Category: Medical Economics

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

When the average person thinks of donating blood, the first words that come to mind are “Red Cross”. However, the American Red Cross only supplies about 40% of transfused blood in the United States. What most people don’t realize is that the U.S. uses a free-market approach to maintain its blood supply with the result that there are dozens of different blood suppliers for our nation’s hospitals and they compete with each other.

Every day, 35,000 units of packed red blood cells, 7,000 units of platelets, and 10,000 units of plasma are transfused in the United States. In order to meet the needs, there has to be a continuous flow of donated blood into the country’s blood banking system because blood has a short self-life: 42 days for red blood cells and 5 days for platelets. However, red blood cells can be frozen for up to 10 years.

Most countries use a single, government-directed supplier for the blood supply but the U.S. utilizes a network of non-profit blood services that are overseen by federal regulations. As of 2016, there were 786 registered blood establishments that collect blood plus 725 hospital and non-hospital blood banks. Blood centers account for 93% of all collected blood and hospital blood banks account for 7% of collected blood.

We do not transfuse as much blood as we used to. Lower transfusion thresholds (from previous thresholds of 8-9 g/dL hemoglobin to current thresholds of 7 g/dL), a trend toward less-invasive surgeries, the increased use of erythropoietin, hospital blood management programs, and improved medical technology have led to a reduced utilization of blood; the number of units transfused has dropped by 25% since 2008. As the demand for blood has fallen, there has been more competition between the various blood suppliers and many suppliers have gone out of business. So, who are all of these blood suppliers?

• The American Red Cross. This is the most visible and publicly recognizable blood supplier and accounts for about 40% of the nation’s blood.
• America’s Blood Centers. This is a network of more than 50 independent, local blood suppliers that supply about 50% of the nation’s blood. Its member organizations manage more than 600 donation sites in 45 states. Two of the largest members are Vitalant (western United States) and Versiti (midwestern United States).
• The Armed Services Blood Program. This supports the military and their beneficiaries.

Blood is a unique commodity in that it is almost entirely donated for free by volunteers. The cost of blood is therefore primarily due to the expense of processing, storage, and distribution. Hospitals will typically contract with a particularly blood supplier based on (1) per-unit cost to the hospital and (2) quality of service from the blood supplier. Because of the declining demand for blood and because the U.S. has experienced a period of hospital consolidation into large hospital systems that can compete aggressively for blood pricing, the financial margin for most blood centers are razor thin and many operate at an annual financial loss.

Because 92-95% of blood is transfused into hospital inpatients, the cost of blood is absorbed into the hospital’s general expenses rather than being passed directly to the consumer (i.e., the patient). This is because hospitals are paid by a DRG price that is fixed based on an inpatient’s diagnosis and the hospital gets paid the same whether 1 unit of blood is transfused or 20 units of blood is transfused. Most blood is sold on a consignment model – the hospital stores blood but only charges the blood centers for the units actually transfused; therefore, the blood centers bear the cost of outdated units. The net result is that the blood suppliers are happy when more blood is transfused and the hospitals are happy when less blood is transfused. The average price paid from hospitals to blood centers in 2013 was $225 per unit.

About 38% of the U.S. population is eligible to donate blood but only a fraction of eligible persons actually donate. All blood is subject to testing for communicable diseases including:

• Hepatitis B surface antigen (HBsAg)
• Hepatitis B core antibody (anti-HBc)
• Hepatitis C virus antibody (anti-HCV)
• HIV-1 and HIV-2 antibody (anti-HIV-1 and anti-HIV-2)
• HTLV-I and HTLV-II antibody (anti-HTLV-I and anti-HTLV-II)
• Serologic test for syphilis
• Nucleic acid amplification testing (NAT) for HIV-1 ribonucleic acid (RNA), HCV RNA and WNV RNA
• Nucleic acid amplification testing (NAT) for HBV deoxyribonucleic acid
• Antibody test for Trypanosoma cruzi, the agent of Chagas disease

The most common blood type is O+ followed by A+. People with type O- blood are known as universal donors because anyone can received type O- red blood cells. Persons with type AB+ are known as universal recipients because they can receive blood of any type. Like 9% of Americans, I’m B+ so I can receive blood from people with blood types B+, B-, O+, and O- (in other words, 59% of of the population); I can donate blood to people with blood types B+ and AB+ (in other words, 13% of the population). There are differences in blood types between countries and between racial/ethnic groups. For example, 11% of South Koreans are AB+ (universal recipients) whereas only 0.5% of Ecuadorians are AB+. On the other hand, only 0.1% of South Koreans are O- (universal donors) whereas 11% of people in the United Kingdom are O-.

