide to Accountable Care Organizations, and Their Role in the Senate’s Health Reform Bill

[Ed. Note, April 24, 2011: This article by Jordan Cohen was written in March, 2010. It has been cited and linked by everyone from the New York Times to the Texas Tribune and all points in between-- for good reason, it is both thorough and informative. But since the Accountable Care Organization (ACO) model  has continued to gain coverage and currency, we believe it worthwhile to point out recent HRW pieces that will help you get caught up on ACO implementation and impact after you finish the overview of ACOs discussed below. These include:

• It’s Not the ‘Shared Savings’, Stupid: Why ACOs Under the Proposed Rule Will Change Medicine As We Know It - 4/17/2011
• The Normative Meets the Practical: Who Should Can Lead ACOs - 4/12/2011
• ACOs: OIG Guidance, CMS regulations, and Interpretive Tasks - 4/5/2011
• Summary of CMS Proposed Rule on Accountable Care Organizations - 4/4/2011
• Accountable Care Organizations and Antitrust: A New PSA Test - 4/1/2011]

The accountable care organization has been a model for health care reform, yet its modest success has been limited to a handful of health care systems across the country. However, the accountable care organization model has recently taken on far greater significance since being introduced as one of Medicare’s pilot programs in the Senate’s health reform bill.

The phrase is attributed to Dr. Elliot Fisher of Dartmouth Medical School.  Dr. Fisher has led the Dartmouth Atlas Project — a project that has, for the last 30 years, painstakingly documented the variation in care across the United States. (Click here for an interactive map of some of the Dartmouth Atlas results). The Dartmouth Atlas has focused on both the quality of health care as well as its cost. More importantly, they have reported on the relationship between the two, and their findings are nothing short of an indictment of our current paradigm.

Specifically, their findings illustrate that there exists wide variations in the cost of care across the country, and profoundly, that the regions that spend more per patient do not necessarily obtain better outcomes. So what to do? Dr. Fisher believes he has found at least part of the answer: the Accountable Care Organization, known as an “ACO”.

What is an ACO, and How Does it Differ from Other Payment Reforms?

In his paper “Creating Accountable Care Organizations: The Extended Hospital Medical Staff,” Dr. Fisher acknowledges that the term ACO “grew out of an exchange between he and Dr. Glenn Hackbarth at a MedPAC meeting in November of 2006″. (Fisher, 2006 n. 7). Dr. Fisher’s purpose in writing the aforementioned paper was to help identify the proper “locus for shared accountability” for a patient’s health care. HMO’s and other health insurers are obvious candidates, but as Dr. Fisher notes, HMOs only comprise a small percentage of the current market, and health plans in general have focused on negotiating favorable prices within relatively open networks of providers. (Fisher, 2006, p. 45).  The “medical home” (also referred to as a Patient Centered Medical Home or PCMH) is another candidate, but is taken out of the running by Dr. Fisher because of the untested nature of medical homes, and their requirement of new payment mechanisms. (Id.).

Dr. Fisher notes that a better option already exists: “virtual” organizations consisting of the various physicians that are associated with local acute care hospitals. As Dr. Fisher notes, these physicians are either directly affiliated with such hospitals through their inpatient work, or through the care patterns of the patients they serve.  Dr. Fisher refers to these multi-speciality group practices that are bunched around local hospitals as an “extended hospital medical staff.” He argues that improving quality and lowering cost should be realized by fostering greater accountability on the part of this “extended medical staff.”

In a recent Urban Institute paper on ACOs by Kelly Devers and Robert Berenson (pdf summary here, full pdf here), the authors point to three essential characteristics of ACOs:

1. The ability to provide, and manage with patients, the continuum of care across different institutional settings, including at least ambulatory and inpatient hospital care and possibly post acute care;
2. The capability of prospectively planning budgets and resource needs; and
3. Sufficient size to support comprehensive, valid, and reliable performance measurement. (Berenson, p. 2.).

In exchange for investing in this reformed health care provider structure, the ACO members will  share in the savings that results from their cooperation and coordination. Thus, ACOs can–theoretically–act as a reform tool by incentivizing more efficient and effective care. This would help to combat the current perverse incentives of overutilization and overbuilding of health care facilities and technology.

In 2007, Dartmouth’s Institute for Health Policy and Clinical Practice headed by Dr. Fisher and Dr. James Weinstein, teamed up with the Brookings Institution’s Mark McClellan to create The Brookings-Dartmouth ACO Learning Network. The ACO Learning Network will serve as a support tool for providers looking to transition to the ACO framework. In the “Overview” section of their site (available as a pdf here), the Brookings-Dartmouth team provide a useful chart comparing the ACO model to other payment reform models such as “bundled payments,” “medical homes” and capitation. Click the image below to enlarge.

Various Extant Structures Utilized

Since Dr. Fisher’s introduction of the ACO concept, the idea has continued to be refined. In their 2007 paper “Accountable Care Systems For Comprehensive Health,” Dr. Stephen Shortell and Dr. Lawrence Casalino envision a broad range of ACOs in addition to the “extended medical staff” originally described by Dr. Fisher. Drs. Shortell and Casalino identify extant organizational structures that could be leveraged to create ACOs, including the Multi-speciality Group Practice (MSGP), the Hospital Medical Staff Organization (HMSO), the Physician-Hospital Organization (PHO), the Interdependent Physician Organization (IPO), and the Health Plan Provider Organization or Network (HPPO/HPPN). (Shortell et al., 2007, p. 10). Below is a table from their paper that organizes the different ACO models while comparing their capabilities. Click the image below to Enlarge.

