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Physicians*

1. Physician Practice Arrangements

2. Physician Payment Incentives

3. Physician Income by Specialty4. Physician Supply

*Presentation includes material developed by Dan Polsky, UPA MedicalSchool

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Allison Liebhaber and Joy M. Grossman, Physicians Moving to Mid-Sized, Single-SpecialtyPractices, Tracking Report No. 18, Center for Studying Health System Change, Washington, D.C.(August 2007).

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Notable increase in hospital component

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Various Methods of Paying Physicians

Insurance

Company

MD

Fee-for-service

(FFS)

Insurance

Company

Capitation (occurs@ a group level)

Payment depends Salary plus Pre-payment on a per-

on what services possible bonus enrollee, per-month basis

an MD actually regardless of what the MD

performs does to the patient

MD

Salary to MDs

HMO

MD

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26.3

50

12.7

8.2 1.8

Private health insurance and self-pay FFS

Medicare FFSCapitation(all payers)

Medicaid FFSCharity care

Source: MGMA Cost Survey.

FFS From Private Health Insurers Accounts for

50% of Physicians Practice Revenue, on Average

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Still most in a Fee For

Service environment

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Hospital

Physician

Radiology, Anesthesiology, Hospitals ThatPathology, Emergency Med. Purchase a MDs Practice HMO as Employer

MD Group

Practice

Salary

Contract ($)

Hospital/

Health

System

Physician

Salary

Health system collects MD only treats that

practice revenues, pays HMOs patients. HMO

all practice expenses, covers all expenses.keeps any profit.

Health system may have

little control over where

MD admits patients

Staff Model

HMO

Physician

Salary

Many Other Practice Arrangements Where

Physicians Receive a Salary

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3516 17

32

30 26

13

20 27

2034 30

New MDs

Productivity

Prod. 50%-99%Salary 50%-99%

Salary

Source: Physician Compensation and Production Survey, MGMA, 1999.

Established

PCPs

Established

Specialists

Percentage of MD Compensation by Type

Most Experienced Physicians in Group Practices

Have Strong Performance Incentives

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Medicare Pays MDs With a FFSSystem Called RBRVS

RBRVS (Resource-Based Relative Value Scale) Introduced in 1992 Replaced customary and usual charge system

MDs accept RBRVS payment amounts when they decidewhether or not to participate in Medicare. Theycan notnegotiate rates. 91% of MDs do participate in Medicare

Goals: Level the playing field between specialists and primary care physicians

(family practice, pediatrics, internal medicine) Slow the growth rate of Medicare Part B spending Limit out-of-pocket payments for elderly

IT HAS FAILED TO ACCOMPLISH ANY OF THESE GOALS

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RBRVS: How it works (for Medicare)

Each physician service performed has aunique code (8000)

Current Procedural Terminology (CPT)

Each CPT is assigned 3 separate relativevalue units (RVU) (52-44-4)

1. Work RVU (time, mental effort, technical skill)

1. Little over half RVU. Practice expense RVU (e.g., rent, salaries)

1. Little less than half RVU

3. Malpractice expense RVU (potential lawsuits)2.15.11 11

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Heres the formula:Heres the formula: (w/o geographic(w/o geographicadjustments)adjustments)

WorkWork Relative Value Units (RVU)Relative Value Units (RVU)

++ Practice expensePractice expense RVURVU

++ Malpractice expenseMalpractice expense RVURVU

== Total RVUsTotal RVUs

Each CPT code has RVUs assigned to it

You can find out the RVUs from cms.gov

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Heres the formula:Heres the formula:

Total RVUsTotal RVUsxx Conversion Factor ($Conversion Factor ($37.8975 in 07)37.8975 in 07)(typically revised annually)(typically revised annually)

== Fee Schedule Payment AmountFee Schedule Payment Amount

(Allowable(Allowable or what you should get paidor what you should get paid

by Medicare and patient together)by Medicare and patient together)

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X-ray exam of breast 0.16

Breast cancer screening by physician 0.45

Breast Biopsy 1.59

Removal of breast lesion 5.56Breast reconstruction after mastectomy 30.00

Breast Procedures and RVUs for "Work"

