Category: Medical Economics

Using the definition that value = quality ÷ cost, Americans get the least value in healthcare of all nationalities in the world. Per OECD data, U.S. healthcare cost per person is the highest in the world at $11,072 per year; the next closest is Switzerland at $7,732. But the U.S. trails other peer countries in most measures of quality of medical care. In other words, we pay more and get less.

A Kaiser Family Foundation survey found that most Americans are in favor of a national health plan. However, the three words that create the most political polarization among Americans with regard to healthcare are: “Medicare For All“. The reality is that Medicare is already a national health plan for 44 million Americans over age 65, Medicaid is already a national health plan for 74 million low income adults, and CHIP is already a national health plan for 7 million low income children. Add in 9 million Americans covered by the Veteran’s Administration and 9 million covered by the Federal Employees Health Benefits program and it turns out that 44% of Americans are already covered by one national health plan or another. When looked at by expenditures, according to CMS, 73% of all U.S. healthcare is currently paid for either by the government or by individual households:

One of the problems with our existing national health plans is that they all too often pay for health care for preventable medical conditions; had these conditions been prevented in the first place, then the overall cost to society would be less. For example, if an uninsured person does not have their hypertension and diabetes diagnosed and treated, then they become a financial burden on society when they develop kidney failure and require dialysis (Americans requiring dialysis are automatically eligible for Medicare, and thus paid for by taxpayers). Or if an American has unrecognized hepatitis C at age 45, that person can develop cirrhosis requiring a costly liver transplant later in life when they are now over age 65 and on Medicare. Or the low income woman who lacks access to birth control has an unintended pregnancy that results in delivery costs charged to Medicaid and child healthcare costs charged to CHIP.

Although I believe that the United States will eventually have a national health plan akin to “Medicare for all”, there are too many powerful economic and political forces that pose a barrier to overnight adoption of a national health plan. Most notably, opposition can be expected from health insurance companies, pharmaceutical companies, some hospitals, and some doctors who all benefit from private health insurance (which generally pays more for any given medical service than Medicare does).

Therefore, I believe that the first step toward improving U.S. health outcomes while reducing U.S. health costs per capita should not be “Medicare For All” but should instead be “Preventive Care For All“.

The Affordable Care Act already requires Health Insurance Marketplace plans and Medicaid to provide a group of preventative services to all covered individuals, without co-pay. For adults, this includes services such as 14 different vaccinations, blood pressure & diabetes screening, and HIV prevention medications for high-risk persons. For women, this includes services such as birth control, breast cancer screening, and bone density screening. For children, this includes services such as vaccinations, well-child visits, and autism screening. People who have Medicare, Medicaid, CHIP, or commercial insurance through a Health Insurance Marketplace plan already get preventive care at no additional out-of-pocket costs. The problem is that uninsured Americans do not have access to preventive care, unless they pay for it with their own money. So, who are these uninsured?

Currently, according to a report by the Kaiser Family Foundation, there are about 27 million uninsured Americans who are nearly all between ages 18 -64. Children of parents without commercial insurance are mostly eligible for healthcare coverage through CHIP and adults 65 and over are eligible for healthcare coverage by Medicare. In short, the typical uninsured person in the United States is non-white, low income, employed, and lives in a South or Mountain West state:

• Race: 41% White, 38% Hispanic, 13% Black, and 4% Asian.
• Income: 21% fall below the Federal Poverty Level (FPL), 28% fall between 100-200% of the FPL, 34% fall between 200-400% of the FPL, and 17% have an income greater than 400% of the FPL.
• Work status: 73% have at least one family member working full-time, 11% have a part-time worker, and 15% have no one in the family working.
• Age: 85.4% are between ages 18-64 and 5.6% are younger than age 18.
• Citizenship: 77% are U.S. citizens and 23% are non-U.S. citizens.
• State of residence: In Medicaid expansion states, 8.3% of the population is uninsured whereas in states that did not expand Medicaid, 15.5% of the population is uninsured. States with the highest percentages of uninsured persons are in green and the next highest percentages in dark blue in the map below:

When an uninsured person is discovered to have a medical condition that requires treatment, such as kidney failure, unintended pregnancy, or metastatic breast cancer, one of the first things the hospital will do is to get that person enrolled in Medicaid or Medicare in order to cover the costs of chronic dialysis, pregnancy, or chemotherapy. For those patients who are not eligible for Medicaid or Medicare, the hospital will generally provide “free” medical care. However, nothing in health care is really free, so, the hospital has to charge more to the commercial insurance companies in order to pay for treating the uninsured. Consequently, employed American taxpayers eventually end up paying for medical care for the uninsured, either directly through taxes or indirectly through health insurance premiums.

Prevention costs less than treatment

The costs of preventable medical conditions is staggering. Dialysis costs about $90,000 per year per person. Delivery costs of an unintended pregnancy is about $15,000 (and that does not include costs of pre-natal care or health care for the next 18 years for the child). The cost of treating breast cancer in the 24 months following diagnosis is $72,000 for stage I but $183,000 for stage IV.

However, the cost to diagnosis hypertension and diabetes (before they cause kidney failure) is about $40/year. The cost of birth control pills to prevent unintended pregnancy is about $200/year. the cost of a mammogram is about $300/year. When it comes to preventable medical conditions, for the American taxpayer, it is a “Pay me now or pay me later” proposition… and it is a lot cheaper to pay for preventive care now rather than pay for the medical condition later.

