Categories
Medical Economics Medical Malpractice

The Geography Of Malpractice

There are a lot of variables that go into the cost of medical malpractice premiums. One variable that is often overlooked is geography. The cost of premiums can vary tremendously from one part of the country to another and can even vary from one part of a state to another. For hospital medical directors seeking to recruit physicians, it is important to be aware of these differences since it will impact your hospital’s competitiveness for recruitment.

75% of physicians in low risk specialties and 99% of physicians in high risk specialties are named in a malpractice case by age 65. Even though most cases never go to trial and those that do go to trial are more often won by the defense, malpractice is very expensive with an estimate that the overall cost of $31/American per year and if the cost of defensive medicine is factored in, it is $174/American per year. In obstetrics alone, 1 out of every 3,711 births results in a malpractice claim resulting in the cost per delivery just to cover malpractice liability being $296.

Let’s take a look at the spectrum of annual costs for malpractice premiums across the United States:

malpractice

 

Even within a state, there can be huge differences in premiums. In Ohio, for example, malpractice premiums are significantly higher in Northeastern Ohio (Cleveland area) than in Central Ohio (Columbus area):

malpractice 2

So why the differences? Different states have different tort laws making it easier or harder for malpractice lawsuits to be filed. There are also state-specific monetary limits on damages that can vary considerably. As a general rule, states that have passed tort reform laws have fewer malpractice claims filed and lower overall pay-outs to the plaintiffs. Primarily for this reason, malpractice claims have been dropping over the past 20 years.

The penetration of hospital employment models also affects the vulnerability of physicians to malpractice suits and the overall cost of a given malpractice case. For example, in a community where physicians are mostly in private practices, if several physicians plus the hospital are all named in a suit, then each has to have their own attorney and expert witnesses, increasing the overall cost to defend the suit. Additionally, there can be finger pointing among the different physician named which makes the plaintiff attorney’s job easier. Where most physicians are hospital-employed, the physicians and hospital can mount a common defense and there is no finger-pointing.

In some states, certain physicians can claim “immunity” and thus not be personally named in a suit. This primarily happens with government-employed physicians, including those of us employed through the Ohio State University. In this case, the hospital is named but the individual physicians may not be. Additionally, in Ohio (for example), there are two court systems that hear malpractice cases: the Court of Common Pleas (cases decided by jury) and the Court of Claims (cases decided by a judge without a jury). Malpractice cases involving teaching physicians and government-employed physicians go to the Court of Claims where large payouts based on emotionally sensitive juries are avoided. In states without these provisions, malpractice cases are more common and more expensive.

Lastly, there can be regional cultural differences in patients’ willingness to sue physicians and in the community’s (and thus the juries’) likelihood of deciding in favor of the plaintiff. This plays out in Ohio where 50% of all malpractice cases in the state arise from the Cleveland area and as a consequence, malpractice premiums are higher there.

The regional variation in malpractice does result in regional variation in medical costs to the consumer. For example, let’s look at the difference in obstetrics in Long Island, NY versus Central California. The table below is what Medicare pays for obstetric services in the two regions; most commercial insurance companies will base their reimbursement for obstetric care off of what Medicare will pay. Obstetric costs are considerably higher in Long Island than in California (in keeping with the differences in malpractice premiums as mentioned earlier).

malpractice 3

However, since the cost of malpractice premiums is nearly $200,000 more per year in Long Island, an obstetrician in Long Island would have to do 400 more deliveries per year than an obstetrician in California and that is just not humanly possible.

So if your hospital is looking to hire a physician, know what your state-specific and region-specific malpractice insurance will cost that physician because it will affect how that physician will look at a job at your hospital. To hear more about medical malpractice, check out our OSU MedNet webcast on malpractice.

August 2, 2016

Categories
Medical Economics Physician Finances

What Is The Return On Investment For Residency?

Let me preface this post by saying that my advice to any medical student when choosing a specialty is to follow their passion and not the dollars. That having been said, money ultimately does make a difference. So what is the return on investment per year of residency?

Let’s start with medical student debt. No matter how altruistic a medical student is on day one of medical school, by the end of the fourth year, debt pressures can significantly influence career choices. The Association of American Colleges estimates that the average medical student debt is $172,751 for students graduating from public medical schools and $193,483 for graduates of private medical schools. With the median first year resident salary being about $52,000 with an increase of about $2,000 per year for subsequent residency years, physicians starting their careers following residency can face a huge debt burden. Many student loans will require relatively small monthly payments during residency but as soon as residency is completed, the monthly payments can skyrocket to as much as a mortgage payment.