ACOs In Practice

Building on the Physician Group Practice (PGP) demonstration project that rewarded the provision of quality care with a share of the savings, the Brookings-Dartmouth group propose a “voluntary and incremental” ACO program. (Fisher et al., 2009, p. 2).  The ACO would have to be a legal organization that can receive shared savings, and would have to incorporate primary care physicians who solely practice under the ACO. (Id.). Furthermore, the Brookings-Dartmouth group believes there would have to be at least 5,000 beneficiaries in the ACO for it to be viable. The ACO would provide CMS with a list of their providers willing to participate in the ACO. As discussed above, the beneficiaries would be determined by, among other things, the patterns of patient referrals in the region. However, beneficiaries would not be “locked in” to a given provider. (Fisher et al., 2009, p. 4). The ACO would receive savings if their risk-adjusted, per beneficiary spending levels were below their benchmark. Id.

An Ultra-Simplified Example

A hypothetical independent practice association (IPA) teams up with a community hospital to create an ACO. Medicare determines a benchmark, that is, what it will cost to treat the average beneficiary in that geographic area per year–let’s say $10,000. The physicians submit their traditional claims to Medicare under the RBRVS system while the hospital submits its typical DRG-base claim. Thus, the traditional fee-for-service system remains in place. At the end of the year, Medicare determines if the ACO has provided care for less than $10,000. If they have, the ACO is entitled to share in the cost savings, and the savings are divided among the providers and hospital. Though simple in theory, ACOs become more difficult when attempting to construct payment models that will distribute the savings of the ACO to the individual providers. Shortell provides another helpful chart that lays out some of the options; Click on the image to enlarge.

Criticism of the ACO Model

The strongest criticism that I am aware of is from Dr. Jeff Goldsmith PhD, president of Public Health Services at the University of Virginia. In his Health Affairs article entitled “The Accountable Care Organization: Not Ready for Prime Time,” Dr. Goldsmith recalls previous attempts to at implementing payment reform models based on shared risk:

The problem with this movie is that we’ve actually seen it before, and it was a colossal and expensive failure. During the 1990s, many hospitals and physicians believed that the Clinton health reforms would force them into capitated contracts with health plans. . . . Risk-bearing physician/hospital organizations and hospital-sponsored preferred provider organizations (PPOs) sprang up all over the country. . . . Some of these hospital/physician efforts actually succeeded and survive today. . . . However, these were outliers in an expensive failure.  Employers and patients preferred open panels managed by health insurers to closed panels managed by providers. Billions of dollars were lost.. . . Many of the practice acquisitions were reversed, as hospital systems sought to rein in their expenses and adjust to an open-panel world dominated by point-of-service style health plans

However, the 1990s left behind an expensive legacy:  highly concentrated local provider markets….There were numerous reasons for the 1990s collapse of at-risk hospital/physician partnerships, besides the failure to find willing buyers of their services. These efforts lacked infrastructure, experienced management, as well as reliable and timely cost information to support cost management. They assumed global risk but paid for care on a fee basis, just as Fisher and colleagues propose.  But these hospital-sponsored organizations could neither redistribute income nor exclude their high-cost providers (who inconveniently generate most hospital profits).

Some things have clearly changed in the ensuing decade. . . . A rapidly increasing percentage of physicians, particularly primary care physicians, are now hospital employees.  A larger percentage of the physician community receives hospital subsidies for call coverage. Many of these subsidies are, in fact, extorted from the hospital by specialists in scarce supply, destined to become scarcer.  An entire generation of 80-hour-a-week baby-boomer physicians are retiring and being replaced by younger physicians who want to work 30 hours a week.  You are not going to see a lot of these younger physicians in utilization review committee meetings after hours; they are going to be at their kids’ soccer practices.

What hasn’t changed is the fragmentation of care, the huge disparities in income and political power inside physician communities, and also the level of suspicion that physicians have of their now much more powerful local hospitals.  There is also, sadly, a thundering absence of collegiality – in my view, the central precondition of assuming risk and managing care. This absence is palpable in suburbs and even more pronounced in many “lifestyle dominated” resort communities in the sunbelt.. . .They are “collections” of physicians, not communities.

The hospitals in these areas appear formidable:  they have beautiful campuses,  prestigious boards, and deep financial reserves. . . . But these hospitals have been picked clean of vital outpatient services by their medical “communities.”

….Entire disciplines have disappeared from hospitals: ophthalmology, cosmetic surgery, gastroenterology, urology. Even community-based internists and family practitioners have stopped coming to the hospital; their patients are cared for by hospitalists who work full time inside the hospital.

The result of our previous attempts at ACO-like integrated care, Dr. Goldsmith points out, is that…

. . . .while the hospital has become more involved in subsidizing physician practice, physician communities have drawn away from the hospital and function increasingly independently on a day-to-day basis. Wennberg’s own data show that something like 40% of physicians no longer have any Medicare hospital-related fee income. So squashing hospitals and physicians back together into economic interdependence in a joint hospital/physician economic pool makes no real-world sense.

Dr. Goldsmith goes on to note that there have been some successful ACOs, but that they haven’t been “virtual” in the sense that Dr. Fisher points out, rather, they are

. . . real organizations with P+Ls, medical directors, and management infrastructure. Prominent examples in my home region include Carilion Health System in Roanoke and the Bon Secours Health System in Richmond. Voluntary ACO arrangements, with Medicare and with private insurers, may find enthusiastic partnerships with many of these hospital-sponsored physician groups. . . .