How to pay for it

The greatest resistance will come from those opposed to increasing taxes to pay for someone else’s health care. It is true that in the short run, Preventive Care For All will require increased federal expenditures that will consequently require increased taxes. I would argue, however, that in the long run, Preventive Care For All will pay for itself by:

• Reduction in expenditures by Medicaid and Medicare for medical conditions that could have been prevented
• Reduction in Social Security disability payments for Americans who leave the workforce early due medical conditions that could have been prevented
• Reduction in CHIPs expenditures for healthcare for children resulting from unwanted pregnancies due to lack of access to and information about birth control
• Increase in income tax and payroll tax receipts from American workers who are able to stay in the workforce by avoiding unwanted disabling medical conditions

Seen this way, Preventive Care For All is a national investment that will cost us more now but more than pay us back after several years.

Humans have created a myriad number of ways to tax ourselves but taxes can be broken down into three basic types: (1) taxes on what you earn, (2) taxes on what you buy, and (3) taxes on what you own. Healthcare in the U.S. is primarily funded by the first of these types, taxes on what you earn. Commercial health insurance is usually paid by a combination of employee pay deductions to cover premiums for employer-sponsored health insurance plus an employer contribution that is derived from the employee’s benefit package. Medicare is paid for similarly by employee and employer payroll taxes. Payroll taxes are divided into two buckets: Social Security at 12.4% (which is only taxed on the first $142,800 in income) and Medicare at 2.9% for people making less than $200,000/year and 3.7% for those making greater than $200,000/year. Medicaid is a bit different and is paid for jointly by the Federal and State governments. I would propose paying for Preventive Care For All by increasing the Medicare component of payroll taxes.

Inevitably, progressives will argue that increasing payroll taxes on earned income hurts low-income persons. My counter argument is that by funding through payroll taxes, the wealthy pay more than the poor and furthermore, Preventive Care For All will primarily benefit low-income families.

Equally inevitably, conservatives will argue that increasing taxes takes more money from those Americans with higher incomes. My counter argument is that by funding through payroll taxes (rather than regular income taxes), all American workers contribute by an equal proportion of income and furthermore, Preventive Care For All will ultimately reduce future Medicaid and Medicare expenditures, offering the possibility of decreasing payroll taxes in the future.

Americans hate taxes, and I am no different. However, if you take the view that premiums Americans pay for employer-sponsored health insurance are simply a tax paid to a commercial insurance company rather than a government, then it is clear that we are already paying an enormous tax bill for healthcare in the United States. The best way to reduce that tax bill is to pay for prevention so we do not have to pay for disease.

How to implement it

As a starting point, the group of preventative services required by the Affordable Care Act could be made available to all uninsured Americans with a family income less than 400% of the Federal Poverty Level (currently, the Federal Poverty Level is $12,880 for an individual and $26,500 for a household of 4 people).

There will be groups that object on moral or philosophical grounds, such as anti-vaxxers who object to using government money to cover vaccinations and some religious groups that will object to using government money to cover birth control. My response to the anti-vaxxers is that they are just nuts. My response to the religious objectors is that America’s abortion problem is mostly an unintended pregnancy problem and reducing unintended pregnancies is the best way to non-controversially reduce abortions.

It could also be a disincentive for some lower income workers to purchase full health insurance since they would be able to get preventive care for free from the government. This could be addressed by an income-driven co-pay for the program. For example, no co-pay for family incomes less than 100% of the Federal Poverty Level, a $200/year/person co-pay for incomes 100-200% of the FPL, a $300/year/person co-pay for incomes 200-300% of the FPL, etc.

Another implementation barrier would be deciding who would provide the preventive care? It would be difficult to turn this over to existing primary care private physician practices. Many of these physicians already do not accept Medicaid patients due to the low reimbursement and a preventive care program paid by the Federal government would likely also be hard to break even on. Furthermore, once a full-service primary care physician establishes a preventive care relationship with an otherwise uninsured patient,  that physician will feel morally (and possibly legally) responsible to treat any chronic medical conditions that the physician identifies, even if he or she will not be paid for that care by the uninsured patient.

Personally, I believe that this type of preventive care could be ideally provided by groups of nurse practitioners, physician assistants, and nurse midwives. Preventive care is largely protocol-driven which is ideal for advance practice providers. Furthermore, there would not be a moral or legal requirement for such a preventive care office practice to manage chronic medical conditions or answer sick-calls from patients. Instead, these practices would function similarly to health screening fairs currently sponsored by hospitals, religious groups, and social service organizations.

“An ounce of prevention is worth a pound of cure”… Benjamin Franklin: February 4, 1735

By preventing many chronic medical conditions and by screening to identify other medical conditions early, Preventive Care For All would reduce overall American healthcare costs, keep lower income workers in the workforce, and improve the quality of health in the United States. In other words, Preventive Care For All would improve the value of American health care. We would do well to heed the words of one of America’s Founding Fathers…

August 11, 2021

In the summer of 2020, unemployment in the United States soared. People stayed home and businesses shuttered. Over the course of the COVID-19 pandemic, some businesses were affected more than others. Airlines, hotels, arts & entertainment, restaurants, oil & gas, auto parts & service, and recreational facilities were among the hardest hit.

