Hospital Finances Medical Economics Physician Finances

Beware Of Health Care Sharing Ministries

Health care sharing ministries are an alternative to regular health insurance but they are a poor substitute for most patients and an annoyance (at best) for most hospitals and physicians. The basic idea is that people of similar religious beliefs pool their money in order to help each other pay for their medical bills. The concept arose from Amish and Mennonite communities that do not normally participate in programs like health insurance.

As an example, a number of years ago, I was the attending physician in our medical intensive care unit when a young Amish man was transferred from a rural hospital with a cardiac sarcoma, a rare malignant tumor of the heart muscle that is usually incurable and fatal. He lived on a mechanical ventilator for a couple of weeks before dying and in the process, generated a huge medical bill. Like most Ohio Amish at the time, he did not have health insurance. A few months after his death, an older Amish man walked into the MICU carrying a bundle of cash and handed it to the unit clerk. Their community had taken up collections to pay for his hospital charges. This was their normal practice to pay for medical bills.

About 30 years ago, this concept expanded to other Christian communities in the United States and became known as health care sharing ministries (HCSMs). When the Affordable Care Act was passed in 2010, it was estimated that about 100,000 Americans participated in HCSMs but that number has grown to now more than 1.7 million Americans. Participants are attracted by the like-minded religious beliefs of other members and by the lower monthly costs compared to regular health insurance.

Any time the word “ministries” is included as an attributive noun, it implies that the other noun that it is describing is virtuous, righteous, and morally principled; however, all too often, HCSMs are anything but. Instead, HCSMs can limit patient access to healthcare, burden patients with unexpected healthcare costs, and leave physicians unpaid.

What is a health care sharing ministry?

There are currently 107 HCSMs certified by the U.S. Department of Health and Human Services. HCSMs are registered as 501(c)(3) non-profit charity organizations. Rather than paying monthly health insurance premiums, participants pay monthly membership fees. These fees are usually less expensive than health insurance premiums. Membership is limited to people who share a common religious faith and often must attest to regular attendance at a specific church. Because they are not considered to be regular health insurance companies, HCSMs are not regulated by state insurance commissioners in most states. When participants incur medical bills, they then submit those bills to the HCSM for payment.

There are a number of coverage restrictions. HCSMs can decide what conditions they will and will not cover and frequently do not cover healthcare expenses for conditions that they find morally objectionable, such as abortions, out-of-wedlock maternity expenses, contraception, sexually-transmitted diseases, obesity-related conditions, or smoking-related diseases. HCSMs are also not required to cover pre-existing conditions or cap out-of-pocket costs.

The problem with health care sharing ministries

On the surface, HCSMs sound like a fabulous idea – it is like getting health insurance without having to pay for all of the bureaucratic overhead costs. Furthermore, it eliminates having to pay for other members’ healthcare costs that are incurred by “immoral” behavior. But there is a dark side of HCSMs that can be financially ruinous to patients. Here are some of the specific problems with HCSMs:

  1. They do not have to cover pre-existing conditions. Most HCSMs will have definitions of pre-existing conditions such as any disease that you have had to be treated for anytime in the past 3-5 years. As a result, participants tend to be young, otherwise healthy individuals whereas older people who are more likely to have diabetes, hypertension, or high cholesterol can be denied. Some HCSMs will cover the care of certain pre-existing conditions (such as hypertension) but those participants are charged a higher monthly fee.
  2. Many conditions are not covered. Each HCSM can decide what conditions will and will not be covered. Some of the common uncovered conditions include those that result from tobacco use, drug abuse, alcohol use, obesity, or “non-Biblical lifestyles”. Most HCSMs do not cover mental health expenses. Durable medical equipment is often not covered. Most HCSMs will have a limit on the number of months any new medical condition will be covered – for example, only covering the first 3 months of prescription medications for newly diagnosed diabetes.
  3. Maternity care is often limited. Pregnancy is considered a pre-existing condition by most HCSMs and so they will not pay maternity expenses for the first 10 months of a participant’s membership. In addition, maternity costs are often only covered for married women. Abortions are generally not covered, with no exception for rape.
  4. Preventive care is generally not covered. This can include regular physical exams, check-ups, health screenings, cancer screenings, well-child visits, and vaccinations.
  5. Provider network restrictions. Some HCSMs will only cover expenses from in-network physicians and hospitals. These are usually very limited in number, making it difficult for participants to find a participating doctor. This is especially true if the participant requires hospitalization and may not have a choice in their ER physician, surgeon, hospitalist, anesthesiologist, radiologist, or pathologist. Other HCSMs will allow participants to see any physician and then the HCSM will attempt to negotiate fees with the physician or hospital after the fact.
  6. Participants get charged “standard charges”. Every hospital and every physician group has publicized standard charges for every service and procedure. The thing is that the only people who have to pay standard charges are those who are uninsured – patients with health insurance always pay less. The reason is that every health insurance company will negotiate contracts with every hospital and every physician group and those contracts will include an agreement for the maximum amount that the insurance company will pay for every service and procedure. If the hospital’s “standard charge” is less than the insurance company’s contractual limit, then the patient and the insurance company only has to pay the standard charge. However if the standard charge is higher than the contractual limit, then the patient and the insurance company only have to pay the amount of the contractual limit. Because of this, every hospital and every physician group in the country sets their “standard charge” higher than the most that they can get from their highest-paying insurance company contract. To put this in perspective, most hospitals and physician groups set their standard charges at several times higher than the maximum amount that Medicare will pay. In other words, no one with health insurance pays the sticker price – only the uninsured pay the sticker price. HCSM participants are considered to be uninsured so they have to pay the standard charge amounts. The result is that HCSM members get charged a lot more for any given service or procedure than people with health insurance are charged.
  7. No guarantee of payment. The HCSMs are not legally obligated to pay for medical bills. In months when the member fees are less than the members’ health expenses, the members may only receive a prorated amount of the funds to cover their healthcare bill. As a result, the members never know up front how much of their medical bill will be covered by the HCSM and how much they will be responsible for themselves.
  8. The maximum coverage amount is usually capped. Most HCSMs will have a maximum amount that will be paid for any given participant’s healthcare costs – for example, a $50,000 per year and $1,000,000 lifetime limit. Any healthcare costs above these limits are the responsibility of the individual participant. When being billed “standard charges” by the hospital and the physicians, few patients can get through an ICU admission for less than $50,000.

HCSMs are bad for doctors and hospitals

One of the most basic metrics in healthcare finance is the number of days in accounts receivable (AR). This is how many days it takes to get paid after a bill is sent out and generally ranges between between 30 – 70 days. If your average days in AR is greater than 50 days, it is a sign of problems in your revenue cycle department. As the treasurer of our Department of Internal Medicine, I would monitor our days in AR every month. For insured Americans, the hospital (or doctor) first sends the bill to the insurance company (or Medicare) and then bills the patient for the amount of their co-pay or deductible. Medicare and insurance companies are generally pretty quick in getting those bills paid. But with HCSMs, the patient gets billed and not the HCSM. The patient then submits their bill to the HCSM to have the their bill “shared” with the other HCSM participants. This process can take months and as a result, days in AR can skyrocket.

