MEDICAL ECONOMICS: THE UGLY DETAILS

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MEDICAL ECONOMICSTHE UGLY DETAILS

• STUART HENOCHOWICZ, M.D., M.B.A., F.A.C.P.
• henochmd_at_burkemed.net

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The Dismal Science

• "Occasional Discourse on the Negro Question
  (Thomas Carlyle- 1849)
• "the Social Science ... which finds the secret
  of this Universe in supply and demand and reduces
  the duty of human governors to that of letting
  men alone ... is a dreary, desolate, and indeed
  quite abject and distressing one what we might
  call ... the dismal science"

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Guido Sarducci described a Five Minute
University. In five minutes he would teach you
everything that you would remember from college
five years after graduation. Like Economics class
would be the phrase "Supply and Demand (Source
http//members.cox.net/mathmistakes/literacy.htm)
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SUPPLY AND DEMAND
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Automotive Supply and Demand
The fast lanes, the 91 Express, are sometimes
called Lexus lanes, first class on asphalt. They
can turn a two-hour commute to work into a
30-minute zip. For a solo driver, on-time arrival
comes with a price nearly 11 per round trip, a
toll collected through electronic signals.
Source NY Times, 4/28/05
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Supply and Demand

• Shortage-
• Demand gt Supply, prices kept artificially low
• Examples British National Health Service,
  Influenza vaccine 04-05
• Surplus-
• Supplygt Demand, prices kept artificially high
• Example Patented Drugs

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U.S. Health Care System

• Government- V.A., Military, Indian Health Service
• Public Insurance- Medicare and Medicaid, Tricare
• Private Insurance- Employer Based

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Private vs. Public Health Care Spending
Source Haiden Huskamp, Ph.D. www.mycourses.med.ha
rvard.edu
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Source Kaiser Family Foundation
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Medical Insurance Problems

• Moral Hazard
• Supplier Induced Demand
• Free Riders
• The Market For Lemons
• Experience Rating

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Rand Insurance Experiment(1975-1982)

• 5809 Patients Assigned to 1 of 13 Plans For
  3-5 YEARS, Including
• Free Care
• 25, 50, 95 Co- Insurance
• 1000 Deductible
• Inpatient Care- Free

Source Keeler, E.B. Effects of Cost Sharing on
Use of Medical Services and Health, Medical
Practice Management, Summer 1992.
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Rand Insurance Experiment

• Results
• Compared to Free Care-
• 1000 Deductible- 66 of Spending
• 25 Co- Insurance- 81 of Spending
• No Increase in Hospital Use with Free Inpatient
  Care
• Health Outcomes No Better With Free Care

Source Keeler, E.B. Effects of Cost Sharing on
Use of Medical Services and Health, Medical
Practice Management, Summer 1992.
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WITHER PRIMARY CARE PRACTICES?
VS.
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Primary Care Practices

• Economic Efficiency-
• Optimal With 10-15 Providers
• Hough, D.E. Is bigger always better? The
  optimal size of a group practice.(J Med Pract
  Manage. 2002)
• Small Practice Viability- Niche Care, Restricted
  Plans, Outsourcing

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How revenue and compensationvaried in 2003
Lowes R. Earnings Primary care tries to hang on.
Medical Economics. September 17, 200452-4, 5,
58, 60-1. Available from http//www.memag.com.
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The Gender Gap
Total Compensation
Lowes R. Earnings Primary care tries to hang on.
Medical Economics. September 17, 200452-4, 5,
58, 60-1. Available from http//www.memag.com.
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Primary Care Practices

• OFFICE VISIT- 18.6 MIN. (NAMCS 2001)
• TYPICAL OFFICE- 4000 VISITS/YR., 5 VISITS PER
  PT./YR.(BRENNAN, NEJM 02)
• 99213- AVG. 49 (MED. ECONOMICS 03)
• INCOME-
• 1995-1999 Average physician net income from the
  practice of medicine, adjusted for inflation,
  dropped 5.0.
• The reduction of 6.4 in primary care physicians'
  average real income was particularly notable

(Reed MC, Ginsburg PB. Center for Studying Health
System Change. Behind the times Physician
income, 1995-99. Results from the Community
Tracking Study. Report. No. 24. March 2003.
Available from http//www.hschange.org.)
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AMGA Physician Compensation Survey- 2001-2002

• Medical specialties that experienced the
  largest salary increases during 2002
• Radiology (12.64)  
• Otolaryngology (11.54)  
• Gastroenterology (10.07)  
• Orthopedic surgery (7.82)  
• Hematology medical oncology (7.14)  
• Cardiology (7.08)
• Medical specialties that experienced salary
  decreases over the past year
• Pediatrics adolescent (-3.79)  
• Pathology (-3.24)  
• Ophthalmology (-2.31)  
• Internal medicine (-1.81)  
• Emergency care (-1.42)  
• Pulmonary disease (-1.24)