The Senate Bill

In defense of the Brookings-Dartmouth model, the group has gone on record in favor of voluntary ACOs. To Dr. Goldsmith’s relief, the Senate’s health reform plan incorporates ACOs on a voluntary pilot program basis. You can read their rebuttal to Dr. Goldsmith here.  Section 3022 of the Senate bill — which amends Title XVIII of the Social Security Act (42 U.S.C. 1395) — introduces ACOs under the name “Medicare Shared Savings Program. (View a pdf of the extracted ACO part of Senate bill here).

The Senate’s plan is remarkably similar to the Brookings-Dartmouth model. Under the Senate’s plan, ACOs will be eligible to receive a percentage of the cost savings that they have realized under the traditional fee-for-service Medicare system. The requirements are set forth in section (B)(2). Furthermore, the ACO shall enter into a 3 year agreement with HHS whereby the ACO must agree to contain at least 5,000 Medicare beneficiaries, while being prevented from engaging in risk selection. The ACO must define processes to promote evidence-based medicine and patient engagement, report on quality and cost measures, and coordinate care, such as through the use of telehealth or other remote patient monitoring tools. The ACO must also demonstrate to HHS that it meets the yet-to-be defined criteria for “patient-centeredness”.

Whether ACOs will succeed is impossible to determine with certainty. The panopticon that would be ACO management looking over the shoulders of physicians may be enough to turn off many physicians. Nevertheless, as even Dr. Goldsmith acknowledges, some ACOs have thrived. Moreover, the voluntary ACOs in the Senate’s bill represent a measured approach towards reforming our system without a wholesale transformation. As Dr. Atul Gawande describes in a lesser-cited pre-”Cost Conundrum” article, the most sound approach is often “path-dependent,”  that is, it builds on what already exists. As Dr. Gawande notes:

. . .accepting the path-dependent nature of our health-care system—recognizing that we had better build on what we’ve got—doesn’t mean that we have to curtail our ambitions. The overarching goal of health-care reform is to establish a system that has three basic attributes. It should leave no one uncovered—medical debt must disappear as a cause of personal bankruptcy in America. It should no longer be an economic catastrophe for employers. And it should hold doctors, nurses, hospitals, drug and device companies, and insurers collectively responsible for making care better, safer, and less costly. . .

Whether the shared savings will entice physicians on a large scale is uncertain.  What is certain is that our current fragmented system incentivizes providers to offer neither cost-effective nor coordinated care. Though it is unlikely that physicians and hospitals will flock to ACOs from the start, the vision of ACOs conceived of by the Dartmouth-Group and described in the Senate bill may nevertheless prove itself a useful tool in a larger arsenal of approaches meant to salvage our unsustainable health care system. In other words, the Senate’s approach could provide a path-dependent solution toward the collective responsibility and better outcomes that Dr. Gawande mentions. And as described in the Senate bill, physicians and hospitals will not be offered a new path, but rather a resurfaced path that would retain fee-for-service, while providing a safer and smoother ride for the patient.

Financial Remuneration of Clinical Study Investigators

In November 2009, the Center for Health & Pharmaceutical Law & Policy, in its White Paper, Conflicts of Interest in Clinical Trial Recruitment & Enrollment: A Call for Increased Oversight, explored payments to investigators — and other potential motivators — to conduct research.  A study in this month’s IRB: Ethics & Human Research explores the impact payments may have on researchers to conduct and complete studies.  In Motivated by Money? The Impact of Financial Incentive for the Research Team on Study Recruitment, Sharon Unger and her colleagues examine the effect financial remuneration has on researchers in a neonatal intensive care unit (NICU).

Taking advantage of a “fortuitous set of circumstances” in which two separate clinical trials with nearly identical inclusion criteria were conducted simultaneously in an NICU in Canada, the authors looked at two issues: 1) whether financial remuneration impacted the rate at which the research team approached parents about research participation, and 2) whether financial remuneration impacted the rate at which parents provided consent to participate.

In the first study (Study A), a placebo-controlled trial involving a medication that was the standard of care for treatment of newborns nearing extubation to prevent apnea of prematurity, members of the research team were financially compensated for their time if they were successful in obtaining parental consent (parents were unaware of this arrangement).  In the second study (Study B), which involved two different forms of noninvasive respiratory support following extubation, there was no financial compensation of the research team.  Both studies had the same recruiting team.  Study A was federally funded, multicentered and high-profile, while Study B was a single-center, unfunded trial.

The payments in Study A were per capita, which, while creating a direct incentive to recruit individual enrollees, is usually not problematic as long as the payment is not excessive.  The Center recommends “that the benchmark for compensation for physician services for research should be comparable payment for time and services for treatment. This will compensate physicians fairly for their time and services, and will assure that there are no hidden bonuses or incentives for physicians to recruit patients into research or to refer them to research rather than treatment.”  As noted in the study, finder’s fees are increasingly considered “ethically problematic;” the Center recommends a wholesale bar on finder’s fees because they can create conflicts of interest that can incentivize investigators to recruit and retain individuals who do not meet the study’s inclusion and exclusion criteria.