The patient is responsible for the doctor bill or hospital bill and will be charged the amount of the “standard charges”. This is often tens of thousands of dollars that most people do not have sitting in their checking accounts. HCSMs will often advise their members to request that the bill get written off as charity care or to set up a payment plan with the doctor or hospital rather than pay the full amount of the bill. That way, the member does not have to pay the full amount of the standard charges all at once and can spread out payments until the HCSM determines whether it will cover the bill and if so, how much of the bill it will cover. If the patient does not initially pay their medical bill on time with out-of-pocket funds, then the hospital or physician group typically sends that bill out to a collection agency which takes a percentage out of whatever money it collects on that bill, reducing the amount that the doctor or hospital ultimately gets paid. If the patient sets up a monthly payment plan, then the hospital or physician group’s cash flow suffers since payment may be spread out over a year or longer. In addition, the hospital or physician group has to pay someone to send out the monthly payment plan bills to the patient and monitor whether or not the patient actually pays those bills – this adds additional overhead expenses in the revenue cycle department.

For catastrophic illnesses, the HCSM will have a limit on the amount that it will cover, for example, $50,000.Once that limit is exceeded, the patient becomes responsible for everything over that amount. This can often be considerably more than patients have in savings with the result that they have to sell some of their assets in order to pay their medical bills. This can result in very late payment to the hospital or physician group and can result in legal fees incurred by the hospital or physician group. As an example, I had a patient who was a healthy farmer in his 40’s that decided to go without health insurance. He unexpectedly developed pancreatitis complicated by respiratory failure and was in the ICU for several weeks. If he had health insurance, the negotiated charges would have been about $300,000 and he would have had out-of-pocket co-pay expenses of a few thousand dollars. But since he was uninsured, we legally had to bill him the hospital’s standard charges which totaled more $1 million. He eventually had to sell the farm that had been in his family for generations in order to pay his medical bills and it took the hospital 2 years to finally get paid.

Many HCSMs will negotiate fees on behalf of their members, but only after the member submits their medical bills. This can result in a lot of frustrating haggling between the HCSM and the hospital or doctor. It would be like trying to run a restaurant and having the customers trying to negotiate a lower price for their meal after they have finished eating. Any business prefers to negotiate the price of a service before they provide the service rather than several months after they provide that service; doctors and hospitals are no different.

HCSM lessons from Ohio, Missouri, and Colorado

Liberty Healthshares is an HCSM based out of Ohio. It served 70,000 Christian faith families between 2014 and 2020. It had an annual budget of $56 million and employed 470 workers. Members sued Liberty alleging failure to pay for medical bills and that Liberty funneled money to the company’s founders. The State Attorney General additionally reached a settlement agreement with Liberty agreeing to pay thousands of dollars in fines. Last year, ProPublica reported that the family that founded Liberty used tens of millions of dollars of members’ monthly fees to buy the family a marijuana farm, $20 million in real estate, and a private airline company. Since it was an HCSM, it was not subject to the regulatory oversight required of traditional insurance companies and as a result, it got away with misuse of funds for years.

Medical Cost Savings was an HCSM based out of Missouri. Last year, its founder pleaded guilty in federal court to an $8 million wire fraud conspiracy that cheated hundreds of members. Medical Cost Savings paid only 3.1% of healthcare claims and in some years paid none of its claims at all. The founder and his co-conspirators pocketed more than $5 million.

Colorado is unique among states in that it requires financial reporting by HCSMs operating in the state. In the most recent annual report by the Colorado Department of Regulatory Agencies, Colorado HCSMs collected $78 million in annual membership fees in 2022 and paid out $66 million to cover members’ medical bills. However, in that same year, members submitted $180 million in healthcare bills to these HCSMs. In other words, the HCSMs only paid 37% of submitted medical bills. In Colorado, HCSMs used advertising, social media, and “producers” (independent brokers) to recruit new participants. Four of the 16 HCSMs operating in Colorado reported the amount they paid these producers, totaling $1.8 million. HCSMs also reported marketing themselves to employers to offer to their employees. Some HCSMs required members to first request charity care and financial support from local governments and consumer support organizations in paying the member’s health care bills before the HCSM would consider paying those bills.

Caveat emptor

Let the buyer beware is nowhere more pertinent than health care sharing ministries. Operating outside of the insurance regulatory environment, they can pretty much cover whatever healthcare costs they choose to cover and are particularly susceptible to fraud and abuse of funds. Although most HCSMs are legitimate non-profit organizations run by well-meaning members of religious faiths, some are run by scammers who prey on the devout by appealing to their faith-based values.

So, are HCSMs appropriate for anyone? The only people who should even consider using an HCSM instead of health insurance are those who are young, have no medical conditions, take no medications, are not obese, do not have sex outside of marriage, are non-smokers, non-drinkers, and are willing to pay for their preventative healthcare out-of-pocket. Even then, if you are hospitalized for a serious injury, diagnosed with a chronic disease like cancer, or hospitalized with an unexpected serious infection then it could still cost you hundreds of thousands of dollars and result in financial ruin. Using an HCSM is better than being totally uninsured, but not by much.

For hospitals and physicians, taking care of patients who use HCSMs causes an additional overhead expense and often results in no payment at all. In the best of circumstances, the HCSM results in a delayed payment for services rendered that puts an added burden on the revenue cycle staff. As a doctor, I’ll take a patient with regular medical insurance over a patient with an HCSM any day. Even Medicaid beats an HCSM.

January 13, 2024

Medical Economics

Helping Patients Understand Medicare Part D

Health insurance in the United States is confusing… really confusing. And it gets even more confusing once a person is eligible for Medicare. In the past, Medicare did not cover outpatient prescription medications. However, in 2003, President George W. Bush signed the Medicare Modernization Act that provided a mechanism for prescription drug coverage for American seniors by the creation of Medicare Part D. Today, 50.5 million Americans receive prescription drug benefits through Medicare Part D. But navigating the Part D options can be difficult – and even treacherous.

Categories of Medicare Part D

Overall, 88% of Medicare enrollees have some type of prescription drug insurance. Most have a Medicare Part D plan but about a million Medicare enrollees have drug coverage through employer-sponsored retiree plans and a few million have coverage through federal plans such as the Veterans Administration or TRICARE. Medicare itself does not administer Part D plans – instead, Medicare contracts with various commercial insurance companies to sell and oversee Part D plans. There are four ways of obtaining Part D coverage:

  • Non-employer Prescription Drug Plans. These are “stand alone” plans that seniors electively sign up for. Medicare divides the country into 34 different prescription drug plan regions and insurance companies must offer coverage to all Medicare beneficiaries in the given region that it serves. Each insurance company is given an identifier code consisting of four numbers preceded by the letter “S”. This is followed by a hyphen and then a three digit code that corresponds with each of the various prescription drug plan options offered by that particular insurance company. So, for example, United HealthCare sponsored the AARP Preferred Plan and is coded as S5820-004.
  • Non-employer Medicare Advantage Prescription Drug Plans. These are Part D plans that are provided to seniors enrolled in various Medicare Advantage Plans (“Medicare Part C”). This essentially combines Medicare Part C with Medicare Part D. Seniors who enroll in these Medicare Advantage Plans are automatically enrolled in the corresponding Part D plan and generally cannot opt out. In fact, if a senior enrolled in a Medicare Advantage plan signs up for a separate Part D drug plan, they will be disenrolled in the Medicare Advantage plan and returned to basic Medicare parts A and B. These drug plans have a similar identification code but start with the letter “H” instead of the letter “S”. Making things even more confusing is that some organizations will have both a Medicare Advantage plan (without drug coverage) and a separate stand-alone Medicare Part D plan. The best way to determine which one a person has is to see if the drug plan starts with an “S” or an “H”.
  • Employer-only Group Prescription Drug Plans. These are only available to a specific employer’s (or union’s) employees so seniors not working for that employer cannot enroll in these drug plans.
  • Employer-only Group Medicare Advantage Prescription Drug Plans. These are also only available to a specific employer’s (or union’s) employees. Their identification code starts with the letter “E”.