Some people blamed business closures not the pandemic but instead on their governor’s or mayor’s public health orders. As a consequence, many politicians lobbied to pass laws restricting their governor’s or public health authority’s ability to impose these public health orders. Their argument is that if people did not have to wear masks and practice social distancing, that businesses will open back up and quickly return to normal capacity. But it is not the public health orders that are hurting businesses, it is the pandemic itself.

To get those businesses back open, customers’ fear of acquiring COVID-19 has to be eased. A person who goes out to eat at a restaurant, gets on an airplane, or spends a couple of hours in a movie theater wants to be sure that it won’t cost them their life. Customers want to feel safe and workers want to feel safe. The best way to create that perception of safety is to get everyone vaccinated against COVID-19.

Some U.S. demographic groups are suspicious of vaccination and many within those groups have stated that they will not get vaccinated. As vaccine availability increases, these vaccine hold-outs will likely find themselves at a competitive disadvantage in business. How many people would go to a restaurant if their waiter is wearing a button that says “I’m proud to be a COVID anti-vaxxer”? As a larger percentage of Americans get vaccinated, those people who refuse to get vaccinated will increasingly be viewed as the ones holding back economic recovery.

If a customer gets salmonella or hepatitis A from contaminated food at a restaurant, there is the potential for liability of that restaurant. At the least, customers will avoid it and at worst, there can be civil litigation for damages from the sick customer. So far in the COVID-19 pandemic, businesses really have not faced liability because the infection is literally everywhere. Once the pandemic is better controlled in the United States, outbreaks of COVID-19 will be able to be traced to source locations, similar to outbreaks of salmonella and hepatitis A. Civil litigation may be more likely in that situation, particularly if a business owner went on record as being opposed to vaccination. At that point, it will become very expensive to be an anti-vaxxer.

The fastest way to get business such as restaurants, hotels, movie theaters, and gyms back up to full occupancy is to end the pandemic. We cannot make the pandemic end simply by passing legislation declaring that it to be over – the fastest way to make it end is to vaccinate all eligible people as quickly as possible.

Pro-vaccination = pro-business

April 7, 2021

Every year at this time, physician practice administrators hold their breath and wait for the annual relative value unit (RVU) revaluations by Medicare. This year, Medicare was delayed in releasing the “final rule” that dictates how physicians will be paid and the final report was not released until earlier this month (December 2020). As in past years, some specialties will have increased revenue and some will have decreased revenue. Here is the projections for the RVU changes in 2021.

So, why are there so much differences between specialties? There are two reasons. First, with the 2021 Medicare Physician Fee Schedule, the evaluation and management codes for outpatient visits were revised with a result that office visits are more highly valued than in the past. Medicare is required to keep overall physician reimbursement constant so when outpatient visits were more highly valued, other procedures and services necessarily had to be lower valued. Therefore, those specialties associated with a lot of outpatient office visits will see an overall increase in their Medicare payments. For this reason, endocrinology, rheumatology, hematology/oncology, and family practice will all see double digit increases from Medicare

Procedure-oriented specialties such as surgical specialties will see a decrease in Medicare payments. Because of the increase in RVUs associated with outpatient E/M codes, the Medicare “conversion factor” (the amount that Medicare pays physicians per RVU) will drop from $36.09 to $32.41 in order to stay budget neutral. Overall, this translates to physicians getting paid 10% less per RVU in 2021 than in 2020. Therefore specialties with no E/M billing (such as pathology and radiology) will see a significant drop in income and surgical specialties that have most of their RVUs from surgical procedures and have a lower percentage of their RVUs from E/M billing will also see a drop in income.

Every year, different physician specialty societies lobby for increasing their own specialties’ compensation. In that sense, doctors as a profession are a group of competing special interests.

For physicians in solo or small group private practice, a decrease in total RVUs has the biggest impact on physician income since those physicians still have the same overhead expenses in 2021 as they had in 2020. If that overhead expense is half of total revenue, then a 10% drop in total revenue can translate to a 20% drop in physician income. Therefore, radiologists and pathologists in solo or small group private practices will see the biggest drop in take-home income. I anticipate that in this group, there will be increasing pressure to become hospital-employed next year as a consequence of the significant drop in private practice income.

For physicians who are hospital-employed, a decrease in the work RVU has the biggest impact on physician income since those physicians typically have the work RVU as the measure of productivity by which the hospital bases their income. Therefore, critical care physicians, anesthesiologists, and radiologists who are hospital-employed will see the greatest drop in their income.

The annual changes in physician reimbursement has a big financial impact on current physicians but also has a quieter impact on future physicians. As medical students see changes in compensation among specialties, the invisible hand of capitalism will affect the decision about which specialties those students choose to enter. One way of assessing medical student interest in different specialties in in the National Residency Match Program data. In the 2020 residency and fellowship match, the specialties with the lowest fill rates were nephrology (62%,), geriatrics (50%), and infectious disease (79%). Specialties with the highest fill rates were radiology (98%), dermatology (98%), otolaryngology (99%), plastic surgery (100%), and thoracic surgery (100%). In the future, we can expect students to be drawn to those specialties that have an increasing reimbursement and away from those with lower reimbursement.