As the authors noted, and as acknowledged in the Center’s White Paper, potential enrollees are increasingly vulnerable as increasing numbers of individuals seek to participate in research either as a primary means of access to treatment or as a form of income.  The results of this study indicate a much higher likelihood of approach when there was a prospect of financial remuneration.  These results are concerning, and were anticipated by the Center’s White Paper, which noted the potential for poor compliance with inclusion and exclusion criteria and pressure to enter or remain in a clinical trial.

However, surprisingly, the authors found that, despite the much higher likelihood of approach for Study A than Study B, parents were much more likely to actually agree to enroll their newborn in Study B — for which there was no financial remuneration of the research team.  The authors explored various explanations for this result, including that the research team was overly cautious about giving the appearance that their approach for consent was motivated by financial compensation, or that parents chose to withhold consent  due to the research team’s  increased pressure.

The authors do acknowledge other potential factors — beyond financial remuneration –  that could have affected the study’s results.  For example, parents’ hesitancy to enroll their newborn in a placebo-controlled drug trial could explain the discrepancy between enrollment in the studies.  Likewise, the authors consider that parents may not have been able to differentiate between the two modes of support being investigated in Study B.  In addition, the recruiting team, when presented with the results of the study, did not recall feeling influenced by the financial arrangement of Study A, but did “recall being highly motivated to ensure the success of Study A as it was part of a high-profile, multicentered trial.”

The authors concluded by noting concerns that “there may be a point at which the amount of the financial remuneration or the manner in which it is assigned could negatively impact the ethical conduct of the researcher,” but cautions that these concerns should be balanced with the value of conducting research in patients’ best interests.  This balancing act is considerably important.  As the Center notes,

Research is critical to the advancement of medical treatment and health. It must be structured to produce high quality data that facilitates the assessment of safety and efficacy in the population for whom the treatment will be used. The good of the enterprise requires that the clinical trial system sufficiently balance the costs and benefits to physicians and prospec­tive trial participants to ensure the continued sufficient supply of researchers and subjects. The system must also be imbued with actual and perceived integrity — so that it produces scientifi­cally reliable results, participants are safe, and people trust the system sufficiently to be willing to participate.

Revisiting CONventional Wisdom on State Hospital Licensure

If there is one aspect of contemporary health care regulation that conservatives have decried, it’s “certificate of need laws.” These laws require licensure of new health facilities (and sometimes expansions of facilities) in thirty-seven states. Denounced as relics of socialist central planning, they were a prime target of the Bush-Era Dose of Competition report. But, as David Leonhardt notes, it appears that CON laws are reducing costs without impairing quality in some areas.

First, a bit of background. As health costs rose in the 1960s, many policymakers believed that a surplus of health services was to blame. Policymakers worried that health care costs were rising due to “induced demand:” the more doctors and hospitals there were, the more these actors would try to counteract the normal price-depressing effect of increased competition by finding more wrong with patients, thus “inducing” demand for their services. Although such a strategy could rarely work in a normal market, health care is a credence service—it is very hard for the average consumer to “second guess” his or her provider about the amount or nature of care needed.*

In 1974, Congress passed the National Health Planning and Resources Development Act. The Act required new health care facilities, and additions to existing facilities, to obtain a Certificate of Need (CON) from the appropriate state agency as a prerequisite to receiving federal funds via the Medicare and Medicaid programs. As a result of these laws, those opening new health care entities needed to demonstrate to state commissions that their services are actually needed by the community.

Over time, state boards started addressing concerns beyond “induced demand,” including social goals of equity and fair distribution of health resources. When I emailed a New Jersey policymaker who has worked in this area, he told me that the state would be unlikely to license specialty hospitals that concentrate on the most lucrative cases because they would threaten the ability of safety net hospitals to use revenue from such cases to cross-subsidize uncompensated care. He called such egalitarian concerns “explicit and leading factor[s] of discussion at all levels in CON proceedings.”

Leonhardt is more concerned about the classic CON goal of cost-control, and sees CON laws as a key reason for positive developments in Richmond, Virginia:

Since 1996, the Richmond area has lost more than 600 of its hospital beds, mostly because of state regulations on capacity. . . . Richmond has gotten rid of 15 percent of its hospital beds, and its health care still looks a lot like the rest of the country’s, only cheaper and a bit better. . . .

[Meanwhile, health facilities vastly expanded in South Dakota after it scrapped its CON law in 1988.] In other industries, all that new capacity might have led to a glut, in which workers and equipment sat idle. But health care is different. Doctors and patients tend to believe that more care is better, and patients often don’t pay much extra for any additional care. So new doctors, nurses and equipment generally stay busy.

Dr. John Wennberg of the Dartmouth Medical School refers to this phenomenon as supply-sensitive care. Dr. Marlon Priest, the chief medical officer of Bon Secours, puts it this way: “If you build 100 beds, they’ll get used.” . . . [But] [m]ore care is not always better care. Sometimes, in fact, it’s worse. Just consider the recent research showing that radiation from CT scans will eventually kill thousands of patients a year.

I’m not fully sold on the Dartmouth studies (here’s one critique of them), and I do worry that efforts to fight overtreatment will lead to some “meat ax” rationing that denies care to the poorest (rather than motivating those who don’t need the attention of the health care system to avoid it). But when cost saving initiatives are combined with a commitment to preserve access to necessary care for all, they may be as close to a “Pareto optimal” health policy as we can get.

*(Lawyers have their own version of this “induced demand” problem, encapsulated in the old saw: “When there was one lawyer in town, he had no business; when another moved in, he was swamped with cases.” I suppose laws against barratry offer a loose parallel to CON in the legal profession. Antitrust may stand in the way of legal and medical professionals’ own actions to avoid “induced demand.”)