When Medicare Part D was first rolled out in 2006, most Part D prescription drug plans were “stand alone” plans, accounting for 73% of all Part D plans. In 2023, most Part D prescription drug plans were provided through Medicare Advantage plans (56%) and stand-alone plans fell to 44%.

In the past, prescription drug coverage was available through some Medicare Supplemental Insurance policies (also known as “Medigap” policies). These were sold by private health insurance companies to cover what Medicare does not cover. However, Medigap policies can no longer be sold with drug coverage so seniors who purchase a Medigap policy must also purchase a separate Part D prescription drug plan.

When can seniors sign up for a Part D plan?

There are only certain times of the year that a Medicare enrollee can sign up for a Part D plan or switch to a different Part D plan:

  • At age 65 when initially enrolling in Medicare Parts A and B.
  • During the annual open enrollment period between October 15 and December 7.
  • During the annual Medicare Advantage open enrollment period between January 1 and March 31. This is only for seniors who are already enrolled in a Medicare Advantage plan and want to switch to a different Medicare Advantage plan or switch from their Medicare Advantage plan to basic Medicare Parts A and B plus a stand-alone Part D drug plan.
  • During a “special enrollment period”. This is only for certain life situations, such as moving to a new address, losing or changing one’s current health insurance coverage, or getting Medicaid.

During the regular open enrollment period, seniors are inundated with phone calls, emails, and letters from insurance companies that administer Medicare Advantage plans and Part D drug plans. These are sales pitches to try to get seniors to enroll or switch to that company’s plans. This is where I have seen many of my patients make costly mistakes – often switching to a lower cost Part D plan only to later find that the new plan does not cover their particular prescription medications.

Choosing a Part D prescription drug plan

Fortunately, Medicare has a very good on-line tool to help seniors choose a Part D prescription drug plan. These are the instructions to tell your patients:

  • First, enter your zip code.
  • Next, choose whether you want to see Part D plans (stand-alone) or Medicare Advantage plans (the Medicare Advantage plans may include their own Part D drug coverage).
  • Next, enter all of the prescription medications that you take including dose and the number of pills used per month.
  • Next enter your pharmacies. Because different Part D plans will have different “in-network” and “out-of-network” pharmacies, it is best to enter all of the various pharmacies in your area and also include mail-order pharmacies. Costs for medications at out-of-network pharmacies can be thousands of dollars more than in-network pharmacies.
  • This will then bring up a list of all of the Part D (or Medicare Advantage plans) in your area. Each plan will show the monthly premium, the annual deductible, and the monthly drug cost at each of the pharmacies that you previously entered. For many patients, trying to weigh the amount of the monthly premium against the amount of the deductible and the cost of the drugs can be very difficult. The good news is that the on-line tool shows the patient exactly how much they will pay each month for their medications when the costs of the premiums, drugs, and deductibles are all factored together. This “bottom line” amount is very helpful when choosing a specific Part D plan.

Overall cost is an important reason but not the only reason to choose one Part D plan over another. Each plan is also given a star rating score ranging from 1 to 5. This score is based on customer service, enrollee satisfaction, enrollee complaints, ease of getting prescriptions, and drug safety measures. Many patients will place greater value on a high star rating than a low overall cost.

The best plan for one person may not be the best plan for another person, depending on their different drug prescriptions. Therefore, every member of a household who is enrolled in Medicare should do their own search for Part D plans or Medicare Advantage plans. In many cases, it is prudent for spouses to each have plans from different insurance companies.

Drugs that are not covered

Each insurance company sponsoring a Part D prescription drug plan has its own formulary of covered drugs. A drug that is covered by one insurance company’s formulary may not be covered by a different insurance company’s formulary. Moreover, insurance companies change their formularies every year. Many patients do not factor this into their decision-making when switching to a different Part D plan and every January, physicians scramble to change their patients’ prescriptions from a previous medication to a new similar medication that is on the patients’ new formularies. But in addition to insurance company-specific formularies, there are certain classes of medications that are not covered by any Part D plans including:

  • Over-the-counter drugs.
  • Drugs for weight loss or gain, even if used for non-cosmetic purposes, such as to treat morbid obesity.
  • Cough and cold preparations, when prescribed for symptomatic relief only.
  • Fertility drugs.
  • Erectile dysfunction drugs.
  • Cosmetic and hair growth drugs.
  • Drugs purchased in another country.
  • Vitamins and minerals, except niacin products, Vitamin D analogs (when used for a medically accepted indication), prenatal vitamins and fluoride preparations.
  • Drugs that are covered under Medicare Part A or Part B (see below).

And to add to the complexity… In certain situations, medications are not covered by Medicare Part D but are instead covered under a different part of Medicare or covered by the patient.

  • Inpatient hospitalization. Medications given during inpatient hospital stays are covered by Medicare Part A (and not Part D).
  • Skilled nursing facilities. These stays are considered as inpatient stays. Thus, medications are covered by Medicare Part A.
  • Hospice. Medications given for symptom control or pain relief when a patient is enrolled in hospice are covered by Medicare Part A.
  • Observation status. When a patient has a hospital stay that is considered “observation status”, it is covered by Medicare Part B (and not Part A). Medications given during an observation stay are covered by Medicare Part D. But medications given while in the hospital are administered through the hospital’s inpatient pharmacy and inpatient pharmacies are considered out-of-network for Medicare Part D. Because of this out-of-network status, patients typically have a significant out-of-pocket cost for medications they receive in the hospital during an observation status stay.
  • Outpatient intravenous drugs. Medications that are typically administered in a physician office (rather than being self-administered at home) usually fall under Medicare Part B. These include intravenous chemotherapy drugs given for cancer and intravenous biological drugs given for rheumatologic diseases.
  • Drugs delivered via DME (durable medical equipment) devices. Medications given via a home infusion pump or a nebulizer are covered by Medicare Part B. These include insulin when given by an insulin pump and albuterol when given by a nebulizer.
  • Vaccines. Most vaccines are covered by Medicare Part D plans. However, four vaccines are covered by Medicare Part B instead. These include vaccinations for: influenza, pneumococcal pneumonia, hepatitis B, and COVID. There are a few other uncommon exceptions where vaccinations are covered by Medicare Part B, such as rabies vaccinations if a person is bitten by an animal. Regardless of whether a vaccination is covered by Medicare Part B or Part D, there is no out-of-pocket co-pay for any vaccination recommended by the CDC.
  • Miscellaneous drugs covered by Part B. There are numerous other carve-out exceptions to Medicare drug coverage. In these situations, mediations are covered by Part B (and not Medicare Part D), even when self-administered in the patient’s home. These include:
    • Intravenous immunoglobulin
    • Blood clotting factors for hemophilia
    • Injectable osteoporosis drugs
    • Renal dialysis drugs
    • Oral chemotherapy drugs
    • Oral anti-nausea drugs used for chemotherapy nausea
    • Immunosuppressive drugs for organ transplant
    • Leqembi (a new Alzheimer’s drug)
    • Intravenous feedings and tube feedings

These exceptions are important because they will fall under the Medicare Part A or Part B co-pay and deductibles. For patients with basic Medicare Parts A and B, these costs can be considerable. For patients who additionally have a Medigap policy or who are enrolled in a Medicare Advantage plan, the out-of-pocket costs will vary depending on the terms of their specific policy.