On my 16th birthday, the first thing I did the day I got my driver’s license was to drive to the American Red Cross blood donation center to give blood. Except for a few years during residency and fellowship (when I was regularly exposed to HIV secretions and blood in the ICU), I gave blood every 2-4 months for the next 40 years. About 3 years ago, the Red Cross raised the minimum hemoglobin necessary to donate blood and I found myself too anemic to donate. After anemia tests showed iron deficiency and a work-up for GI bleeding was negative, the conclusion was that I donated too frequently and didn’t eat enough meat. So, I started taking iron supplements for a week before and after blood donations, cut back my donation frequency to every 4 months, and learned to love grilled ribeyes again.

The average donor is male, married, college-educated, with an above-average income, white, and between the ages of 30-50. However, 45% of donors are over age 50. So there is a great need to recruit younger people into the donation pool as the current donor pool ages out. In addition, given the ethnic and racial differences in blood types, there is a need to ensure that our nation’s blood donor demographics more closely represents the nation’s ethnic and racial demographics  so that tomorrow’s blood supply optimally meets tomorrow’s blood demands. We need to eliminate the current disparities that exist in blood donation.

Our nation’s blood supply is a business but a business that is a unique hybrid of volunteers and commercial enterprises that is like no other business in the world. The dynamics of our blood supply is changing based on changes in healthcare financing and some healthcare experts believe that the blood supply system as we currently know it is in peril. But regardless of the changes in economics, patients will still need blood and volunteer donors will still be the ultimate suppliers of that blood. So what am I going to do about it? I do what I’ve always done. I’ll take iron supplements for the next few days and then donate a pint.

May 8, 2019

Last week, the National Resident Match Program released its annual data report on the most recent fellowship match for positions to begin in July 2019. The fellowship matches take place between May 2018 and January 2019, with different match days for different specialties. The NRMP releases a summary of all of the specialty match results in February each year. By analyzing the data, you can learn a lot about which specialties are attracting new physicians and which ones are not attracting new physicians. And projecting forward, you can predict which specialties are going to have shortages of practitioners in future years. The 2019 year had the most positions ever offered in the U.S. (10,936), the most fellowship programs ever in existence in the U.S. (4,750), and the most residents who matched into a fellowship program in the U.S. (9,378).

Because the hospital I practice in primarily has internal medicine specialists, I am particularly interested in the outcome of the various internal medicine specialty fellowship matches. This table in blue shows the number of internal medicine fellowship positions by specialty. They vary widely from a low of adult congenital heart disease (9) to a high of cardiology (951). Oncology-only fellowships and hematology-only fellowships generally have very small numbers of available positions because most physicians tend to go into combined hematology and oncology fellowships. Similarly, there are few pulmonary-only fellowships because most candidates go into a combined pulmonary and critical care fellowship.

The NRMP also reports the percentage of available positions that fill with U.S. allopathic (MD degree) medical school graduates, as shown in this table in red. Eliminating oncology, hematology, and pulmonary from the analysis because most doctors interested in those fields do a combined fellowship, it becomes clear that the most popular specialties are hematology & oncology, gastroenterology, and palliative medicine (adult congenital heart disease, interventional pulmonary, and cardiac electrophysiology are only done after a doctor has already completed a pulmonary or cardiology fellowship and are thus sub-specialty fellowships). The least popular fellowships are nephrology, geriatrics, and endocrinology.

Next, lets look at the how all of the various specialties filled when including not only U.S. allopathic graduates but also U.S. osteopathic (DO) graduates, U.S. citizens who attended foreign medical schools (most frequently Caribbean medical schools), Canadian medical school graduates, and foreign medical school graduates. Here, in the table in brown, we see that most fellowships eventually filled. However, nephrology and geriatrics are notable exceptions.