Considerable Variation in Work RVUsBetween Services

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ButBut

It costs more to practice inIt costs more to practice inManhattan than in MontanaManhattan than in Montana

So, Medicare appliesSo, Medicare appliesGeographic Practice CostGeographic Practice CostIndexesIndexes (GPCI)(GPCI) for work,for work,practice expense andpractice expense and

malpractice expense RVUsmalpractice expense RVUs

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So, the formula is really moreSo, the formula is really more

complexcomplex(Work RVU x Work GPCI)

+ (Practice expense RVU x PE GPCI)

+ (Malpractice expense RVU x ME GPCI)

= Total RVUs

x Conversion Factor

= Payment Amount for a specific location

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Source: adapted from Feldstein, 2007.

Calculating aManhattan Physicians Payment

for a Mid-level Office Visit

Geographic Adjusted

RVU adjustment RVU

Physician work 0.67 X 1.09 = 0.73Physician expense 0.69 X 1.35 = 0.93

Malpractice expense 0.03 X 1.67 = 0.05

1.71

X

Conversion factor $37.90

Payment amount $64.81

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Geographic Practice Cost Index

or Practice a

xpense Practice

an rancisco

t anta

Phi ade phia

Q eens

Geographic Practice Cost Index

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74% of private health insurance plans

pay physicians by adjusting the

Medicare RBRVS schedule (on average

private plans pay 123% of the

RBRVS amount)

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0

10

20

30

40

50

60

70

80

90

89 90 91 92 93 94 95 96 97 98 99 2000 2001 2002 2003 2004 2005

Source: Medpac Reports to Congress, 2000-2007.

Note: Medicare data are not available for 1997 and 1998.

Medicare MD payment rates as a % of private insurers rates

83%71%

Medicare

Medicaid

49% 45%

62%

Medicare Currently Pays Physicians

Less Than Private Health Insurers

62%

69%

Medicaid

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Medicaid is least, then

Medicare, then Private

You dont want to choke

private payers because they

pay more than govt payment

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Policy issues related to RBRVSDOC FIX

Sustainable growth rate (SGR) system A formula for annual updates to the conversion factor Formula intended to keep spending growth (a function

of service volume growth) consistent with growth in

the national economy Because service volume has grown faster than

the economy the formula produces conversionfactor updates that would cut physician payment

Congress has generally acted annually to avertthe negative conversion factors called for by theSGR (21% cut if full implementation)

Presidents proposed bill will fix for 2 years for $60+billion

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$0

$50

$100

$150

$200

$250

51 59 65 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98

Year2000

(2000 $s)

Source: American Medical Association, Socioeconomic Monitoring Study.

All physicians

Primary care

physicians

Mean Physician Income, in 2000 ollars

Note: primary care physicians include pediatricians, family practitioners, and general internists.

Physician Income Gre in the 1950s, 1960s, and Late 1980s

$205.7

$152.4

$225.6

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$145

$113$104 $102 $101

$77

$32

U.S. Ne Switz Canada UK France Czec

Source: OECD Data, 2005.

Income of Self-employed General Practitioners ($000)

Converted to $s using

the exchange rate.

Keeping Perspective: General Practitioners Still EarnMore

inthe U.S. Than Other Countries

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Lifetime Earnings of a La yer Versus

an Obstetrician

-$100 000-$5

0 000

$0

$50 000

$100 000

$150 000

$200 000

$250 000

$300 000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

# of years beyond college

Tuition in medical

school or law school

Lawyer

ObstetricianLawyer

earning more

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Overvie of the National Resident

Matching Program (the Match)

Initiated in the early 1950s to try to bring some

organization to a chaotic process of placing medical

students in residency positions.

4th-year medical students interview w/ residency programs.

Students rank their favorite 10 programs (e.g., John Hopkins

pediatrics) in descending order of preference.

Residency programs likewise rank the student applicants.

Computer algorithm assigns students to residency positions

in about 8 minutes. Results announced in March. Students are obligated to attend program they matched to.

Medical school deans help students who dont receive an

assignment during the post-Match scramble.

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92.7 92.1 92.7 93.5 93.8 93.9

95 96 97 98 99 2000

Source: NRMP Data, 2000.