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Physician income in recent surveys Medical
Group Management Assn. survey
American Medical Group Assn. survey
Source MGMA, AMGA compensation surveys

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Primary Care Physicians Percent of Total
Physicians, 2003
Primary Care Physicians   United States  40 
 Virginia  41 
Maryland  37 
District of Columbia  35 
Source www.statehealthfacts.org
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The Future of Primary Care Medicine Michael E.
Whitcomb, M.D., and Jordan J. Cohen, M.D NEJM
Volume 351710-712 August 12, 2004
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The Future of Primary Care Medicine Michael E.
Whitcomb, M.D., and Jordan J. Cohen, M.D NEJM
Volume 351710-712 August 12, 2004
Unless these changes are made and made soon

the practice of primary care medicine
seems destined to become the province of nurses
and other nonphysician health care
professionals.
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Primary Care Practices The Future

• Corporate- Large Single or Multispecialty Groups
• Physicians- Employees
• Networked Practices
• Old- Fashioned Practices-
• Small, Niche Market

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Medicaid

• More than 50 million Americans covered in 2003
• gt 1 in 4 U.S. children (24 million) covered
• Means-tested with categorical eligibility
• Low-income children, pregnant women, elderly,
  people with disabilities, and some parents

Source Overview of the U.S. Health Care System,
Haiden Huskamp, Ph.D. October 15, 2004
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Medicaid

• Jointly financed by federal and state governments
• Federal matching rate of between 50 and 80,
  depending on state per capita income
• Federal government sets minimum requirements for
  eligibility and benefits and states administer
  program

Tremendous variation across states
regarding eligibility, benefits, and provider
payment
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Elderly
Disabled
Adults
Children
Total 212 billion
Total 47.2 million
Expenditure distribution based on CBO data on
federal spending for services only, excluding
DSH, vaccines for children, administration, and
other provider payments. State share of total
estimated using historical data. SOURCE Kaiser
Commission estimates based on CBO and OMB data,
2003.
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Medicare vs. Medicaid

• Tests of 2 very different approaches for how the
  government can provide assistance with medical
  care costs
• Universal entitlement
• Welfare approach low income only

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Childrens Health Insurance Program

• Created in 1997 as part of the Balanced Budget
  Act
• Target uninsured children lt 19 years of age
  whose family income is lt 200 of the federal
  poverty level
• 1 in 8 children are uninsured in the U.S. and the
  majority of them live in households earning lt200

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Health Insurance Coverage of
Low-Income Children, 2000
Ineligible
Eligible for CHIP
Eligible for Medicaid
NOTE Low-income refers to families with incomes
less than 200 of the federal poverty
level. SOURCE Urban Institute and Kaiser
Commission on Medicaid and the Uninsured,
analysis of March 2001 Current Population Survey
estimates of eligibility based on Dubay, Haley,
and Kenney, analysis of 1999 NSAF data and
Medicaid and SCHIP rules as of July 2000.
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Who Is Left Out?

• 43.3 million (17) nonelderly Americans were
  uninsured in 2002
• Uninsurance is dynamic process
• Almost 1/3 of nonelderly adults were uninsured
  for some period of time in 1996-97
• About half of those uninsured at any point in
  2002 were uninsured 12 or more months

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Women in Medicine
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Physicians By Gender (Excludes Students)
Source Physician Characteristics and
Distribution in the U.S., 2005 Edition and prior
editions. American Medical Association.
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Women Medical School Applicants
Source Association of American Medical Colleges
(AAMC), Women in Academic Medicine Statistics.
July 14, 2003.
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Women Residents by Specialty - 2003
Source JAMA, September 1, 2004, Vol
292,No.9,pages 1099-1101.
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Physicians vs. Physician Assistants
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Physician Assistant Income

• According to the American Academy of Physician
  Assistants, median income for physician
  assistants in full-time clinical practice in 2003
  was about 72,457 median income for first-year
  graduates was about 63,437. Income varies by
  specialty, practice setting, geographical
  location, and years of experience.
• The average age during year of graduation from PA
  school was 30.9 years.

Source http//www.aapa.org/research/03census-intr
o.html
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JMU Physician Assistant Program
Source http//www.jmu.edu/healthsci/paweb/expense
s.htm
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• Source for data Paul Jolly,
• Medical School Tuition And Young Physicians'
  Indebtedness,
• Health Affairs, Vol 24, Issue 2, 527-535

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Op-Ed Contributor- NY TimesDecoding Health
InsuranceBy ROBIN COOK Published May 22, 2005

• In this dawning era of genomic medicine, the
  result may be that the concept of private health
  insurance, which is based on actuarially pooling
  risk within specified, fragmented groups, will
  become obsolete since risk cannot be pooled if it
  can be determined for individual policyholders.

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