So, why are certain specialties so unpopular? One factor may be salary. Using the 2018 Medscape Physician Compensation Survey data, the internal medicine specialties with the highest salaries also had the highest percentage of available fellowship positions filled with U.S. allopathic medical school graduates (cardiology, gastroenterology, and hematology/oncology). Endocrinology is notable because the annual salary of an endocrinologist is less than a general internist, meaning that for the personal cost of doing 2 additional years of fellowship training in endocrinology compared with a general internist, you get to make $18,000 less than a general internist – not surprisingly, relatively few of the endocrinology fellowship positions were filled by U.S. allopathic medical school graduates.

Another way of analyzing salary and work effort is from the annual MGMA Physician Compensation Report. The 2018 report is the most recent and it reflects 2017 data. There are important differences between the MGMA compensation data and the Medscape compensation data. The MGMA report only includes large group practices, is reported by practice managers, and reflects total compensation. The MGMA report has data on private practice physicians (who make more) separate from academic physicians (who make less). On the other hand, the Medscape report includes any physician, is self-reported by the physician, and represents salary (which may not be the same as total compensation). The Medscape report includes both academic and private practice physicians. The MGMA data is probably more accurate but represents a skewed population of doctors. The Medscape data is probably less accurate but in theory is more representative of the average doctor (or at least those who are willing to take the time to fill out the survey). This table reflects just the MGMA private practice data. From the MGMA report, it is apparent that based on median wRVUs, nephrologists work very hard, in fact, harder than any other specialists except cardiologists. However, they make $140,000 less than cardiologists. When the MGMA data is expressed as total compensation per wRVU, it appears that nephrologists make the second lowest amount of money per wRVU compared to other specialists (note that the MGMA total compensation per wRVU is calculated with a complicated equation and that not all practices report both total compensation plus wRVUs so the reported values will be different than if you simply divide the mean total compensation by the median wRVUs for any given specialty).

There is a pretty sharp demarcation between the lowest paid specialties (geriatrics, endocrinology, rheumatology, infectious disease, and nephrology) and the highest paid specialties. The lowest paid specialties had the lowest percentage of fellowship positions filled with U.S. allopathic medical graduates. The one exception to this is palliative medicine but palliative is unique in that palliative physicians make about twice as much income per wRVU at $110.57 than the other specialties.

Another reason why newly trained residents may choose one specialty over another is how happy the physicians are in a given specialty. The 2018 Medscape Physician Compensation Report also has information on job satisfaction of physicians, including a survey question of “Would I choose the same specialty again?”. Once again, there is a relationship between job satisfaction and the percentage of residents who choose that specialty. The least happy internal medicine specialists are nephrologists (in fact, per the Medscape survey, they are the least happy specialty of all physicians, not just internal medicine specialties). Nephrology is also the specialty that filled the least of available positions with U.S. allopathic medical school graduates. So, if you choose to do 2 additional years of training compared to a general internist, you are rewarded by being 30% less happy with your job than a general internist. On the other hand, the three specialties with the most satisfied physicians are also the 3 specialties with the highest percentage of fellowship positions filled with U.S. allopathic medical school graduates (hematology/oncology, cardiology, and gastroenterology).

As we project the results of this year’s fellowship match into the future, we should anticipate future physician shortages in nephrology, geriatrics, infectious disease, and palliative medicine. Additionally, we should anticipate that there will be more nephrologists who are foreign medical school graduates than U.S. allopathic medical school graduates in the future based on the total number of U.S. versus foreign medical school graduates filling fellowship positions this year. Endocrinology and geriatric medicine are not far behind and in the future, your endocrinologist and geriatrician will probably be more likely to be an immigrant from another country than a graduate of a U.S. medical school.

If American medicine was an entirely free market economy, then as the supply of nephrologists, geriatric physicians, infectious disease physicians, and palliative medicine physicians goes down, then their salaries should go up. But physician supply and demand is complex and since it can take many years to train enough physicians to fill a specialty with a physician shortage, we may be looking at a medical economy with too few nephrologists, geriatric physicians, infectious disease physicians, and palliative medicine physicians for years to come.