American medicine is not a free market economy. Each year, Medicare can have a big impact on the compensation among different specialties as well as the interest in students entering those specialties, simply by changing the RVU valuations and the conversion factor. In 2021, we will see some of the biggest changes in recent years.

December 23, 2020

Every year, CMS publishes the National Health Expenditure (NHE) data; the most recent information was updated in December 2019 and reports data from 2018. The NHE gives important insight into how Americans spend their money on healthcare. For example, in 2018, health expenditures increased by 4.6% to an average of $11,172 per American. This represents a startling 17.7% of our gross domestic product. The growth in spending was not uniform, however – Medicare spending increased faster than any other source:

• Medicare spending grew by 6.4%
• Private health insurance spending grew by 5.8%
• Medicaid spending grew by 3.0%
• Out of pocket spending grew by 2.8%

To put that in context, in 2018, the U.S. annual inflation rate was 1.9%. The average household income rose 0.8% during this period. In other words, the average American’s health costs increased 6 times more than their annual income increased in 2018.

The report shows that although Medicare spending increased the fastest, total expenditures are still the greatest for private health insurance. Overall, the total national health expenditures were $3,649,400,000,000 (i.e., $3.6 trillion). Of that:

• Private health insurance = $1,243 billion (34%)
• Medicare = $750 billion (21%)
• Medicaid = $597 billion (16%)
• Out of pocket = $376 billion (10%)
• Other Federal (CHIPs, Veteran’s Administration, Department of Defense) = $138 billion (4%)
• Other governmental (Indian Health Service, worker’s compensation, etc.) = $370 billion (10%)
• Investment = $174 billion (5%)

The NHE report also projects expenditures over the next 7 years at an annual increase of 5.5% per year. This will reach an estimated $6.0 trillion by 2027. As a percent of gross domestic product, health expenditures will rise to 19.4% by 2027. Currently, about 10% of the American population is uninsured and this is projected to remain the same through 2027 (although this percentage is subject to change based on changes in Federal healthcare legislation).

State-specific per capita health expenditures are available through 2014 (data will be updated with the upcoming 2020 U.S. Census). Six years ago, in 2014, the average personal health expense per person was $8,045. There was considerable variation by individual states with Alaska being most expensive ($11,060 per person) and Utah being the least expensive ($5,981 per person). However, states could be grouped into regions with the states within those regions having fairly similar costs. New England states were the most expensive and Rocky Mountain states wee the least expensive. The data can also be analyzed by healthcare costs as a percent of each state’s gross domestic product – Maine ranked the highest at 22.3% of GDP and Wyoming ranked the lowest at 9.3% of GDP in 2014.

Not surprisingly, as people age, their health costs go up. In 2014, the average personal health care spending per American child was $3,749, per working-age American was $7,153, and per American over age 65 years was $19,098. Even though the elderly only accounted for 15% of the U.S. population in 2014, they accounted for 34% of total health spending. For all age groups, per person spending for females was higher than for males with an overall average of $8,811 per female versus $7,272 per male.

The U.S. has an almost insatiable appetite for health care. However the NHE projections through 2027 show that there is a limit to what we can afford. It may be time for our country to put our health care appetite on a diet.

February 19, 2020

Insurance denials and insurance prior authorizations are the bane of existence for any physician who practices in an outpatient setting. The are at best an annoyance but last Friday, I had an experience that nearly made my head explode. At issue was the denial of a high resolution chest CT that I had ordered several months ago for a patient with interstitial lung disease who had deteriorating pulmonary function tests despite treatment. I wanted to determine if his interstitial lung disease was worsening to decide if his treatment needed to be changed or if he needed to be referred for a lung transplant. I entered the order into our electronic medical record with ICD-10 code J84.9 (interstitial lung disease) and typed into the “reason for the test” box that he had interstitial lung disease of uncertain cause with worsening pulmonary function tests. The patient’s insurance company contracts with a radiology test benefits management company (which I am going to call “Roadblock, Inc” so that the real company does not blacklist me) to review orders for radiology tests and then approve or deny the tests based on whether or not the tests meet evidence-based indications for that particular test. Last week, shortly before the CT was scheduled to be performed, I got an email from our office staff that the insurance company had called to tell us that Roadblock, Inc had denied the CT and then left a case reference number and the phone number at Roadblock, Inc for me to call. Here is a summary of my subsequent phone call to Roadblock, Inc:

• 2:00 PM – I call Roadblock, Inc and am on hold for 2 minutes
• 2:02 PM – A Roadblock, Inc customer service representative answers the call and takes down all of the information about the patient and the test that was ordered
• 2:04 PM – She transfers me to the clinical review department. I am again placed on hold for 1 minute
• 2:05 PM – A second customer service representative answers and again asks for the case number, patient’s name and birth date as well as my name and contact information. She informs me that the reason for denial is that the only approved indication for a high resolution chest CT is interstitial lung disease or worsening pulmonary function tests. She asks me if I would like to be transferred to the physician appeals department. I answer yes and am placed on hold for 2 minutes
• 2:08 PM – a third customer service representative answers and I am again asked for the case number, patient name, and date of birth as well as my name and contact information. She asks me if the previous customer service representative told me why the CT was denied and I answered yes. 
• 2:10 PM – I explained that the original order had the correct ICD-10 code for interstitial lung disease and additionally had the typed clinical information that the patient had interstitial lung disease with worsening pulmonary function tests. I pulled up the original date-and-time-stamped order from a few months earlier to confirm this and offered to fax it to her. The customer service representative stated that when the order was processed by Roadblock, Inc, that the indication for the test was not completed. I explained that the information that we sent to Roadblock, Inc included the correct ICD-10 code and the correct written indication for the test.
• 2:13 PM – I then ask to schedule a “peer-to-peer” phone call with one of their physician reviewers. The customer service representative tells me that a peer-to-peer is not permitted for a test denial. The customer service representative acknowledged that the information that I had entered into the order and sent to Roadblock, Inc was the correct indication for a high resolution chest CT but that on the Evicor computer system, that information had not been documented and therefore the test had been denied.  
• 2:16 PM – I asked for an appeal since the error was on the part of the Roadblock, Inc’s employee who had recorded the information that our office had sent to them. The customer service representative tells me that she is sorry but that appeals are not permitted. 
• 2:18 PM – I tell her that I would send in a new order for the CT scan. She tells me that I am not permitted to re-order a CT when the original order is denied. She tells me that Roadblock, Inc’s policy is that I cannot order a new CT scan for a 2 month period after a denial. 
• 2:20 PM – I ask to speak with her supervisor. She tells me that I can call the insurance company to see if they will make an exception to the denial. 
• 2:21 PM – My head explodes and I tell the customer service representative that her company has failed this patient.

This is not a unique experience. Prior authorizations and denial appeals take up an enormous amount of physician and office staff time. A recent survey of 1,000 physicians by the American Medical Association found that 91% reported that the prior authorization process had a negative impact on patient care; 28% reported that prior authorization had resulted in delays of care that resulted in hospitalization, death, or disability; 86% reported that the prior authorization process placed a high or extremely high burden on their practice; and 88% reported that the prior authorization process has gotten worse in the past 5 years.

The Council for Affordable Quality Healthcare found that prior authorizations increased 27% between 2016 and 2019. Currently, the average physician has to do 34 prior authorizations per week and the total time cost to the physician and office staff is 14.9 hours per week devoted just to prior authorizations.

About 25 years ago, our pulmonary practice group held an all-day coding and billing session for all of the physicians. We hired a coding specialist from one of the major health insurance companies to come to teach us how to best document and code for the services we were billing with the thought that the best person to teach us about correct documentation and coding was a person from an insurance company coding department. She told us that the staff in her department were told to deny every 10th claim. If the physician appealed the denial, then they would simply approve the claim and move on. But the insurance company had found that most physicians do not bother to appeal claim denials and just write them off. By randomly denying claims, the insurance company was able to save an enormous amount of money.

Medication denials are a particular problem. Many drugs are members of a class of medications that are all relatively interchangeable for most patients. For example, statins used for high cholesterol, ACE inhibitors used for high blood pressure, and inhalers used for asthma. The insurance company will negotiate with the drug manufacturers to get the lowest price for one of the drugs in a class of medications. These drugs are then placed on the insurance company’s “formulary” of approved medications; if a patient is prescribed a drug that is not on the approved formulary, then the patient has to pay retail price for that drug out of pocket. I deal with dozens of different insurance formularies. Some insurance companies permit a computer interface with physicians’ electronic medical record so that physicians can tell right away if a medication that they are prescribing is on that insurance company’s formulary and then pick another drug from that same class if it isn’t. But many insurance companies do not permit an interface with the physician EMR. Although the physician can go to the internet and look up a formulary, most of these on-line formularies are not very user friendly and often require the physician to scroll through pages and pages of a PDF file to hunt for a drug that would be covered – this can take the physician 5-10 minutes to determine which drug is or is not covered. If a non-formulary drug is prescribed, the physician will usually get a letter in the mail that the prescribed drug is not on the insurance company’s formulary. The problem is that those letters do not tell the physician what drug in the same class is covered so the physician either has to spend time on the internet trying to determine what is covered or continue to randomly prescribe medications in that drug category until they hit on one that is covered. Furthermore, the insurance companies change their drug formularies every January and a drug that is covered one year will often not be covered the next year resulting in a flurry of denial letters being sent to physician offices all over the country every January.

Prior authorizations and denials are a great business model for insurance companies, radiology benefit management companies, and pharmacy benefit management companies. By creating a barrier to approving expensive tests such as CT scans and MRIs, they can reduce the number of these expensive tests that are actually done. By denying medications that are not on their insurance formulary, they can reduce the number of prescriptions that are filled.

The sad part of prior authorizations and denials is that most of the time, the physician can eventually successfully appeal the denial of a test or a prescribed medication, as long as the physician is persistent and dedicates the time necessary for the appeal. The net result is that these denials and prior authorizations create an enormous cost to physician practices with no real benefit to the patient. As a consequence, the American prior insurance authorization and denial system is a major contributor to the U.S. having the most expensive healthcare in the world but still lagging other countries in quality of healthcare.

A 2018 report from Harvard concluded “Physician burnout is a public health crisis that urgently demands action by health care institutions, governing bodies, and regulatory authorities. If left unaddressed, the worsening crisis threatens to undermine the very provision of care, as well as eroding the mental health of physicians across the country.” Some of the primary drivers of burnout is burdensome administrative requirements, excessive bureaucratic requirements, and consequences of electronic medical records. Insurance denials and prior authorizations fit squarely into these drivers of burnout.