X-Posted: Concurring Opinions.

Developments in the Law Governing Physician-Owned Ambulatory Surgery Centers in New Jersey

Over the past year, one or the other of my sons has had minor surgery in no less than three of New Jersey’s many ambulatory surgery centers (”ASCs”).  So, I noted with interest the Appellate Division’s recent decision in Garcia v. Health Net in which it affirmed a lower court holding that physicians who make referrals to ASCs in which they have an ownership interest violate the Codey Law, New Jersey’s version of the Stark Law.  The Appellate Division also affirmed the lower court’s decision that, despite the illegal referrals, the physician-owners in the case committed no fraud.  They (along with other physicians-owners across the state) acted in reliance on the New Jersey Board of Medical Examiners’ conclusion that the Codey Law’s exception to the self-referral ban for services provided at the referring physician’s medical office applied to ASCs.

In response to the lower court’s holding and heavy lobbying from physicians, the New Jersey State Legislature enacted revisions to the Codey Law which were signed into law in March 2009.  Physicians are now expressly permitted to refer patients to ASCs in which they have a financial interest if they meet a list of conditions, including that: (1) for patients they refer, they personally perform the surgery; (2) they be paid in proportion to their ownership interests, not the number of patients they refer; (3) they and their physician partners make all healthcare decisions, leaving non-physician partners without a say; and (4) they inform their patients in writing of their ownership interest at the time they make the referral.

On the other hand, the Legislature acted to all but put a stop to the establishment of new physician-owned ASCs, with the exception of those which are jointly owned by a general hospital.  Development of hospital– and medical school–owned centers may proceed apace.  Fox Rothschild’s Elizabeth Litten notes  that this “resonates more of long-forgotten certificate of need and health planning policy than it does of the original law’s concern with physician profit motives and overutilization.”  Clearly, the Legislature hopes that the new limits will be good for general hospitals’ financial health.  Professor Frank Pasquale has written here and elsewhere about the concern that ASCs and other niche facilities harm general hospitals by “cherry-picking” lucrative patients and “lemon dropping” those that are more costly.

What about patients?  Should we care whether ASCs are physician-owned or not?  Unsurprisingly, the American Medical Association believes that “physician ownership interests in health facilities, products or equipment can benefit patient care.” Peer-reviewed research suggests that physician-ownership makes no difference in health outcomes, however.  And, as Dean Kathleen Boozang states here, there is evidence that “physicians who hold an equity interest in an entity that provides ancillary health care services, such as a clinical laboratory or MRI, more frequently order those services for their patients, referring them, unsurprisingly, to the entity they own,” although there is no evidence that “this higher use equated to over-utilization.”  I would suggest, admittedly based on a small (and potentially unrepresentative) sample, that, if nothing else, physician-owned surgery centers have better amenities than those that are hospital-owned.  Some of these amenities could easily be done without (orchids in the lobby, souvenir teddy bear); others (popsicles and DVDs in the recovery room) are potentially more significant.

Further Calls for Increased Oversight on Medical Research & Physician Conflitcs of Interest

The Center for Health & Pharmaceutical Law & Policy has continued to focus on the implications of research funding in patients’ decisions to participate in clinical research, as well as the effects such funding can have on researcher behavior and research results.  In January 2009, the Center recommended that all financial relationships between industry and physicians be publicly disclosed by industry.  And just this month, the Center released its most recent White Paper, “Conflicts of Interest in Clinical Trial Recruitment & Enrollment: A Call for Increased Oversight.”

Similarly, in a November 17 letter to Francis Collins, 100 researchers, academics, and public policy analysts asked the NIH to “fund studies on medical ethics, conflicts of interest in medicine and research, and prescribing behavior” in order to determine the effects of industry-academic relationships on human health.  The letter implores the director of NIH to focus on “the research gap on the effect of conflicts of interest and commercial influence on medical decisionmaking” and to establish a mechanism for funding relevant research.

One of the primary concerns in the researchers’ letter is an issue also identified in a November OIG report, “How Grantees Manage Financial Conflicts of Interest in Research Funded by the National Institutes of Health,” which found that a majority of academic researchers’ conflicts of interest are unreported.   The report flags the potential for extensive conflicts between faculty members and their government-financed research.  In response, the US Senate Finance Committee recently sent letters to several universities requesting such information.  Just yesterday, Northwestern University’s Feinberg School of Medicine, reacting to national concern about physicians’ and researchers’ financial conflicts of interest, began posting external professional and industry relationships for approximately 2000 faculty members — including service on boards of directors, consulting and related activities, ownership or investment interests, royalties and inventor shares, and additional activities such as lectures and participation in scientific advisory boards and professional societies.

Further research is obviously necessary to determine how financial relationships influence — as the authors of the letter to NIH call it — “the beliefs and behaviors of researchers and clinicians, and the effects of industry-academic relationships on the generation and dissemination of medical knowledge.”  In the meantime, increased oversight of physician-industry relationships by the federal government to evaluate and oversee investigator or institutional conflicts of interest, both for research within and without academic medical centers, is necessary.

“15 Years or 7 to Pay Off Your Debt. . .”