Year

Most U.S. Students Receive a Match

Percentage ofUS Medical School Applicants Who Match

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1.9

2.5

2.6

4.5

5.5

10.0

12.913.9

15.6

16.5

27.038.0

Family med

Internal med

Pediatrics

Emergency

OB/GYN

Anesthesiology

Ortho

Gen Surg

Radiation Onc

ENT

Dermatology

Plastic Surg

% of U.S.Medical School Graduates Who id Not Match

in 2006, Among Those Ranking a Single Specialty

Source: Results and Data: 2006 Match, NRMP.2.15.11 31

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NRMP, April 2010

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NRMP, April 20102.15.11 33

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High income specialties have the highest demand

Source: Medical Group Management Association.

164

174

182

193

250

271

349

365

447

447

458

0 100 200 300 400 500

Famil prac ice

Pedia rics

In ernal medicine

Ps chia r

mergenc med

OB/GYN

Derma olog

Anes hesiolog

Orhopedicsurger

adiolog

Car iolog - invasive

Primary care

ENT: $325,000; General surgery: $306,0002.15.11 34

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0

10

20

30

40

50

60

86 91 92 93 94 95 96 97 98 99 2000 2001 2002 2003 2005 2006

54.1%

43.9%

56.2%

Source: National Resident Matching Program.

Percentage of Graduating U.S.Medical Students Ranking

a Primary Care Specialty as Their 1st Choice in the Match

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173

125140 156

195

229

275

1900 1930 1960 1970 1980 1990 2004

Number of Physicians Per Capita in U.S. Has

Almost oubled Since 1960

Physicians per 100,000 population

Source: Blumenthal, 2004; Feldstein, 2007.

Flexner report (1910):

too many low-quality

MDs in U.S.

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126125125126127126

114

103

9285

0

20

40

60

80

100

120

140

60 65 70 75 80 85 90

2002

2006

2007

40 Ne Medical Schools Opened in the

1960s and 1970s

Source: Association of American Medical Colleges

Year

Number

ofU.S.

medicalschools

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New Medical Schools opening!

In 2007, seven allopathic medical schoolswere in various stages of the accreditationprocess.

Afteronly one new school open in the past 20years.

Five osteopathic schools won provisionalaccreditation, which allows them to start

admitting medical students. The osteopathic community has added 10 schools

since 1981.

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0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

196

0

196

5

197

0

197

5

198

0

198

5

199

0

199

5

200

0

200

5

200

7

Percent 7% 9% 11% 23% 30%

Female

Source: Association of American Medical Colleges.

Number of Applicants to U.S.Medical Schools and

Number of First-YearMedical Students, 1960-2005

First-year medical students

ApplicantsHealth Manpower

Training Act (1964)

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More students being admitted

A call to increase class size by 15% overthe next 15 years is currently beingadopted

First year class size grew by 2.3% last year 10 schools increased class size by more than

10%

What is the reason for the suddenexpansion?

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Source: Richard Cooper presentation at a Princeton conference, 2007.2.15.11 42

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Source: Richard Cooper presentation at a Princeton conference, 2007.2.15.11 43

Shortage of doctors

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U.S. Government is Already Heavily Involved;

Maintaining the Status Quo is Itself a Policy

How government couldaffect MD workforce

Factors affecting # ofMDs and specialty mix

# ofUS medical schools and

residency programs, and

# of positions in both.

fees/prices physicians receive

for providing medical care

amount of students debt

no longer allow MD organizations

power of accrediting schools and

residency programs.

raise Medicare/Medicaid fees in

shortage specialties

forgive debt of medical students

who enter particular specialties

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Summary

Almost 90% of physicians are in private practice Physicians can be paid according to a fee schedule, by capitation, or

a salary. Capitation, which was fairly common in the 1990s, is no longer widely

used.

Salaried physicians may be employed by hospitals, group practices, orHMOs Medicares RBRVS fee schedule is especially important b/c most private

health insurers also use it as a basis for paying physicians.

Generalist physicians earn less than specialists, but more thangeneralists in other countries

Demand higher than supply for residencies in some specialties and

medical school in general Projected physicians shortages have led to very recent policy

changes to expand the number of medical schools and class sizesof existing schools.

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