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Chapter 12: The Physician Services Industry Health Economics

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... by HMOs. Laws shifting medical malpractice liability towards hospitals and HMOs. ... HMOs combine the insurance and production functions in health care. ... – PowerPoint PPT presentation

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Title: Chapter 12: The Physician Services Industry Health Economics


1
Chapter 12 The Physician Services
IndustryHealth Economics
2
OUTLINE
  • Physician Market Structure
  • Conduct in the Physician Market
  • Physician Market Performance
  • Physician Practice Management Companies

3
Are there too many specialists and too few
primary care docs?
  • Proportion of specialists in U.S. higher than in
    W. European countries and Canada (60 vs.
    25-50).
  • Specialists more prone to use new, high-tech
    medical procedures.
  • May explain why U.S. medical costs per capita are
    highest in the world.

4
Matching Physician Supply Requirements
  • Future physician supply does not appear
    well-matched with requirements.
  • (Politzer, 1996)
  • A shortage of 33,000 primary care physicians is
    predicted by 2020.
  • The same set of assumptions also generates a
    surplus of specialists.

5
Why are there differences in specialty choice?
  • Elasticity of the of residents in a given
    specialty with respect to
  • expected earnings .30 to .60
  • expected hours worked -1.2 to -2.0
  • Specialty choice relatively unresponsive to
    length of residency requirement or indebtedness.

6
Why are there differences in specialty choice?
  • Nonprimary care specialists are motivated by
  • Higher expected income.
  • Prestige.
  • Opportunity for research.
  • More regular working hours.
  • Choice of primary care motivated by
  • Interest in working directly with patients.
  • Interest in providing continuity of care.
  • Can govt shift the balance towards more primary
    care?

7
Employed vs. Independent Physicians
  • Employed physicians worked 5-7 fewers hours a
    week.
  • Employed physicians median net income was
    142,000 in 1996, vs. 198,000 for all
    private-practice physicians.
  • Practice mgmt. Companies typically pay physicians
    300,000-400,000 per physician for practice
    assets (land, equipment).
  • Tradeoff ?20 of practices net revenues.

8
Managed Care Reimbursement of Physicians
  • MCOs hope to modify physician behavior in order
    to control costs.
  • 94 of all practicing docs in 1998 had at least
    one managed care contract.
  • In 1998, 52 of every 1 of physician revenue
    came from an MCO.
  • 8 of every 1 came from a capitated contract.

9
Are there barriers to entry?
  • Requirements for licensure to practice
  • M.D. from accredited med school.
  • Internship or residency at recognized
    institution.
  • Pass a medical exam.
  • Advantage
  • Protects public from incompetent doctors.
  • Disadvantage
  • State licensure boards controlled by physicians
    who can restrict entry to keep salaries high.

10
Is market reform better than government licensure?
  • Market reform may encourage physician monitoring
    better than government regulation.
  • More salaried docs are being monitored by HMOs.
  • Laws shifting medical malpractice liability
    towards hospitals and HMOs.
  • For-profit providers have direct financial stake
    in quality of their physicians.

11
Production, Costs, and Economies of Scale
  • Do certain physician organizations have a
    production or cost advantage?
  • Group practice physicians are 22 more productive
    than those in solo practice. (Brown, 1988).
  • The lowest-cost practice size has been estimated
    at 5.2 physicians (Pope Burge, 1996).
  • Economies of scale may exist for practices as
    large as 100 physicians (Marder Zuckerman,
    1985).

12
Physician Market Structure Summary
  • Physicians have outpaced growth in the general
    population.
  • The U.S. may have too many specialists and too
    few generalists.
  • A move towards multi-physician practices.
  • Production cost advantages.
  • Pressures of managed care.
  • Despite barriers to entry, competition is
    increasing.

13
Physician Market Conduct
  • The Supplier-induced demand hypothesis.
  • The legal environment and physician behavior.
  • The impact of managed care on physician conduct.

14
Has the over-supply of physicians led to
physician-induced demand?
  • Defn physicians may take advantage of
    asymmetric information to convince their patients
    to consume more medical care than would be in
    their self-interest.
  • How much care can physicians induce?
  • Easier with surgery?
  • Is the physician willing to induce?
  • Can insurers limit demand inducement?

15
Has the over-supply of physicians led to
physician-induced demand?
  • Can insurers limit demand inducement?
  • The empirical evidence on physician-induced
    demand is limited.
  • The exception may be the market for surgical
    services, where surgeons have a greater ability
    to manipulate demand.

16
Defensive Medicine Malpractice Reform
  • Physician malpractice premiums account for 1 of
    US health care spending.
  • Physicians may over-provide care in order to
    avoid malpractice suits.
  • Defensive medicine may add another 4b to 25b to
    the nations health care bill.

17
Defensive Medicine Malpractice Reform
  • States which implemented direct reforms to their
    malpractice system (caps on damages, abolition of
    punitive damages) reduced hospital expenditures 5
    to 9.
  • Indirect reforms (caps on contingency fees,
    mandatory periodic payments) had no measurable
    impact on costs.

18
MCOs and Physician Conduct
  • HMOs combine the insurance and production
    functions in health care.
  • They are different from traditional indemnity
    (FFS) plans, in that they attempt to control how
    health care is provided.
  • How do HMOs influence physicians?

19
Types of Managed Care Orgs
20
MCOs and Physician Conduct
  • Staff model HMOs pay physicians a salary.
  • No incentive to over-provide care.
  • IPA HMOs usually pay physicians discounted FFS.
  • Physicians have incentive to over-provide care.
  • How can the HMO control costs?

21
MCOs and Physician Conduct
  • Caution Distinctions between different types of
    HMOs are blurring over time.
  • 28 of staff HMOs pay based on salary only (Gold,
    1996).
  • 90 of PPOs use discounted FFS.

22
Financial Risk Arrayed on a Spectrum from Full
Risk for the Insurer to Full Risk for the Provider
HBS Case Study 9-698-060, Note on Managed Care
23
Additional MCO Compensation Tools
  • Risk sharing - The insurer can make the physician
    bear some of the risk of insuring the patient, so
    that the physician will also feel the need to
    restrain medical costs.
  • Capitation
  • Withholdings
  • Bonuses

24
Additional MCO Compensation Tools
  • Capitation - Physician receives a fixed payment
    per person in return for providing medical
    services regardless of the quantity of medical
    care delivered.
  • e.g. A physician may receive 9 per member per
    month for each enrollee who chooses an HMO plan
    and elects him to be their primary care caregiver.

25
Additional MCO Compensation Tools
  • Capitation
  • Physician has an incentive to restrict of
    patient visits.
  • Problem - Physician can reduce visits by
    referring patients to other providers in the same
    HMO plan.
  • e.g. If the patient has high blood pressure,
    refer her to a cardiologist.
  • Solution - Withholding

26
Additional MCO Compensation Tools
  • Even if docs paid thru capitation, HMO
    responsible for costs of hospital services,
    outpatient diagnostic tests, physician referrals.
  • How can the HMO limit these costs?
  • Withhold a portion of physician payment (PMPM)
    until end of fiscal year.

27
HMO Reimbursement Strategies
  • Assign these funds to specific expenditure
    categories (e.g. lab tests).
  • At end of year, return a portion of the withhold
    to physicians if surplus exists in that
    expenditure category.
  • Can even change next years withhold or
    capitation based on this years performance.

28
Additional MCO Compensation Tools
  • Bonuses - MCOs can give a portion of their
    profits at the end of the year to physicians who
    elect cost-effective behavior.
  • e.g. Pay bonuses to primary caregivers who
    reported lower number of specialist referrals.
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