Most physicians would assume that the longer the duration of residency, the higher the salary a physician makes after completion of residency and it turns out that this is generally correct. Pediatrics and family medicine with only 3 years of residency are usually the lowest paying specialties. Surgical specialties requiring 6 or 7 years of residency after medical school have the highest salaries for physicians. But those additional years of residency mean that the physician will either need to retire at an older age to make up for the lost earning years from the longer residency or they will have a shorter career duration for lifetime earnings.

A different way of looking at residency choices is the salary return on investment based on the number of years of residency. In other words, the best return on investment would be a specialty that has the highest salary per year of required residency training. Sure, there are a lot of potential criticisms of this method of analyzing the economics of post-graduate medical training but it is interesting, nevertheless.

The first challenge in this analysis is to pick a physician compensation report. There are reports put out by the MGMA, the AAMC, Medscape, Merritt Hawkins, and the AMGA, just to name a few. The data from each one is a little different. For example, the MGMA report mainly samples large physician group practices whereas the AAMC report is for academic physicians. Th AMGA is comprised of medical group practices and health systems. The Medscape report relies on self-reported individual physician surveys and may be subject to reporter bias. Reports based on first year salaries can be affected by relatively small numbers of physicians sampled. The bottom line is that there is no perfect compensation survey that fits all physicians. The Medscape Physician Compensation Report 2015 is based on surveys submitted by 19,657 physicians between December 2014 – March 2015 and is freely available on the internet. The American Medical Group Association (AMGA) is an organization for medical group practices and has 125,000 physician members. The AMGA Compensation Report 2015 is based on surveys received to member medical groups and health systems. The Merritt Hawkins Physician Compensation report is based on hospital and group practice offers to newly recruited physicians and primarily reflects entry-level salaries.

In the table in the PDF link below, the average compensation reported by Medscape is listed along with the number of years of residency for each specialty. I have counted years of fellowship as years of residency for simplicity. By dividing the average salary by the number of years of residency, you can come up with the average salary per year of residency training. If you think of think of residency as a career investment, then this number gives you an idea of the return on your residency time investment. Some of these numbers have to be viewed with caution, however. For example, unlike the MGMA and AAMC reports, Medscape lumps all cardiologists into a single category of cardiology so this may include not only general cardiologists but also interventional and electrophysiology cardiologists who have longer fellowships and make a higher salary. There is no separate category for outpatient general internal medicine and hospitalist medicine in the Medscape survey so presumably the category of “internal medicine” includes both even though they have very different salaries.

Medscape Physician Compensation Analysis

The AMGA physician compensation report gives fairly similar results as Medscape but does give results for some specialties not included in the Medscape survey:

AMGA Physician Compensation Analysis

The Merritt Hawkins report shows slightly different results, mainly what to expect in the first year after residency. It has a smaller “n-value” for each specialty so this may affect its accuracy compared to other reports:

Merritt Hawkins Physician Compensation Analysis

The MGMA report is for starting salaries in the first year post-residency in larger medical groups. Like the Merritt Hawkins survey, the results for any given specialty represent a small number of physicians and my not be as reflective of true numbers as other reports:

MGMA Physician Compensation Analysis

If you combine these three reports, the three highest return on investment specialties for all 4 surveys are emergency medicine, dermatology, and orthopedic surgery. Anesthesiology makes the highest return on investment list in 3 of the surveys and neurosurgery makes the list on 1 survey (however neurosurgery was only included as a specialty in two of the four surveys).

The lowest return on investment depends on the survey. For the Medscape, AMGA, and MGMA surveys that survey all practitioners, the two consistently lowest return on investment specialties are endocrinology and infectious disease. Pulmonary/critical care medicine and rheumatology make two of the surveys’ lowest return on investment list. Allergy and nephrology each made the bottom list in one of the surveys.

However, in the Merritt Hawkins survey, the four specialties giving the lowest return on investment are non-invasive cardiology, radiology, psychiatry, and hematology/oncology. Although this could just be a result of small numbers of physicians sampled in the Merritt Hawkins survey as opposed to the other surveys, it is also possible that these four specialities are becoming saturated with a supply of physicians beginning to exceed the supply.

No one would advise a medical student to choose a specialty purely based on this analysis. The good news is that all physicians make a high income relative to other professions and so the decision should be more about what you enjoy doing rather about a pure financial return on investment. There are also quality of life issues to consider, for example, an emergency medicine physician has to be willing to work a lot of evening and night shifts since that is when emergency rooms get busy.

In an ideal free market world, physician salary would be dictated by the supply and demand for any given specialty but the market for physicians is not a free market system since income is tied to reimbursement and the reimbursement for any given service or procedure is determined by Medicare and commercial insurance companies.

For myself, I started off my career as a pulmonary and critical care physician, one of the specialties with the lowest return on investment. Even if I had read this blog post 30 years ago, I still would have gone into pulmonary/critical care since that is where my passion lies.