An alternative explanation is that we have too many fellowship positions open in these specialties and that academic medicine is out of alignment with the needs of American medicine. Academic medical centers tend to create fellowship positions based on the needs of the individual divisions and departments within a given medical center and not necessarily based on the needs of the medical economy as a whole. This can also contribute to a misalignment of specialist supply and demand.

One thing seems certain, however. American nephrologists are less happy with their job, work harder in terms of wRVUs, and are compensated less per wRVU than other physicians. I believe that these are the reasons why so few physicians are entering the nephrology fellowship match and why so few nephrology fellowship positions filled in this year’s fellowship match. To insure that our patients’ medical needs are met in the future, hospitals will need to be sure that their nephrologists are happy and are compensated appropriately for the work that they do. On the other hand, gastroenterologists, hematology/oncologists, and cardiologists are the happiest and most highly compensated and this may explain why these three specialties filled so well in this year’s match.

February 26, 2019

In September, CMS released the financial penalties that hospitals will pay for excessively high percentages of readmissions within 30 days of discharge. This is an annual event when hospitals get to find out how much their reimbursement from Medicare will be cut the next year. CMS focuses on 6 diagnoses when calculating the readmission penalty:

1. COPD
2. Coronary artery bypass surgery
3. Myocardial infarction
4. Heart failure
5. Knee and hip replacement surgery
6. Pneumonia

CMS looks at readmission data from July 2014 through June 2017. The penalties go into effect October 2018 and continue through September 2019. This year, 3,173 hospitals were evaluated and 2,599 (82%) were penalized. Certain classes of hospitals were exempt from evaluation including children’s hospitals, Veterans hospitals, hospitals in the State of Maryland, psychiatric hospitals, and critical access hospitals.

In the past, hospitals that take care of low income patients were penalized more than hospitals that take care of high income patients. For that reason, safety net hospitals and academic hospitals tended to get penalized more highly than other hospitals, in other words, hospitals got penalized for taking care of the poor. CMS overcame some of the limitations of previous years’ penalties by comparing hospitals to other hospitals that have similar patient demographics, rather than comparing all hospitals in the U.S. together. They calculated the number of dual eligible patients (those who have both Medicare and Medicaid) divided by the total number of Medicare patients. Because dual eligible patients are generally lower income than patients with Medicare only, this permitted CMS to compare hospitals that care for similar percentages of low income patients This is an improvement over previous calculations since lower income patients have higher 30-day readmission rates regardless of how good or bad their care was during their initial hospitalization. CMS stratified hospitals into 5 groups based on this calculation. Group 1 had 0-15% dual eligible patients whereas group 5 had 30-100% dual eligible.

The total amount of the penalties for next year is $566,000,000. Hospitals can be penalized a maximum of 3% of their entire Medicare revenues for that fiscal year but nationwide, the average penalty was 0.70%. There are 47 hospitals that incurred the maximum 3% penalty: Texas having the most at 8 hospitals, followed by Louisiana, Missouri, and Kentucky with 4 hospitals each. Here in Central Ohio, our hospitals all did quite well with only minimal penalties:

1. Dublin Methodist – 0.03%
2. Ohio State University – 0.06%
3. Riverside Methodist – 0.17%
4. Mt. Carmel West – 0.17%
5. Grant – 0.23%
6. St. Ann’s – 0.23%
7. Doctor’s – 0.44%

States that expanded Medicaid have more hospital closures than states that did not expand Medicaid so one might hypothesize that hospitals in Medicaid expansion states would have more financial resources to put into reducing readmissions. So, I spent a few hours with an Excel spreadsheet of the 2019 Medicare penalties for all hospitals in the U.S. and it turns out that there was no difference in the average penalty incurred by hospitals in Medicaid expansion states versus hospitals in non-Medicaid expansion states.

So, overall, next year’s readmission penalties will be more fair than last year’s. But hospitals cannot control everything that a patient does or does not do once they leave the hospital and so the responsibility for fully reducing 30-day readmissions cannot lie solely on the hospitals.

November 24, 2018

The Affordable Care Act is the piece of legislation that Americans simultaneously both love and hate. Americans love not being excluded from health insurance if they have pre-existing conditions but hate being forced to buy health insurance if they don’t want to. And so, there has been an effort to eliminate the individual mandate to buy insurance while preserving the the inability of insurance companies to deny coverage for pre-existing conditions. I think this is a great idea – every body wins… right?