I have been watching the Alex Gibney documentary film version of Maggie Mahar’s book Money-Driven Medicine. It’s fascinating, and I’ll definitely do a few more blog posts on it. For now, I’d like to reflect on a quote from early in the film, from a Dr. Berwick who’s been a keen observer of the US health system. He notes that physicians who are specialists do lots of compensable and specific procedures, and therefore usually earn much more than primary care doctors, leading to an artificial glut of specialists. I’d known this for some time, but Dr. Berwick makes the fact particularly compelling by comparing the concrete choices faced by med students: “15 years or 7 to pay off” their educational debts. It’s no wonder there are so many specialists.

The quote reminded me of Jesse Larner’s recent idealized “health care speech” for President Obama, which would promise a “publicly paid medical education for qualified medical students, researchers, and other health care workers so that the profession is open to all who are bright and dedicated, regardless of financial resources.” Just as our tax code pushes the average citizen toward unnaturally high levels of debt via the mortgage deduction, medical education financing currently is biasing physicians toward unsustainable debt loads that ultimately drain the public weal by fueling an entrepreneurial mindset in a profession founded in the public interest.

The US already has some limited loan forgiveness programs for physicians who work in underserved regions. It is time to expand these subsidies to cover more physicians working in primary care.

More Institutional Health Economics, Please!

Today’s Nobel Prize award for institutional economists Oliver Williamson and Elinor Ostrom is a welcome step toward methodological pluralism in the profession. Both have looked outside markets to understand the organization of economic life. Ostrom is not even an economist–she is a political scientist by profession. As Bob Shiller observes:

This award is part of the merging of the social sciences. Economics has been too isolated and too stuck on the view that markets are efficient and self-regulating. It has derailed our thinking.

According to the NYT, “The Nobel judges, in their description of Mr. Williamson’s and Ms. Ostrom’s achievement, said that ‘economic science’ should extend beyond market theory and into actual behavior, and the two award winners, in their empirical work, had done this.”

There is a great need for more of this type of work in health economics. Joe White’s Markets and Medical Care: The United States, 1993–2005 is one good exemplar of needed work here; he eschews “discussions of how economic theory can be applied to medical care production and delivery” and instead “focuses on ‘the market’ in its actual, not theoretical, form, as it existed in the United States.” White describes case after case where consolidation, not medical need, drove industry structure. He leaves the reader with a clear and convincing image of a space where varying levels of provider and insurer power, not productivity, is the key to understanding changes in the profitability of services. I’ve seen few better brief explanations of rising medical costs than the following: Read more

Alternative Revenue Stream for Private Practice Physicians – Research Investigator

Clinical research is the only way [for a physician in the managed care era] to make a boat payment, quips David Stark, M.D.

With increasing frequency, pharmaceutical and medical device companies are turning to physicians in private practice, rather than academic medical centers, to serve as investigators overseeing the 60,000-odd clinical trials each year, between 80 and 90% of which are funded by industry as opposed to, say, NIH. Academic medical centers are losing the “business,” having fallen from 63% to 26% as the site for clinical research between 1994 and 2004. While it might be argued that trials in the private practice setting produce superior results because they occur under circumstances that more closely resemble how the drug or device will actually be used if approved by the FDA, there are significant risks attendant to this phenomenon that have received too little attention.

The ultimate question is whether physicians can compartmentalize the competing incentives that exist in advising patients about whether to pursue conventional therapy or participate in a clinical trial. This is especially true if the physician is being handsomely compensated for each patient she recruits into a trial, and is exacerbated when the physician also has other financial relationships with the trial sponsor (the drug or device company) for, say, speaking and consulting gigs. Clinical Research in the Private Office Setting — Ethical Issues The recruitment process for clinical trials is the longest and most costly part of the process - prospective participants have to undergo testing to see if they qualify for the study, and federal law requires that they receive significant amounts of information and have ample opportunity to have their questions answered pre-enrollment. A per capita payment contingent upon successful enrollment of the patient will tempt a physician to fudge on this process and enroll unqualified subjects. This not only may put them at risk because they are too sick, but also skew the research results because they’re not sick enough. Bonuses for meeting enrollment goals only make it worse.

Without impugning physician integrity, how realistic it is for physicians to serve in the dual capacity of treating physician and researcher? Studies have repeatedly confirmed “therapeutic misconception” whereby study participants believe, no matter how clearly told to the contrary, that they are “patients” receiving treatment, rather than “subjects” of research who may be receiving a placebo or an experimental drug. This phenomenon is certainly exacerbated when the patient’s treating physician is doubling as the investigator of the clinical trial. Most patients continue to believe that their own personal physician would be driven solely by their best interests. Ironically, some people have more faith in an experimental intervention when they learn that the investigator has a “piece of the action.”

Obviously, significant policy and legal questions arise from this practice, and a more holistic approach to the question of the best way to encourage clinical trials while safeguarding the interests of trial subjects is beyond what I can attempt here. But one possible approach could be drawn from informed consent law — whether statutory or common law, which should require physician disclosure of conflicts of interest to patients. Imagine the beginning of a conversation between doctor and patient/potential research subject:

Doctor: “Just so you know, if you agree to participate in this clinical trial, I get paid $1000 by the manufacturer of the product being tested, but if you don’t, and you just want regular treatment, I’ll only get paid $60 by your insurance company. But, in fairness, that’s because a clinical trial is a lot more work for me….”