Ironically, the payers that generally pose the least denials and prior authorizations are Medicare and Medicaid. I am generally a strong proponent of free market economic systems but in this case, the American health insurance free market has resulted in a broken system that is increasing healthcare costs to Americans and contributing to physician burnout.

January 25, 2020

Recently, one of our primary care physicians was telling me about one of his patients, an 85 year-old woman who had a knee replacement at a different hospital here in Columbus. She was in the hospital for 4 days after her surgery but was very slow to recover and was determined to be unsafe for discharge home without additional rehabilitation so she was discharged to a SNF (subacute nursing facility). She spent a week getting rehab at the SNF and then returned home only to find that she had a bill for the entire stay the nursing facility; Medicare covered none of it. She paid her bills but in doing so, wiped out most of her savings.

 She was a victim of the Medicare 3-day rule.

The 3-day rule is Medicare’s requirement that a patient has to be admitted to the hospital for at least 3 days in order for Medicare to cover the cost of a SNF after the hospitalization. If the patient is admitted for less than 3 days, then the patient pays the cost of the SNF and Medicare pays nothing. So, if this patient was in the hospital for 4 days, why didn’t Medicare cover the cost of the SNF?

It all has to do with when the inpatient stay clock starts and that has nothing to do with when the patient first comes into the hospital for a surgery or a medical condition. It solely depends on when the attending physician entered an order for that patient to be in “inpatient status” as opposed to “observation status”. Medicare considers a patient to be in inpatient status if that patient is anticipated to need to be in the hospital for 2 midnights and in observation status if the patient is anticipated to be in the hospital for less than 2 midnights. Observation status was originally intended to be used to observe the patient to determine whether the patient is sick enough to warrant being admitted to the hospital.

But observation status has evolved into a monster that no longer resembles its original intended form. It no longer matters whether or not the patient needs to be in the hospital, it is now interpreted as the duration of that hospitalization – less than 2 midnights and you are an outpatient and more than 2 midnights you are an inpatient, no matter how sick you really are.

The problem that physicians face is that it is often difficult to predict how long a patient will need to be in the hospital when they first show up in the emergency department for their acute medical illness or in the operating room for their elective surgery. That is why observation status was invented in the first place. However, when it comes to covering the cost of a SNF, since Medicare only counts those hospital days after the physician decides that the patient really does need to be an inpatient. Many patients end up having to pay the cost of the SNF if they spend fewer than 3 midnights after that inpatient order was written, even if they additionally spent several days in the hospital under observation status. Medicare will not count those observation days towards the 3 inpatient days necessary to qualify for a SNF.

Part of the confusion is that even though Medicare won’t count those initial observation status days toward the SNF days, Medicare will pay for the observation status days just like they were inpatient days when it comes to the initial hospitalization. That is because for the purposes of hospital payment, Medicare will pay for up to 3 days in the hospital prior to when an inpatient admission order was placed. In other words, Medicare uses a different 3-day rule in defining inpatient hospital coverage as opposed to defining inpatient qualifying days for SNF coverage.

If a patient is in inpatient status, then Medicare part A covers the entire hospitalization plus all of the medications administered during the hospitalization. However, if a patient is in observation status, then the hospital stay is not covered by Medicare part A but instead is covered by Medicare part B which requires the patient to pay a 20% co-pay for all of the charges plus pay for any medications administered during the hospitalization. Lets take some examples to see how this works for a patient admitted through the emergency department with pneumonia:

1. A patient comes to the emergency department with pneumonia and the physician writes an order for inpatient status when first coming into the hospital. The patient stays in the hospital for 5 days (all 5 in inpatient status) and gets discharged to a SNF.
   • Medicare part A pays for the entire hospital stay plus any related outpatient charges for the 3 days prior to the inpatient order being written (i.e., the ER visit)
   • The patient has no hospital co-pay
   • Medicare part A pays for the SNF
2. A patient comes to the emergency department with fever and cough but the physician is not sure if it is pneumonia at first so the physician writes an order for the patient to be in observation status when first coming into the hospital. Two days later, the physician determines that it really is pneumonia and changes the order from observation status to inpatient status. The patient stays in the hospital for 5 days in total (3 days in inpatient status) and gets discharged to a SNF.
   • Medicare part A pays for the entire hospital stay plus the ER visit and the 2 days in observation status.
   • The patient has no co-pay for the hospitalization
   • Medicare part A pays for the SNF
3. A patient comes to the emergency department with fever and cough but the physician is not sure if it is pneumonia at first so the physician writes an order for the patient to be in observation status when first coming into the hospital. The physician later determines that the patient has pneumonia but does not change the order from observation status to inpatient status until 4 days later. The patient stays in the hospital for 5 days in total (1 day in inpatient status) and gets discharged to a SNF.
   • Medicare part A pays for the last 3 of the 4 days the patient was in observation status plus the day that the patient was in inpatient status.
   • Medicare part B pays pays 80% of the first of the 4 days the patient was in observation status and 80% of the ER visit.
   • The patient pays for 20% of all of the hospital charges for the first observation status day and 20% of the ER visit
   • The patient pays for all of the medication charges for the ER visit and the first hospital observation status day
   • The patient pays for the SNF (Medicare will not cover the SNF since there were fewer than 3 inpatient days)
4. A patient comes to the emergency department with fever and cough but the physician is not sure if it is pneumonia at first so the physician writes an order for the patient to be in observation status when first coming into the hospital. The physician later determines that the patient has pneumonia but forgets to change the observation status order to an inpatient status order. The patient stays in the hospital for 5 days in total (all in observation status).
   • Medicare part B pays for 80% of the entire hospital stay plus the ER visit.
   • The patient pays 20% of the entire hospital charges plus 20% of the ER visit charge
   • The patient pays for all medications received in the ER and during the hospitalization.
   • The patient pays for the SNF (Medicare will not cover the SNF since there were fewer than 3 inpatient days)