The “donut hole”

This is often referred to as the “coverage gap”. This happens when some patients have a temporary limit on how much the Part D plan will pay for prescription medications. The coverage gap begins after a patient and their drug plan have spent a certain amount for covered drugs ($5,030 in 2024). When the patient enters the coverage gap, drug costs get complicated. While in the coverage gap, the patient is responsible for 25% of the cost of a brand name drug, the manufacturer is responsible for 70% of the cost of the drug, and the insurance company is responsible for 5% of the cost of the drug. In addition, there is a dispensing fee for each drug – 75% of this fee is covered by the insurance company and 25% is covered by the patient. Generic drugs are handled differently in the coverage gap – the patient still pays 25% of the cost but the Part D plan covers the other 75% of the cost.

Once the total out-of-pocket amount paid by the patient exceeds $8,000 (for 2024), the patient moves out of the coverage gap and into “catastrophic coverage”. This means patients only have to pay a minimal copayment (generally 5% or less) for covered Part D drugs for the rest of the calendar year in 2024. However, in 2025, the Medicare Part D out-of-pocket costs will be capped at $2,000!

Once again, the good news is that Medicare’s on-line Part D tool factors in the coverage gap (if any) to show patients how much they will pay for each of their medications for each month of the year.

Some drugs will be cheaper in the future

In 2024, all Medicare Part D plans will include a cap on the price of insulin of $35 per month. Beginning in 2026, Medicare will negotiate prices directly with manufacturers for ten common (but expensive) Part B and Part D drugs:

  • Eliquis
  • Jardiance
  • Xarelto
  • Januvia
  • Farxiga
  • Entresto
  • Enbrel
  • Imbruvica
  • Stelara
  • Fiasp; Fiasp FlexTouch; Fiasp PenFill; NovoLog; NovoLog FlexPen; NovoLog PenFill

Medicare will expand the number of Part B and Part D drugs subject to subject to price negotiation each year thereafter. By having Medicare negotiate these prices (rather than individual health insurance companies), Medicare can leverage its buying power to lower the cost of these drugs to enrollees.

It’s complicated…

During a person’s working years, health insurance is fairly straight forward – you either get insurance through your employer or purchase it through the federal government’s Health Insurance Marketplace. These health insurance plans are comprehensive and cover outpatient care, inpatient care, and prescription medications. However, once a person turns 65-years-old, health insurance becomes much more complex. Seniors have to sign up for basic Medicare Parts A and B. But basic Medicare only covers some healthcare costs, in particular it does not cover outpatient prescription medications. So, seniors have to decide whether to purchase an additional Medigap policy plus a stand-alone Part D plan or to purchase a Medicare Advantage plan that includes drug coverage, which is essentially a Medigap policy bundled with a Part D plan. Or, patients who are lower income may qualify to have both Medicaid plus Medicare. Or, patients may elect to just go with basic Medicare Parts A and B and then pay for any additional costs out-of-pocket. Given the high costs of healthcare and given that healthcare needs are often unpredictable after age 65, most seniors either opt to purchase a stand-alone part D plan or a Medicare Advantage plan with drug coverage.

As physicians, it is our responsibility to advise patients in a fiduciary manner. Frequently, we are the only ones who provide unbiased advice when it comes to choosing between different Medicare Part D plans or Medicare Advantage plans. Therefore, it is incumbent on all physicians to understand how these plans work and how various plans differ.

December 19, 2023

Medical Economics Physician Finances

Impact of the 2024 Medicare Physician Fee Schedule

The final 2024 Medicare Physician Fee Schedule was published yesterday in the Federal Register. The fee schedule will impact different specialties differently and as usual, there were some winners and some losers but mostly losers – all physicians will see a reduction in their total Medicare reimbursement. The entire fee schedule is a 1,230 page document. Here are some of the key take-aways.

Summary Points:

  • The conversion factor will drop by 3.4% to $32.74 per RVU
  • Primary care physicians will get a supplement to outpatient E/M codes by using CPT code G2211
  • Telemedicine did not get cut
  • Different specialties will see different changes to their Medicare payments ranging from +3% to -4%
  • Caregiver training will now be covered by Medicare
  • There is better clarification of whether a physician or advance practice provider should submit a bill for split/shared encounters
  • Medicare will provide a $38.55 supplement for 4 different vaccines when given in a patient’s home


Overall lower reimbursement

The single most important item that affects how much physicians get paid is the annual conversion factor. This is the amount that Medicare pays physicians per RVU. In brief, each service or procedure performed by a physician is assigned a number of RVUs (Relative Value Units) that correspond with the complexity and amount of time it takes to perform that serve or procedure. There are 3 subcomponents of the RVU: a work RVU (physician effort), an expense RVU (overhead expense to perform that service or procedure), and a malpractice RVU (cost of malpractice insurance to perform that service or procedure). For example, a level 4 outpatient visit for a new patient is worth a total RVU of 5.44 (2.60 work RVU + 2.61 expense RVU + 0.23 malpractice RVU).

Every year, Medicare adjusts the conversion factor. Because Medicare is mandated to be budget-neutral, in most years Medicare reduces the conversion factor since there is not enough money to increase physician reimbursement while expanding Medicare coverage for new areas of spending. For 2024, Medicare will again lower the conversion factor, this time to $32.74, which is a decrease from 2023’s conversion factor of $33.89, 2022’s conversion factor of $34.61 and 2021’s conversion factor of $34.89. Thus, over the past 3 years, Medicare is has reduced physicians’ pay by 6.2%. During that same time, inflation has risen by 17.62%. To put these numbers in perspective, in 2021, an RVU could buy 9.8 gallons of milk but in 2024, an RVU will only buy 7.8 gallons of milk. This means that the purchasing power of 1 RVU has fallen by 20% since January 2021.

Given this rather enormous drop in the purchasing power of an RVU over the past 3 years, private practice physicians have few options to prevent lower income: spend fewer minutes with each patient or work more hours. Hospital-employed physicians require greater subsidy per physician from the hospital in order to overcome both inflation and the reduction in income generated by Medicare payments to the physicians.