Just think, now you can wait until you get sick before you have to buy health insurance! You can go for years without paying insurance premiums and then when your knee finally starts to give out, you can buy health insurance that year and get a knee replacement and then charge it to Blue Cross. While you’re at it, you can go ahead and get your screening colonoscopy, your mammogram, your cholesterol check, and your shingles vaccine all in that year while you are covered under your insurance policy. And then at the end of the year, you can opt out of health insurance and then not buy it again until 6 year later when you need the other knee replaced!

This is such a great idea, just think of how well it would work if we applied it to other forms of insurance:

Life Insurance. Americans will be delighted to not have to buy life insurance until they are already dead. Gone will be all of those years of having to pay life insurance premiums when you don’t die. Death is the ultimate pre-existing condition. This will save the average person tens of thousands of dollars in premiums over their lifetime.

Automobile Insurance. The average American pays $1,400 per year for car insurance. By not having to buy automobile insurance until you actually have a car wreck, we can now spend that $1,400 every year buying consumable goods and we will put our nation’s economy into hyperdrive. The average person is involved in 3 – 4 car accidents during their lifetime so that means that we would only have to buy automobile insurance for three or four years. And if you couple that with our new plan for life insurance, you can save twice as much by not having to buy either one until you are in a fatal car wreck!

Malpractice Insurance. Here in Ohio, internists pay an average of $14,00 per year for medical malpractice insurance. In New York City, it costs the same internist $36,000. And if you are an obstetrician in New York City, it will cost you $215,000 per year for malpractice insurance. By applying the same principle of pre-existing condition and individual mandates to doctors, we would no longer have to buy malpractice insurance until we are actually sued.

Umbrella Insurance. Every physician should have an umbrella insurance policy. Doctors have a big red bull’s eye painted on their backs that every personal injury attorney in the country can see. And so most physicians have a $1 million umbrella insurance in case one of those personal injury attorneys’ clients slips and falls on the physician’s driveway or is involved in a car accident with the physician. With this new insurance principle, doctors all across America can stop shoveling the snow from their sidewalks and if some pedestrian slips and breaks their hip, the the doctor can call his insurance agent and buy a quick $200,000 umbrella policy. If that pedestrian falls and breaks both hips, then you can buy a $400,000 umbrella policy.

Disability Insurance. Just about all physicians younger than age 55 need to buy disability insurance. But by eliminating the pre-existing condition & individual mandate requirements, we would no longer need to buy disability insurance until we are actually disabled.

Travel Insurance. No one really thinks that they are going to be in a plane crash. So I have a great idea – an app for your phone for travel insurance. Let’s face it, you don’t really need travel insurance if you actually get to your vacation destination. But with the new travel insurance app, if you hear your pilot say over the intercom, “Brace for impact”, in just seconds, you can open your app and buy travel insurance, before your plane actually crashes!

The way you keep health insurance premiums down is by selling it to as many healthy people as possible – it is the fundamental basis of actuarial science. If the only people who have to buy health insurance are those who are already sick or likely to become sick, then premiums will skyrocket. You can’t have the pre-existing condition clause without some element of an individual mandate.

November 13, 2018

Last week, CMS released the final rule for the 2019 Medicare Physician fee schedule. The initial proposed fee schedule was released last summer and would have radically changed the way that physicians are paid for outpatient clinical practice. There was a lot of criticism of the proposed fee schedule with most professional medical societies opposing it. To give CMS credit, they listened to the critics and modified the fee schedule accordingly. The end result is that not much will change in how physicians are paid next year.

At the core, the proposed fee schedule was going to establish a single CPT code for all new patient visits with a physician and a single code for all return patient visits with a physician. Thus, the current CPT codes 99202 – 99205 (new patient visits level 2 – 5) would be collapsed into a single CPT code. Similarly, the current CPT codes 99212 – 99215 (return patient visits level 2 – 5) would be collapsed into a single CPT code. The advantage of this is that it would have reduced documentation requirements, therefore reducing physician work. The disadvantage is that physicians would be paid the same amount for seeing and caring for a new patient with a cold as they would for seeing a patient with newly diagnosed breast cancer. Therefore, physicians who mainly take care of relatively simple medical problems would be winners whereas physicians who take care of a lot of complex medical problems would be losers. Since my outpatient practice is primarily limited to interstitial lung disease (a complex medial problem), I estimated that my total Medicare income would drop by 12%. In the outpatient world, about half of total income goes toward overhead expense and half goes toward paying the doctor – since overhead expenses would not change and would still have to be paid, the net effect of a 12% reduction in total Medicare revenue is that my personal income from seeing Medicare patients would drop by 24%.