Next, let’s see how Medicare applies the 3-day rule for an elective knee replacement surgery:

1. A patient comes into the hospital for knee replacement. The patient has no significant co-morbid medical conditions.  The surgeon writes an order for the patient to be in observation status at the time of the surgery. The patient spends 1 night in the hospital and is discharged home the next day.
   • Medicare part A pays for nothing
   • Medicare part B pays for 80% of the surgery and hospital charges
   • The patient pays 20% of the surgery and hospital charges
   • The patent pays for all medications received in the hospital
2. A patient comes into the hospital for knee replacement. The patient has difficult-to-control diabetes, heart failure, sleep apnea, and kidney failure so the surgeon anticipates that the patient will need to stay in the hospital for more than 2 midnights after the surgery to care for the medical conditions. The surgeon writes an order for the patient to be in inpatient status at the time of the surgery. The patient spends 4 nights in the hospital and is discharged home.
   • Medicare part A pays for the entire surgery and hospital stay
   • The patient pays nothing
3. A patient comes into the hospital for knee replacement. The patient has difficult-to-control diabetes, heart failure, sleep apnea, and kidney failure so the surgeon anticipates that the patient will need to stay in the hospital for more than 2 midnights after the surgery to attend to the medical conditions. The surgeon writes an order for the patient to be in inpatient status at the time of the surgery. The patient spends 4 nights in the hospital but still need more rehabilitation so the patient is discharged to a SNF.
   • Medicare part A covers the entire surgery and hospital stay
   • The patient pays nothing
   • Medicare pays for the SNF
4. A patient comes into the hospital for knee replacement. The patient has difficult-to-control diabetes, heart failure, sleep apnea, and kidney failure but the surgeon thinks that the patient will only require one night in the hospital post-operatively. The surgeon writes an order for the patient to be in observation status at the time of the surgery. After 2 days, the surgeon changes the order to inpatient status. The patient spends 4 nights in the hospital and is discharged home.
   • Medicare part A pays for the entire surgery and hospital stay
   • The patient pays nothing
5. A patient comes into the hospital for knee replacement. The patient has difficult-to-control diabetes, heart failure, sleep apnea, and kidney failure but the surgeon thinks that the patient will only require one night in the hospital post-operatively. The surgeon writes an order for the patient to be in observation status at the time of the surgery. After 2 days, the surgeon changes the order to inpatient status. The patient spends 4 nights in the hospital but still need more rehabilitation so the patient is discharged to a SNF.
   • Medicare part A pays for the entire surgery and hospital stay
   • The patient pays nothing for the surgery and hospital stay
   • The patient pays for the SNF (Medicare will not pay for the SNF)

Confused? You are not alone. It is because Medicare actually has two 3-day rules and they work totally differently. When an observation status order is changed to an inpatient status order, Medicare will consider the 3 days prior to the inpatient order being written as being inpatient for the purposes of covering hospital charges. However, for SNF coverage decisions, Medicare will not count the 3 days prior to the inpatient order toward the 3 inpatient days that Medicare requires in order for Medicare to pay for SNF charges.

Medicare’s coverage rules are byzantine and indecipherable for the average patient. Even physicians often do not fully understand the nuances of the two 3-day rules. But if you want to make a patient unhappy with their hospital stay and with their surgeon, there is no better way than to slap that patient with an unexpected $20,000 co-pay and SNF charge after their elective knee surgery. It is incumbent on all physicians to get the inpatient status order correct as early in the hospitalization as possible to ensure that Medicare appropriately covers inpatient charges and SNF charges. If there is any chance that the patient will need to go to a SNF after hospitalization for a medical illness or a surgery, then the initial order should always be for inpatient status and not observation status.

July 13, 2019

It costs more than $1.1 million to train a doctor in the United States. The societal investment in creating physicians is enormous and has widespread implications for American health care in everything from acceptance of international medical graduates to the future use of non-physician health care providers.