Primary care got a boost

Primary care physicians have to do a lot of work behind the scenes to coordinate care among various specialists, fill out patient paperwork, negotiate with insurance companies for prior authorizations, answer phone calls, and respond to EMR patient portal questions. This additional work has not been compensated in the past. New for 2024 is an add-on CPT code, G2211, that accounts for this extra work performed by primary care practitioners after the patient leaves the office. It can be added onto most primary care office visit CPT codes, thus increasing Medicare payment for primary care services. Medicare estimates that it will eventually be used for 54% of all outpatient office visits that are billed using E/M codes. G2211 will be worth 0.33 RVUs (about $10.91).

Telemedicine did not get cut

The COVID pandemic resulted in Medicare loosening restrictions on telemedicine by allowing most outpatient E/M services to be paid when performed using telemedicine. Prior to the pandemic, telemedicine could only be performed in limited situations, such as when the patient lived in an isolated remote region of the country. During the pandemic, patients and physicians all throughout the country found that telemedicine was convenient, efficient, and in many situations just as effective as in-person office visits. In short, Americans liked telemedicine. As the pandemic has been winding down, there was fear that Medicare would revert to previous telemedicine restrictions, making telemedicine inaccessible to most patients and physicians. For 2024, Medicare has decided to extend the telemedicine waivers and will continue to pay for telemedicine through the end of 2024.

To bill for a telemedicine encounter, there must be both an audio and a video connection between the patient and the physician. This has been problematic for patients who lack high-bandwidth internet connections or lack video cameras on their computers or cell phones. In these situations, the encounter is generally converted to an audio-only telehealth encounter – essentially a phone call. In the past, Medicare would not pay for these phone calls but during the pandemic, Medicare did pay for phone calls when they were done as a telehealth encounter that substituted for an in-person office visit. For 2024, Medicare will continue to pay for audio-only telehealth encounters.

Prior to the COVID pandemic, telemedicine was difficult to perform in teaching settings since the resident and physician needed to be in the same physical location. For 2024, Medicare will permit the resident and the attending physician to be connected by video conferencing during a telemedicine encounter, thus permitting them to be in different locations.

Medicare had originally proposed that if a physician performed a telemedicine encounter from their home (rather than the office), that their home address would need to be registered on Medicare enrollment and billing forms. Presumably this would also apply to telemedicine encounters performed by a physician located in a hotel room, AirBNB, or family member’s home. An implication of this was that all of these various addresses would then need to also be approved by malpractice insurance companies as “medical practice locations”. This would place an enormous burden on physicians and practice administrators by adding a huge volume of paperwork to be completed anytime a physician performed a telemedicine encounter from any location other than their regular medical office. The good news is that Medicare decided to NOT make this requirement for 2024. Instead, when a physician performs a telemedicine encounter from their home, they can use their regular office as the site of service for billing purposes.

Changes in reimbursement for specialists

Every year, Medicare tinkers with the amount that it pays for any given service or procedure. 2024 is no exception and as a result, the RVUs for some services and procedures went up and for others, went down. Because of the budgetary net neutrality requirement, an increase in RVUs for one service must be accompanied by an equivalent decrease in RVUs for another service. The result of this is that some specialties will see an increase in their total annual Medicare allowable charges and other specialties will see a decrease in their allowable charges. Medicare estimates the impact of the 2024 Physician Fee Schedule on various specialties on page 79,468 of the Federal Register. The table below shows these estimates for selected physician specialties.

This table lists the charges by specialty, not the actual reimbursement. The change in charges ranges from +3% (endocrinology and family practice) to -4% (interventional radiology). When added all together, the charges have to total zero due to net neutrality requirements. The effect of the reduction in the conversion factor is on top of any changes to charges. Because the conversion factor will fall by 3.4% ($33.89 to $32.74), all specialities will actually see a drop in reimbursement. To see the actual estimated effect on Medicare reimbursement for any specialty, subtract 3.4% from the percentages in the table above.

New CPT codes

The American Medical Association creates CPT codes and then Medicare decides which codes will be reimbursed and the amount of RVUs assigned to each new CPT code. For 2024, the AMA announced that there will be 230 new CPT codes, 49 deleted CPT codes, and 70 revised CPT codes. This brings the total number of CPT codes to 11,163. It can take a while for a newly created CPT code to work its way through the RVU assignment process. The best resource to determine whether a CPT code is currently reimbursed by Medicare is the Medicare Physician Fee Schedule Look-Up Tool on the Medicare website. By entering a CPT, you can find out what the RVUs are for that CPT code and also the dollar amount that it reimburses. The 2024 data has not yet been entered into this on-line look-up tool but should be available in January 2024.

Although commercial health insurance companies tend to pay for the same CPT codes as Medicare, on occasion, a particular insurance company may reimburse for a CPT code that Medicare does not reimburse for. This adds a layer of complexity to the revenue cycle office of any medical practice. By billing for these CPT codes, the revenue cycle department accepts that there will be denials from those insurance carriers that do not reimburse for a particular CPT code. However, no one wants to leave money on the table from the insurance carriers that do cover that CPT code.

Caregiver training services now covered

New for 2024, Medicare will pay for providers to train caregivers (often family members). Although these codes will likely primarily be used by physical, occupational, and speech therapists, other providers (including physicians) can also bill for these services. These CPT codes should be used to support patients with certain diseases or illnesses (e.g., dementia) in carrying out a treatment plan. This can cover a broad range of skills, from assisting with activities of daily living to more complex tasks such as transfers, mobility, communication, and safety practices. These codes should be used when only the caregiver is present and the patient is not present.

  • CPT 97550 – first 30 minutes of caregiver training. It is valued at 1.00 work RVUs.
  • CPT 97551 – each additional 15 minutes of caregiver training. It is valued at 0.54 work RUVs.
  • CPT 97552 – group caregiver training. It is valued at 0.23 work RVUs.

Spit/shared evaluation and management services

Under Medicare, a service can be billed by only one practitioner, and if non-physician practitioners (for example, nurse practitioners) bill for a service, they receive only 85% of the physician rate. Frequently, a nurse practitioner will do an initial assessment and then the physician will follow the NP later to confirm the assessment and finalize management recommendations. In the past, it has been controversial about whether the bill for the service should go out under the NP or the physician in these situations when the clinical service is considered “split/shared”. In past years, Medicare has stated that it should be whichever of the two providers were responsible for the “substantive portion” of the visit but did not provide a good definition of substantive portion. For 2024, Medicare has defined “substantive portion” of a split or shared service to mean more than half of the total time spent by the physician and the non-physician practitioner. This should eliminate much of the administrative confusion.

The implication is that when physicians bill for split/shared visits, they should document that they performed the substantive portion in their progress note in case of a billing audit by Medicare carriers. Medicare carriers sometimes differ in their documentation requirements so physicians (or their billing staff) should check with their specific Medicare carrier to learn what chart documentation is sufficient. Most likely, it will be something along the lines of: “I personally performed more than 50% of the total time required for this split/shared visit in conjunction with the advance practice provider“. In other words, just one more lengthly phrase to clutter up progress notes in patient medical records.

Vaccinations given in a patient’s home

As a pulmonologist, I have personally given many influenza vaccinations to patients on mechanical ventilators during home visits. I have also given many flu shots to patients during home hospice visits. Those vaccinations were reimbursed at the same rate as if they were given in a physician office. In 2021, Medicare approved paying providers $35.50 extra to give COVID vaccinations in a patient’s home, over and above the usual charge for the vaccinations. This was done to encourage widespread use of the COVID vaccines, particularly in vulnerable patients who were confined to their home due to chronic disease.