August 1, 2016

Categories
Hospital Finances Medical Economics

MOON Over Medicare Or MOONed By Medicare?

Moon: verb; to expose one’s buttocks to someone to insult or amuse them, see also the Center for Medicare and Medicaid Services.

So the good people at CMS have developed a new program designed to reduce the national unemployment rate for hospital case managers. It’s called “MOON”, or the Medicare Outpatient Observation Notice. This is the latest rule in the Observation Game, which was created and brought to you by Medicare.

In the Observation Game, the players are the patients, the hospitals, and Medicare, each of whom try to avoid paying as much money as possible when a patient gets sick. Unlike most games, in the Observation Game, the goal is not to win the most money but rather the winner is decided by who loses the least money. When the game gets too predictable to the point that all of the players understand how to pay the game, CMS changes the rules to make the game more interesting, sort of like the character President Snow in the movie The Hunger Games.

The basic premise of the Observation Game is that Medicare tries to pay as little as possible when a person becomes ill or injured and needs hospitalization. If that person has an illness that would normally require less than 48 hours in the hospital, then Medicare defines that hospital stay as “observation status” and the patient is considered an outpatient. It is only for an illness that would normally require a hospital stay greater than 48 hours that the hospital stay is considered inpatient. The important differences are:

  1. Inpatient status:
    1. Covered by Medicare Part A
    2. Medicare covers the cost of the hospitalization
    3. Medicare covers the cost of any drugs given during the hospitalization
  1. Observation status:
    1. Covered by Medicare Part B
    2. The patient has a 20% co-pay for the hospitalization
    3. The patient is responsible for the cost of any drugs through their Medicare Part D plan, or if they do not have a Medicare Part D plan, then the patient pays for them out of pocket

In the Observation Game, Medicare tries to get as many admissions into observation status as possible whereas the hospitals try to get as many admissions into inpatient status as possible. The patients end up being sort of by-standers in the Observation Game – they can reduce the amount of money that they lose when they get sick and need to come into the hospital by buying supplemental insurance and Medicare Part D plans but the only way that they can control whether their illness is going to result in inpatient status is by waiting until their illness gets so bad that it is going to take more than 48 hours of hospitalization to treat it.

In order to ensure that the hospitals are not cheating by declaring too many patients requiring hospitalization as inpatient, Medicare uses Recover Audit Contractors, or the RAC, which are sort of like the referees in the Observation Game. The RAC are companies that can review medical records of patients who have been hospitalized and then determine based on the documents whether or not the patient’s hospitalization qualified as inpatient status or not. If the RAC determines that a patient whose hospitalization was billed to Medicare as inpatient status did not meet the rules for being an inpatient (and instead should have been observation status), then the hospital has to pay back the money from that hospitalization to Medicare and then the RAC gets a commission based on the amount of money returned to Medicare. This is kind of like the referee in a basketball game getting paid more for every foul that they call.

In the past, Medicare found that just defining observation status as being hospitalized for less than 48 hours was not challenging enough for the Observation Game so it changed the definition of observation status to be hospitalization for less than 2 midnights. Therefore, a patient who is admitted to the hospital for 36 hours starting at 6:00 AM would be considered observation status (i.e., one midnight passes before discharge) whereas a patient who is admitted to the hospital for 36 hours at 11:00 PM would be considered inpatient status (i.e., two midnights pass before discharge). The hospital players of the Observation Game have pretty much figured out how to play the game with the 2-midnight definition of observation status versus inpatient status so Medicare has decided to change the rules a bit in order to keep the Observation Game from getting too dull.

So here is where MOON comes in. When a hospitalized patient is in observation status, the hospital has to have a patient sign a form notifying them that they are in observation status and therefore considered as being an outpatient with all of the addition costs that the patients will have to pay. This notice is called the Medicare Outpatient Observation Notice or MOON. On the surface, that sounds like a pretty simple rule but Medicare wanted to make the Observation Game more interesting so beginning on August 6, 2016, the MOON has to be given to the patient after 24 hours of hospitalization but before 36 hours of hospitalization. In other words, the hospitals have a 12-hour window during which time they have to have the patient sign the MOON. If hospitals don’t follow this rule, then they don’t get paid.

But here is the sad reality of the Observation Game. When a person gets sick or injured, it costs money to treat him or her. By using the rules of the Observation Game, if Medicare doesn’t have to pay for that treatment, then either the patients or the hospitals do. And if the hospitals have to pay for that treatment, then the hospitals are going to charge more to everyone else so that the hospitals can eventually cover their costs.

So think back to the definition: moon: verb; to expose one’s buttocks to someone to insult or amuse them. The next time you are hospitalized, if you get MOONed, were you insulted or amused?

July 23, 2016