For the last 20 years, Healthcare costs increase at a rate higher than inflation. Why? I would argue that the alignment of incentives in the current Healthcare system rewards use of the high cost treatments. If we look at the 2010 Medicare Spending (provided by Avalere Health and the centers for Medicare and Medicaid Services), 59% is spent on Hospitals and Long Term Care, 20% on specialists and other clinical services, 12% on prescription drugs and only 2.8% on Primary Care Doctors. This information was published the Wall Street Journal today in an article titled “An Rx? Pay more to Family Doctors”. After reading this article, I began thinking about how patients use our healthcare system as well as the non-alignment of incentives in the system.
Let’s look at some of the current incentives:
• Incentive to add more specialists: Many specialists make 2x per year than a Primary care Physician. It is interesting how the US has twice as many Medical Specialists per population as other developed countries (Seems that when specialists are paid so much more, so many more individuals practice as a specialist).
• Incentive to treat Symptoms & not Align Care: Pharmacies that add treatment clinics with NP and PA which ‘patch up’ a patient by prescribing an antibiotic when it is not needed. Although a Rx at the Pharmacy as well as a patient purchasing OTC drugs and other products at the chain pharmacy brings additional revenue to the pharmacy, this type of treatment can cost the system more overall. This pharmacy care is ‘non coordinated patient care’ in the system that benefits pharmacies. This lack of coordination causes some patients to over use the ER as well as specialists that drive more procedures because an issue was not identified appropriately by a Pediatrician.
• Incentive to Pay for Size vs. Quality: Payer incentives that allow health systems with larger power and size to be paid more for the same procedure without any proof in decrease in cost or improvement in quality to the healthcare system. The large systems add layers of management, personnel, expensive buildings and pay for these upgrades by increasing their size so they can negotiate a higher rate from the payers.
• Incentive to Payers for making reimbursement ‘Difficult’: Complicated payer systems and processes for which the ‘average’ provider is only being collecting 95% of the contract amount (managed care keeps 5% of the missed opportunities – this leads to an incentive system for Managed Care to make more $ by denying payment).
Hospitals have been on a buying spree to own large physician networks that increase their revenue in two ways: referrals to the hospital and organization size to force managed care to pay higher reimbursements. What has been happening is that many of the payers are paying for more and more services in specialists and the hospital. It is difficult for the independent Pediatric Office (non-owned by a hospital or multi-specialty large integrated health system) to stay independent. Many payers have been short sighted and provide minimal rate for services for Primary Care providers as well as minimal increases to these rates (unless the Pediatrician is in a large health system). One representative from a health plan explained a year ago to me that their standard increase was 0% due to increase cost in the system. During the discussion, I pointed out to this representative that their rates were in the lower 25% of all payers, their company increased their profits by over 25% and their CEO made approximately $20M in the previous year. The payers seem to be able to benefit from the current model
Many payers have been under paying the total costs of vaccines to the independent practices while paying larger systems more money. The payment difference is not due to better quality outcomes but due to many of the smaller offices not being able to identify the issue with their ‘dated’ systems, people, processes as well as the payers taking advantage of the Pediatric practice that is 1-5 physicians.
What can Pediatricians do in this environment?
1. Utilize up to date systems that update coding and payment rules continuously versus just one update a year – this points to why using cloud computing is an advantage.
2. Identify all the costs in your practice and establish a minimum rate of reimbursement that will be rejected from payers.
3. Analyze the payers in your practice at least 2x per year.
4. Evaluate if there is a payer that is below the minimum and speak with this payer. If they do not meet the minimal payer mix, discharge the insurance from the practice. The patients can either see your providers as out of network or cash.
5. Evaluate the total compensation for well and sick visits in your practice. Identify the payers that reject paying for nights and weekends. Call the representative and explain the extra costs for after hours and that the insurance company has established 9-5 as routine hours (the hours that they are available).
These are just a few recommendations on how to operate in today’s healthcare system.