For 2024, Medicare will continue to pay the supplemental reimbursement for COVID vaccinations given in a patient’s home and will also expand the list of vaccines that are eligible for this supplement to include pneumococcal pneumonia, influenza, and hepatitis B vaccines. This supplemental payment for 2024 will be $38.55 and will be added to the usual Medicare Part B payment of $32.57 for influenza, pneumococcal, and hepatitis B vaccinations and $43.43 for COVID vaccinations.

It will be harder to maintain a private practice

Over the past decade, it has become increasingly difficult for physicians to fund their salary from billing for professional services alone. Because such a large percentage of physician revenue comes from Medicare, the changes to the Medicare Physician Fee Schedule have played an out-sized role in the inability of physicians to rely on their billings alone. Currently, 33.4% of physician professional billing revenue in the United States comes from Medicare. Medicaid accounts for an additional 8.5%, private health insurance accounts for 38.4%, and out-of-pocket payments account for 7.6%. The remaining 12.2% is from other federal health programs such as the Department of Veterans Affairs, the Department of Defense, the Indian Health Service, and CHIP. The changes that Medicare makes to the annual Physician Fee Schedule are generally also made by other payers, especially Medicaid and the other federal health programs.

When adjusted for inflation, over the past 22 years there has been a 26% decline in Medicare payments to physicians During those same 22 years, there has been a 47% increase in medical practice expense. This reduction in physician income from professional billing coupled with this increase in overhead office expense has led to most physicians now being hospital-employed rather than in a private practice. As hospital-employees, physicians can receive monetary subsidies from the hospital in order to maintain salaries that cannot be supported by professional revenue alone.

Due to inflation during 2022 and 2023, we have seen many unions win contracts with double-digit wage increases for union workers whereas Medicare is reducing payment to physicians for clinical services. This further reduction in physician payments by Medicare in 2024 is likely to push even more physicians out of private practice and into hospital-employed models as private practice becomes increasingly unsustainable.

November 17, 2023

Medical Economics

Why Conservatives Should Fund Planned Parenthood

I know what you’re thinking about the title of this post: “Didn’t he mean defund Planned Parenthood?” No, you read the title right, I am going to make the argument that social conservatives should donate to and fund Planned Parenthood and similar organizations. The reason why? Because by funding Planned Parenthood, we can decrease the number of U.S. abortions. Now you’re thinking: “That makes absolutely no sense and he is totally crazy“. However, if we apply root cause analysis to U.S. abortions, it turns out to make perfect sense.

Sakichi Toyoda

Root cause analysis is the process that we use in hospitals to figure out why a medical error occurred in order to fix the root cause of that error. The father of root cause analysis was Sakichi Toyoda, a Japanese inventor and entrepreneur who invented the automatic power loom used in textile manufacturing. His company later evolved into the Toyota automobile manufacturing company. Sakichi Toyoda championed the 5 whys: when a manufacturing problem occurs, ask “why” five times to find the true source of the problem in order to correct it. The 5 whys are the basis of the principle of lean manufacturing, a method of improving production efficiency and are a key component of the Six Sigma manufacturing process improvement training program.

A case study using the 5 whys

The best way to understand the 5 whys is by looking at an example of how we use the process in hospital quality control. Let’s take a hypothetical hospital that finds it has a very high rate of post-operative surgical infections. Now, let’s ask the 5 whys and see what the hospital’s solution would be if it stopped before getting to the fifth and last why:

If we only ask 1 why, then the hospital’s solution to the high post-operative wound infection rate would be to close down the operating rooms on Thursdays. This would be terribly unpopular with the surgeons and anesthesiologists who would see a 20% drop in their billable income. The surgery schedule will get backed up with the result that patients become unhappy because they have to wait a long time to get their surgeries. And the hospital’s financial margin would suffer as surgical revenue falls. So, let’s ask a second why:

In this case, Thursday is the day that all of the orthopedic surgeons do their knee replacement surgeries during the Thursday orthopedic surgery OR block time. But if the hospital stops doing knee replacement surgeries, the orthopedic surgeons will be irate because that is one of their primary surgical procedures. Patients will be irate because they will have to go to another hospital to get their knee replacements. And the hospital chief finance officer will be irate because the hospital makes more money on knee replacements than any other surgery. How about the third why:

Drilling down further, it turns out that just one orthopedic surgeon, Dr. Smith, has all of the post-op knee replacement surgical wound infections. If we stop with the third why, then the solution is to take away Dr. Smith’s knee replacement surgery privileges. He will be upset and will have to re-tool his practice to start doing other types of orthopedic surgical procedures, such as hip replacement surgeries. And as we will see, this will not fix the root cause of the problem. So, we now go to the fourth why:

An astute epidemiology nurse discovers that Dr. Smith’s sterile surgical gloves frequently break in the middle of his operations, thus potentially contaminating the surgical field with the bacteria on his skin. Therefore, the medical director of infection control recommends that Dr. Smith double glove so that if the outer glove breaks, there is a back-up inner glove to prevent contamination. But what about if we go all the way to the fifth why:

By asking the final why, we determine that Dr. Smith has unusually large hands and he needs size #9 sterile gloves. But the operating room only stocks size #7 and #8 gloves so Dr. Smith has been using gloves that are too small. The result is that his gloves frequently break, causing his patients to frequently have infections. The root cause of the hospital’s post-op surgical infection rate was that the operating room was not stocking the correct size gloves. The solution was to stock large gloves in the O.R.

If the hospital stopped with the first why, the orthopedic surgeons would just operate on a different day. If the hospital had stopped with the second why, the orthopedic surgeons would just do surgeries other than knee replacements. If the hospital stopped with the third why, Dr. Smith would start doing hip replacements rather than knee replacements. If the hospital stopped with the fourth why, Dr. Smith would have breaks in 2 pairs of gloves instead of just 1 pair of gloves. In all four of these situations, there would have been no effect on the hospital’s post-op surgical infection rate. It is only when the hospital gets to the fifth why that the infection rate actually drops. Now let’s see how we can apply the 5 whys to the problem of abortion.

Abortion and the 5 whys

Just about every American, both conservative and liberal, will agree that we do too many abortions in the U.S. In 2020, there were 930,160 abortions performed in the U.S. To put this number in perspective, there were 350,000 COVID deaths in the U.S. in 2020, the first year of the pandemic. In other words, there were more than two and a half times more abortions than COVID deaths. Overall, 20.6% of all pregnancies ended in abortion and one out of every four American women has had an abortion at some time in her life. So our challenge is to reduce the number of abortions and to do that, we need to do a root cause analysis. So, let’s apply the 5 whys to the problem of abortion in the United States.