But to be honest, I don’t really believe in this solution either. Most recipients of this information either don’t understand it, or have no idea what to do with it, or both. Some fear that too much confusing information might kill trials altogether, which would be a terrible outcome. And there are certainly reasons to fear that such trials are becoming harder to run, to the point where they’re not worth the money. Ultimately, I guess, I want to control how physicians get paid to serve as investigators — the Goldilocks Solution — not too much, and not too little. I want them to be paid just right, so that they are willing to conduct clinical trials, but aren’t tempted to act other than in the patient’s best interest. Of course, what is just right and how to enforce it poses its own problems.

Seton Hall Law School, the author’s employer, is the recipient of grants, donations and endowments from the pharmaceutical industry. No part of the author’s compensation is funded by these gifts.

x-posted at Concurring Opinions

American Health Lawyers Association on the Stark Law and its Revision: a Good Step Towards Holistic & Ethical Reform

Health reform that focuses exclusively on health care finance — that is, how we pay for universal access to insurance coverage — will not produce successful reform.  Reform must be holistic, with a focus on the entire system, as well as its component parts, including whether the system is structured to deliver the right kind of health care services in the most appropriate setting, whether we have sufficient quantity and kind of health care professionals and technology geographically dispersed to provide the health care services that people will presumably have insurance to access, and whether the system properly incentivizes health care professionals to make decisions that are efficient, effective, and in patients’ best interests.  This is a massive undertaking, with a tremendous risk that important components will be overlooked precisely because of the size of the undertaking.  The Stark Law represents the kind of on-the-ground healthcare delivery problems that healthcare reform must tackle.

The American Health Lawyers Association’s Public Interest Committee today released a Whitepaper entitled: “A Public Policy Discussion: Taking Measure of the Stark Law” analyzing the ” Ethics in Patient Referrals Act” (and its progeny), more commonly known collectively as the “Stark Law“, after its primary sponsor, Congressman Pete Stark, who now counts himself among the many who believe that while the problem the law aimed to address is real, the statute and its multitudinous exceptions have become a nightmare.

Stark was enacted in response to empirical studies showing that physicians who hold an equity interest in an entity that provides ancillary health care services, such as a clinical laboratory or MRI, more frequently order those services for their patients, referring them, unsurprisingly, to the entity they own (the Whitepaper notes that no studies indicated that this higher use equated to over-utilization).  The implication, then, is that the opportunity for additional profit causes excessive referrals, whether consciously or unconsciously.  Thus, Stark sought to establish a bright line test regarding the propriety of physician referrals.  Stark prohibits a physician from referring patients to entities in which the physician (or a family member) holds an equity interest.  Congress seeks to ensure that patients are referred only for tests and other health care services that are medically necessary and appropriate.  The law also prohibits the entity actually providing the services to the patient (the recipient of the referral) from billing Medicare if the patient care resulted from an impermissible referral (even if the patient needed the service).

But a basic prohibition proved too broad to be practicable.  For example, how should the law treat rural areas where the only potential investors in an MRI for the community are all of the local physicians?   While many of situations crying for exceptions have been legitimate, virtually every single business relationship that seems justified requires the adoption of a new exception — which, the Whitepaper points out, stymies innovation in a dynamic health care market.  I would add that simultaneous with the continuous recognition of new exceptions, Congress and CMS keep adopting new prohibitions in response to physicians (with the aid of their lawyers) who take advantage of loopholes by engaging in business practices that violate the philosophical goals of the law, but are not specifically banned.

And so now we simply have a mess on our hands.  According to the Whitepaper, on the positive side, Stark has encouraged health care institutions to adopt corporate compliance programs and contract management systems; hospitals are more careful about their relationships with physicians.  Repeating a recurring theme of this blog about physicians’ conflicts of interest, the AHLA Whitepaper suggests that Stark has had less effect on physicians’ awareness and avoidance of conflicts of interest — my observation is that they continue to engage in business arrangements and practices that increase healthcare expenditures and cause patients to receive unnecessary medical services.  This is likely because physicians don’t understand Stark, which is rarely enforced against them.  The Whitepaper conveys the observations of some of its participants that Stark has caused a restructuring of healthcare delivery (some would argue that physicians have simply re-packaged their business relationships, rather than eliminated their “pernicious” conduct).  Even more problematic is that Stark precludes the experimental implementation of some creative ideas to reduce health care costs and improve quality, such as pay-for-performance, shared savings, and bundled payments.  Essential to a reform of how we deliver health care is an alignment of physician and institutional financial incentives - Stark (as well as some other laws) makes difficult that effort.

The AHLA Whitepaper seeks statutory reforms and increased CMS discretion as part of overall healthcare reform.  It suggests reimbursement modifications as a mechanism that would more directly accomplish the government’s goals of reducing costs and controlling utilization, including: decreasing reimbursement for ancillary services provided through a physician group practice; decreasing payments for high margin services; implementing more stringent credentialing requirements for the provision of certain services; bundling the payment for a physician office visit and ancillary services;  and payments for episodes of care, rather than delivery of specific services.