After realizing this unintended consequence of the proposed 2019 Medicare Physician Fee Schedule, CMS decided to leave the current level 2 – 5 new and outpatient CPT codes in place and not consolidate them into single codes… at least for now. Instead, CMS plans to institute a revised version of this plan in 2021. The revised plan will consolidate level 2 – 4 outpatient visits into a single CPT code and leave the level 5 outpatient visit CPT code. Thus, instead of being 4 outpatient billing levels for physicians, there would only be 2 outpatient billing levels. The advantage is that there would less documentation requirements for all of the the lower level visits, thus freeing physicians from what is seen as a lot of unnecessary documentation in progress notes that requires a lot of physician time but adds nothing to the care of the patient.

The proposed 2019 Medicare Physician Fee Schedule would have also significantly reduced payment to podiatrists. However, the final schedule did not change podiatry reimbursement.

The proposed physician fee schedule was also going to cut by 50% the reimbursement for doing a procedure on the same day as an office visit. Therefore, a physician who saw a new patient and then did an EKG would only get paid 50% of the normal reimbursement for the EKG. This would have greatly impacted my practice since many (or most) of my patients get pulmonary function tests immediately before seeing me so that I can determine their response to treatment. In order to continue to be paid full reimbursement for these procedures, they would need to be done on a different day, thus requiring the patients to come in on 2 different days rather than getting their test and their physician visit on the same day. This would be a minor annoyance for patients who live in town but a significant burden on those patients who live 2-3 hours away. Fortunately, CMS decided to not institute this proposal in 2019.

So, in the end, not will change when it comes to physician reimbursement. However, there will be 2 important new reimbursable CPT codes that will allow physicians to now be paid for some of the services that they have been providing patients for free up to now. These are two new codes that pay physicians for telemedicine services. Physicians provide a lot of care over the phone and through patient portals of the electronic medical record systems. Sometimes, patients call or use the patient portal because it is more convenient than coming into the office. Sometimes it is because the physician’s regular office schedule is booked up and the patients can’t get in to see the physician. Sometimes, it is because a medical problem arises at night or on the weekend when the office is closed. And sometimes it is because the patient doesn’t want to pay a co-pay to be seen in person with an office visit. Here are the 2 new codes:

1. G2012 – Brief communication technology-based service (virtual check-in). This will be used when a patient contacts the physician by phone or via an electronic medical record patient portal to decide if an office visit is needed. If the patient does end up coming into the office to be seen, you can’t bill the code but if the physician manages the patient’s condition by phone or via the patient portal without the patient coming into the office, you can bill the code. The patient cannot have seen the patient for a regular billable encounter for 7 days prior to the phone/portal encounter or for 24 hours after the phone/portal encounter. The medical discussion should be between 5 – 10 minutes. The patient will have to give verbal consent acknowledging that the telephone/portal visit will be billed. The patient must have been seen by the physician or a physician in the physician’s group within the past 3 years. This CPT code will be compensated at 0.25 work RVUs ($9.00).
2. G2010 – Remote evaluation of recorded video and/or images submitted by an established patient. This will allow a patient to send the physician a photo or video for that physician to decide if an office visit is necessary. As an example, if a patient sends their physician a photo of a rash and the physician makes a diagnosis and directs treatment for the rash without the patient actually coming in to be seen. Similar to the “virtual check-in” code, patients cannot have been seen within the 7 previous days or within 24 hours after the video/image review. The patient must be an established patient of the physician. The patient must provide verbal or written consent acknowledging that the service will be billed. This CPT code will be compensated at 0.18 work RVUs ($6.50)

Lastly, CMS is going to give physicians a raise from $35.99 per RVU to $36.04 per RVU. That is a 1/10th of 1 percent raise in case you wondered.

November 9, 2018