If we only ask the most superficial why, we determine that we have a lot of abortions in the U.S. because organizations like Planned Parenthood offer abortion services. When the U.S. was living in the era of Roe v. Wade, this was the approach taken by those opposed to abortion. Conservative states prohibited public funds to be used for abortion and created laws to make it as hard as possible for organizations like Planned Parenthood to perform abortions. But the 930,160 abortions performed in the United States in 2020 indicates pretty clearly that stopping at the first why did not significantly reduce the number of abortions in our country. So, let’s ask a second why:

With the Supreme Court ruling on Dobbs v. Jackson Women’s Health Organization a year ago, those opposed to abortion focused on the second why. The result is that many states have passed or plan to pass laws making it illegal for doctors to perform abortion in most situations. These laws will certainly stop doctors from performing abortions but they will not stop women from pharmacologically inducing abortions on their own and these laws will most certainly not get at the root cause. Now let’s see what happens at the third why:

Here, we find that the doctors were not actively seeking women to convince them to have abortions. Instead, the women were seeking the doctors and requesting abortions. If we stop with this why, then the solution is to make it illegal for a woman to have an abortion. This would not prevent some women from pharmacologically inducing an abortion on their own. For example by buying misoprostol on the street the way people by cocaine on the street or by taking a high dose of FDA-approved drugs like methotrexate or non-steroidal anti-inflammatory drugs. State laws making it illegal for a woman to willingly undergo an abortion will not eliminate abortion any more than laws making marijuana illegal has stopped marijuana use. Such state laws also would not stop women from traveling to another state to get an abortion where it is legal. What about the fourth why:

Now we find that America’s abortion problem is actually an unwanted pregnancy problem. If we stop with the fourth why, then the solution would seem to be to tell women and men that it is illegal or immoral to have sexual intercourse unless they are married and are doing it in an attempt to have children. The Catholic Church has been trying this tactic for nearly 2,000 years and it hasn’t worked yet. I can confidently say with 100% certainty that telling people in their teens and 20’s that they can’t have sex outside of marriage will not work. You can’t stop people from having sex any more than you can stop the sun from rising. So let’s look at the fifth why:

Now we see that abortions are performed because of unwanted pregnancies that in turn resulted because adequate birth control methods were not used and because of a lack of sex education. And where do many women (particularly low income women and teenage girls) go to get birth control? …Planned Parenthood. In addition, organizations such as Planned Parenthood provide free community sex education and this fills an unmet need in those communities that lack effective sex education in their schools – either because of state laws or school board decisions in the case of public schools or religious doctrines in the case of private schools.

The economics of abortion

If we approach abortion from an economic viewpoint, it all comes down to supply and demand. Focusing on laws that penalize doctors from performing abortion or penalize women from having an abortion is supply-side economics. If social conservatives really want to reduce the number of abortions, then it is necessary to focus on demand-side economics. And that means finding ways to reduce unwanted pregnancies and redirecting efforts to address the fifth why. So, what should pragmatic conservatives do to really make a difference in the number of abortions performed in the United States?

  1. Restore effective sex education in schools. Avoiding talking about sex with teenagers in schools and banning books about sex in libraries will only increase unwanted pregnancies. Similarly, teaching that abstinence is the only way to get to heaven in our private schools is out of touch with reality. Sure, it would be nice if every parent had “the talk” with each of their children at age 12 but history has proven that this just does not always happen. Schools are the only realistic venue for universal sex education.
  2. Make effective birth control available. The emphasis here is on the word “effective“. Not all forms of birth control are equally effective. Condoms are frequently ineffective and birth control pills are sometimes ineffective. A law requiring all commercial health insurance policies and all state Medicaid programs to provide IUDs, hormonal implants, vasectomies, and tubal ligations with no co-pays would eliminate far more abortions than defunding Planned Parenthood or making abortion illegal in your state. What are effective birth control methods?
    1. > 13 pregnancies per 100 women per year: withdrawal, condoms, spermicides, diaphragms, calendar methods
    2. 4 – 7 pregnancies per 100 women per year: birth control pills, hormonal patches, cervical rings, hormone injections
    3. < 1 pregnancy per 100 women per year: IUDs, implants, vasectomy, tubal ligation
  3. Donate money to Planned Parenthood for pregnancy prevention programs. Who goes to Planned Parenthood for birth control? It’s women who do not have a primary care provider, women who lack health insurance coverage for effective birth control, and girls who do not want their parents to know that they are sexually active (Sorry to tell you this America, but your kids did not have sex because they went to Planned Parenthood, they went to Planned Parenthood because they were having sex). This is actually a huge part of what Planned Parenthood really does and this is often neglected in public discussion. If you really want to reduce abortions, then pay organizations like Planned Parenthood to reduce unwanted pregnancies.

You can’t stop all unwanted pregnancies

Not every unwanted pregnancy can be avoided. Sometimes, even diligent use of an effective method of birth control does not work. Sometimes people have unplanned consensual sex or unplanned sex when intoxicated. Sometimes pregnancy results from rape. Sometimes complications of pregnancy pose a health risk to the woman. And sometimes there are severe fetal abnormalities even when pregnancy was intentional. So, we cannot totally eliminate the demand for abortion but by focusing on birth control availability and sex education, we can substantially reduce the demand for abortion. By doing so, we can reserve abortion for these other situations where there is perhaps less controversy about whether abortion should be accessible. That would be fare less polarizing and decisive than making abortion illegal except in these situations.

By stopping at the first, second, third, or fourth why of abortion, all we do as a society is engender anger and cause Americans to face off against each other, without actually reducing the demand for abortion. It is just like the analogy with the hospital with a high post-op surgical infection rate. It is only by reaching the fifth why that we can actually make a difference in abortion demand and reduce the number of abortions in our county.

I fear that history will judge us as foolish. Instead of directing our efforts at the underlying root cause of abortion, we as a society have put all of our energy into the downstream effects of that underlying root cause. In this way, we are like the man who kept blasting away every night at the snakes and wrecking his house rather than simply closing the back door so that the snakes could not get into the house in the first place.

June 26, 2023

Hospital Finances Medical Economics

Working From Home: Short-Term Benefits But Long-Term Costs

During the COVID pandemic, working from home was mandatory for many workers. But now that the pandemic is fading, working from home is becoming optional. In our hospitals, some employees could not work from home, for example: nurses, respiratory therapists, pharmacists, radiology technicians and lab technicians. But other jobs could be done remotely, for example: scheduling, revenue cycle, customer service, and finance. Should these workers now return to work in the hospital?

In many industries, remote working has now become the norm. Historically, the U.S. average office space vacancy rate was 12.5%. In the first quarter of 2023, that rate is now 18.5%. New office construction has plummeted and many downtown office buildings are being converted into apartments. 39% of American workers have “tele-workable” jobs that can be done remotely. During the height of the pandemic, 55% of these workers with tele-workable jobs did work from home. Currently, 35% of these workers continue to work from home. Overall, 22 million Americans work from home all the time and many more have “hybrid” work, meaning that they work from home some days and work in the workplace building other days.