While AHLA addressed an important problem that begs for resolution, the ultimate challenges for health care reform that the Stark problem points up are significant:

• First is the question of whether reform will restructure health care delivery so that patients receive quality care that they actually need, in a timely cost-effective and convenient way.
• Second is how to identify the most effective means of adjusting physicians’ norms of behavior so that they recognize and avoid or ameliorate conflicts of interest that adversely affect their care of patients.
• Third, since the HHS OIG began issuing its Guidances, the relationship between government and provider has been like one of cat and mouse — the government articulates a philosophy about its interpretation of fraud, waste and abuse and the attendant practices that violate the law, and providers adjust their behavior to discontinue the specifically enumerated offensive practices, and then adopt new behaviors that government then addresses and it goes on and on and on.
• All of the above points result from the fact that politicians have created a huge perception divide — physicians believe that they are professionals operating in a market who should be guided by their ethical code and the business practices that make America great - government regulators and prosecutors believe that taxpayers foot 40-60% of the healthcare bill, and should expect very stringent oversight of the behavior of health care providers to make sure taxpayer money isn’t being wasted. Whatever our health care system looks like this time next year, everyone — provider, supplier, and patient needs to acknowledge that irrespective of what descriptors we use, it is a system significantly underwritten by the government, which means that it necessarily operates by different rules….

In the meantime, the AHLA Whitepaper is a terrific description of all that is right and wrong with the Stark Law. Let’s hope Congress takes notice.  More important, it exemplifies the important contributions professional organizations can make to productively convey to policy-makers the on-the-ground effects of their laws.  The AHLA process also models an exemplary collaboration between the private sector and government to their mutual education and, hopefully, benefit.

While the author is an AHLA board member, this post solely represents the author’s interpretation of and opinions about the AHLA Whitepaper, and has not been reviewed by any director, officer or member of AHLA.  The author had no involvement in the production of the Whitepaper.

Price-Gouging by Doctors and Hospitals

Mark A. Hall, Professor of Law and Public Health, Wake Forest University

Carl E. Schneider, Professor of Law and Internal Medicine, University of Michigan

[Ed. note: As noted above, we are very pleased to welcome Professors Mark Hall and Carl Schneider to the blog today.]

We cannot reform health care intelligently unless we understand the medical marketplace well. Debates about reform have scrutinized the health-insurance market, but they have neglected a crucially defective feature of the medical marketplace — the way doctors and hospitals charge patients when prices are not set by regulation or by negotiation with insurers.

The Problem

When patients are not protected by large private or public insurers, doctors and hospitals charge them astonishingly more than patients with Medicare or managed-care insurance.  Some price difference would make sense, because insurers offer providers large volume and economies of scale.  But we are not talking about discounts of 10, or 20, or even 30 percent.  Providers routinely double, triple, or even quadruple prices for unprotected patients.  Such huge mark-ups can only be regarded as price-gouging — exploiting market power to charge prices virtually unrelated to actual cost or market value.

A comprehensive analysis of data hospitals report to Medicare shows that, on average, hospitals charge uninsured patients two-and-a-half times more than they charge insured patients and three times more than their actual costs.  In some states mark-ups average four-fold.

Data for physicians’ prices are less comprehensive, but information from office management systems is disturbing.  Across a range of diagnostic and invasive specialty services (echocardiography, coronary catheterization, liver biopsy, upper GI endoscopy, circumcision, flexible sigmoidoscopies, hysterectomy, appendectomy, gall bladder removal, and arthroscopic knee surgery), many physicians in 2003 charged uninsured patients roughly two to two-and-a-half times what insurers paid.  Only primary care physicians appear to be staying within plausible bounds.  They typically charge uninsured patients only one-third to one-half more for basic office or hospital visits than they received from insurers.

Some Excuses

Providers defend themselves in several ways.  First, they call these price differences steep discounts rather than huge mark-ups.  This is almost laughable.  Most providers charge “list prices” to only a small minority of patients (10-20%), so these are hardly a genuine baseline.  Second, providers argue that because they often cannot collect list prices, they are on balance receiving little more than they would receive from insurers.  However, when patients cannot pay inflated bills, doctors and hospitals regularly send them to collection agencies, ruining patients’ credit and bankrupting millions of them.

Third, providers blame the government by claiming that program and accounting rules require them to bill this way.  But governmental agencies have declared that this is not true, and while some rules may still be irksome, rules about billing certainly do not require providers to set their prices as high as they do.  Many tax-exempt (non-profit) hospitals recently wilted under scrutiny and adopted sliding-scale policies for low-income uninsured patients, but these policies do little to help insured patients who are receiving care out-of-network or uninsured patients from the broad middle class.

The Solution

Insurers’ attempts to stop price gouging have failed.  Some large insurers have refused to reimburse out-of-network providers for the full amounts they charge on the grounds that those amounts are not “usual, customary, and reasonable.”  But New York’s Attorney General called this “consumer fraud” because patients were left owing the full bill.  Courts have been little help.  Consumer class-action lawsuits have attacked price gouging by non-profit hospitals, but courts have dismissed most of these cases on various technical grounds.

Government regulation has inhibited price gouging, but only for people covered by government programs.  Medicare, for instance, prohibits doctors from charging Medicare patients more than about 10% over Medicare-approved rates.  But inflated pricing still afflicts the uninsured and privately insured people buying care out of network.  Some reformers simply advocate greater price transparency so that patients know better what to expect when seeking care without the protection of insurers.  But transparency will not fix the structural dynamics of market power that allow providers to charge almost whatever they want.

To help medical markets work better, the government should cap what doctors, hospitals, and other providers may charge patients who are not protected by regulated or negotiated discounts.  The details can be debated and refined, but one approach is to cap charges at, say, 150% of a normal reference rate.  The reference rate could be what Medicare pays, or a weighted average of what larger private insurers normally pay across a region.  Doctors with boutique practices could still charge what they wished for extra concierge services, or perhaps doctors who don’t accept any insurance should be exempted.  Design features are important and tricky, but they should not keep us from setting reasonable bounds within which markets can function.

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