Breaking down the costs

Depending on the specialty, tt takes 11 to 15 years to train a physician when you count college, medical school, residency, and fellowship. At each of these steps there are direct costs and indirect costs. Some of these costs are paid by the physician in training and some of these costs are paid for by society in general (usually through state or federal taxes). Here is a breakdown of the direct and indirect costs at each step along the way:

Undergraduate education. Colleges essentially have 3 sources of income: tuition, endowment, and government funds. For this reason, the total cost to educate an undergraduate is considerably more than what the student actually pays in tuition. It becomes complicated because most colleges not only have to finance the education of students but also have to finance the research activities that professors must perform in order to keep their jobs. Thus, it is hard to separate the costs of education from the costs of research. Public colleges receive state government funds to subsidize their education and research activities and this results in lower tuition for in-state residents than for out-of-state residents. The out-of-state tuition and fees best reflects the cost to teach an undergraduate without the state governmental subsidy. Private colleges and universities generally do not receive state governmental subsidies and have considerably higher tuition costs. For the purpose of this analysis, I used the current cost of attendance for out-of-state freshman at the Ohio State University that includes tuition, fees, books, room, board, and miscellaneous expenses if living on-campus which is $49,556. For four years of college, this would be a total cost of $198,224.

Medical school. Colleges of medicine have the same 3 sources of income as undergraduate colleges so for this analysis, I used the current cost of attendance for an out-of-state medical student at the Ohio State University College of Medicine. Once again, this estimate is for tuition and fees as well as estimated living expenses. Unlike undergraduate college, the cost of medical school varies considerably for each of the four years of training: year one = $80,019, year two = $76,026, year three = $114,442, and year four = $114,542. Totaling all four years, the cost to go to medical school is $385,029.

Residency. There are both direct and indirect costs of resident education. The direct costs are the resident’s salary and benefits. At the Ohio State University Medical Center, these costs are $51,510 for a first year resident (intern) and increases each year so that a fourth year resident cost is $56,636. However, the direct costs are only the tip of the iceberg when it comes to the total cost to train a resident. There is the cost of everything from hospital call rooms, to residency program administrator salaries, to part of the salaries of chairmen and faculty to cover otherwise non-compensated teaching time. Most of these indirect costs are ultimately paid from federal tax dollars- either by Medicare payments to teaching hospitals for graduate medical education or by the higher Medicare payments for clinical services that teaching hospitals get paid (as opposed to non-teaching hospitals). In 2014, the Alliance for Academic Internal Medicine estimated that the total direct and indirect costs to train a resident is $183,416 per year. For the 3 years of residency it takes to become a general internist, pediatrician, family physician, or hospitalist, the cost is $550,248. It takes longer to train other specialists, for example, an obstetrician is 4 years ($733,664), a gastroenterologist is 6 years ($1,100,496), and an interventional cardiologist is 7 years ($1,283,912).

Total costs. Adding all of these together, the total costs to train physicians is astounding. This demonstrates that society has an enormous investment in each physician in the United States.

• $1,133,501 – general internist, family physician, pediatrician
• $1,316,917 – obstetrician, psychiatrist
• $1,500,333 – general surgeon, endocrinologist
• $1,683,749 – gastroenterologist, pulmonary/critical care, general cardiologist
• $1,867,165 – interventional cardiologist, neurosurgeon

Implications for U.S. healthcare

International medical graduates. One of the best ways to reduce the cost of training doctors is to get someone else to pay for it. If you can get another country to cover the costs of college and medical school, then the cost to American society drops. Therefore, the U.S. cost to train a family physician who is an international medical graduate is $583,253 less than a family physician who is a U.S. medical graduate. In other words, the cost to American society of an international medical graduate is about half that of a U.S. medical graduate.

Non-physician providers. Nurse practitioners and physician assistants are far less expensive to train than physicians. The typical NP or PA training consists of 4 years of undergraduate training plus 2 years of NP/PA training. The costs to become an NP or PA is approximately $84,598 after college (tuition and living expenses) and the total cost including college is $282,822. In other words, the cost to train a family practice NP/PA is only one-fourth of the cost of training a family practice physician. Given that NPs and PAs increasingly have a similar scope of practice as physicians, from a societal standpoint, it will be a lot less expensive to train an NP or PA than it is to train a physician to do the same job. The implication is that NPs and PAs will replace many physician jobs in the future.

Repairing broken physicians. In a meeting I was recently attending, a question was asked whether we have different standards for terminating physicians with behavioral problems or substance abuse than we do for terminating other health care workers for the same problems. The reality is that I think we probably do and part of this is because of the enormous societal investment in those physicians. To create an analogy, if you have a broken handle on a screw driver that cost $2, you buy a new screw driver and don’t pay the cost of repairing it. On the other hand, if you have a broken handle on an airplane that costs $1.2 million, you repair the handle rather than throwing out the entire plane. If society invests $1.2 million to create a physician who then develops alcoholism, one can make the argument that hospitals have a societal obligation to first attempt to cure the physician and return him or her to practice when/if safe to do so rather than permanently end that physician’s career. Like it or not, hospitals will often put broken physicians on leave and attempt to rehabilitate them for infractions that would result in an unskilled employee being terminated – it is not necessarily fair but it is an economic reality. On the other hand, if an airplane has a critical mechanical flaw that puts it in continuous danger of crashing, you decommission that airplane – physicians with critical flaws should similarly be decommissioned.

Discussions about the cost of training physicians usually center around the cost to the individual physician and often stop at the average debt of a graduating medical student. But beyond medical student debt, there is a much larger cost that is not paid directly by the doctor but is paid more broadly by the institutions that provide scholarships, by the citizens who pay state and federal taxes, by direct salary costs of residents who cannot bill for their services, and by the indirect costs to hospitals to train residents.

July 11, 2019