Advantages of working from home

Every job is a little different and some jobs have more benefits from working remotely than other jobs. There are benefits to both the employer and the employee to working from home. For the employer, advantages include:

  • Reduced need for office space and conference rooms
  • Reduced need for parking space
  • Reduced utility expenses
  • Reduced need for security staff and janitorial services
  • Reduced use of sick time by employees who are either on COVID isolation or have other infections with only mild symptoms
  • Reduced use of personal time-off by employees to stay home with a sick child
  • Improved employee satisfaction
  • Ability to draw workers from a larger geographic area

For the employee, there are even greater advantages:

  • Reduced commuting transportation costs
  • Elimination of daily commute time
  • More time with family and pets
  • Reduced expense of commercially-prepared food (lunches, coffee, snacks)
  • Reduced cost of work attire
  • Potential for fewer work-time interruptions by co-workers
  • Greater flexibility of working hours
  • Flexibility of living location
  • Greater flexibility to take care of errands and appointments
  • Reduced exposure to infected co-workers (not only COVID but also influenza and common colds)

Disadvantages of working from home

As the pandemic has been winding down, many employers are requiring their employees to return to the office, at least some days of the week. The reason is that for many employers, there are disadvantages to remote working that out-weigh the advantages. Some of these disadvantages to the employer include:

  • Potential for some employees to not work the expected number of hours per week
  • Potential for worker distraction by children, spouses, pets and other temptations of home
  • Reduced ability to have group “brainstorming”
  • Reduced spontaneous interactions with other employees
  • Potential for communication errors from inability to pick up on non-verbal communication
  • Reduced mentoring of junior employees by more experienced employees

For the worker, there can also be disadvantages, including:

  • Reduced access to mentoring by senior employees
  • Reduced visibility to company leaders for promotion consideration
  • Reduced networking with other employees outside of one’s own department
  • Social isolation and loneliness
  • Elimination of on-site work perks such as office supplies, coffee, company fitness centers
  • No daily change of scenery
  • Expenses such as computers and video equipment

So, who should and who should not work from home?

Every year, the senior leaders of our hospital would get together for an all-day retreat. We would set our goals for the upcoming fiscal year as well as the strategies and tactics we would use to achieve those goals. Part of that process included succession planning for hospital managers and directors. We would identify not only those employees who we thought had potential for promotion in their own department but also those employees who demonstrated skills that predicted success in a different department. The workers who were most typically considered were those who we knew from interpersonal interactions in the hospital or who we had been able to directly observe at work. Working from home can put the employee at a disadvantage when senior leaders do succession planning and consider employees for promotion.

Working from home is a trade-off of advantages and disadvantages. The balance between those advantages and disadvantages will differ between different employers and departments; it can also differ between different employees in the same department. Every employer and every department within the employer needs to determine where that balance lies in order to decide about continued utilization of working from home. For most employers, offering the option of working from home can insure access to highly qualified employees who, because of geographic location or personal preference of remote working, would otherwise not consider working for that employer. For the employee, choosing to work from home may be preferable at a time in their life when their priorities are the flexibility of work hours and time savings from the lack of a commute. However, for employees who need the benefit of workplace visibility and mentoring for promotion and career advancement, working in the workplace is often preferable.

Work from home is not a one-size-fits-all proposition. Most employers (including hospitals) should neither require all employees to come to work in the workplace nor require all employees to work from home. Just because someone can do their job working from home does not mean that they should do their job working from home. The U.S. unemployment rate is currently 3.4%; the last time the rate was lower was in 1953. With the unemployment rate at a historic low, employers experience stiff competition for the best employees. By not offering a work-from-home option, employers restrict the pool of job applicants and risk resignation of some existing employees. But by not offering in-workplace options, employers miss opportunities for professional growth of their employees which in the long-term can stifle innovation and expertise development.

The COVID pandemic has showed us that working remotely is possible for our hospitals. With the worst of the pandemic behind us, we now must decide which jobs can be performed remotely and which employees are best served by working remotely. Hospitals and employees also need to realize that the short-term advantages of working from home can sometimes come at long-term costs.

May 21, 2023

Inpatient Practice Medical Economics Outpatient Practice

U.S. Physicians Are Working Fewer Hours Per Week

A recent study in JAMA Internal Medicine showed that the number of hours physicians work per week has fallen significantly over the past 20 years. The data was derived from the U.S. Census Bureau’s Current Population Survey that included 87,297 monthly surveys of physicians between 2001 and 2021. During this 20-year period, the average number of hours worked per week has steadily fallen.

In the study, respondents were asked how many total hours they worked at all jobs during the previous week. The average weekly work hours from 2001 – 2003 were compared to average weekly work hours from 2019 – 2021. Overall, the average physician worked 52.6 hours per week in 2001 – 2003 and this number dropped to 48.6 hours per week in 2019 – 2021. When only physicians working full-time were included, the work hours decreased from 55.6 hours per week in 2001 – 2003 to 51.1 hours per week in 2019 – 2021.

There has been a change in work hours by physician age. In the time period 2001 – 2003, the youngest physicians (age 35 – 44) worked the most hours per week, followed by middle aged physicians (age 45 – 54), and then older physicians (age 55 – 64). In the more recent time period of 2019 – 2021, the opposite was true – older physicians (age 55 – 64) worked the more hours per week than younger physicians.

On average, male physicians currently work more hours per week (49.7 hours) than female physicians (46.8 hours). However, this gap has been narrowing with a gender difference of 5.3 hours per week in 2001 – 2003 versus a gender difference of 2.9 hours per week in 2019 – 2021. Differences in the percentage of women in different specialties may be responsible for some of the gender difference in hours worked per week. Other physician demographic variables did not differ significantly in the current number of hours worked per week including race, country of origin, urban vs. rural, and dual household earners versus single household earners.

The 2023 Medscape Physician Compensation Report surveyed 10,011 physicians between October 7, 2022 and January 17, 2023. The report found that there is substantial variation in physician work hours among different specialties. Hospital-based specialties that tend to involve patient care at night and on weekends work the most hours per week including critical care, general surgery, cardiology, and nephrology. On the other hand, outpatient specialties that generally do not require seeing patients at night or on weekends had the lowest work hours per week including allergy, dermatology, and ophthalmology. Emergency medicine also had a low number of hours worked per week, owing to the shift work nature of the specialty.

A problem with the Medscape survey is that all of the information is self-reported and thus susceptible to either over-estimation or under-estimation. Furthermore, the survey is voluntary and the physicians who choose to report data may not be truly representative of the population of physicians as a whole. Nevertheless, the recent Medscape data for work hours by specialty are remarkably similar to a 2011 study published in the Archives of Internal Medicine.

At the onset of the COVID-19 pandemic (during the 2nd quarter of 2020), the average number of hours physicians worked per week fell as elective procedures were canceled. However, weekly work hours quickly rebounded by the 3rd quarter of 2020 as shown in the graph below derived from data from the recent study in JAMA Internal Medicine. Notably, over the the 24 quarters from 2016 through 2021, the overall trend has been for physician work weeks to become shorter.

Do work week hours correlate with income?

Intuitively, one might assume that specialties with longer work weeks also have higher incomes. However, the 2023 Medscape Physician Compensation Survey indicates that there is little relationship between the number of hours worked per week and the annual compensation by specialty. The graph below shows average number of hours worked per week in red and annual compensation in blue for 29 specialties.

By combining the data from the two graphs above, we can calculate the average income per work-week hour. Note that this is not same as hourly compensation – that would require dividing the income per work-week hour by the number of weeks worked per year. The Medscape Physician Compensation Survey did not report the number of work vs. vacation weeks per year by specialty so true hourly compensation cannot be determined. The graph below shows that plastic surgeons, orthopedic surgeons, dermatologists, and radiologists have the highest income per work-week hour. Infectious disease specialists, family practitioners, pediatricians, and general internists have the lowest compensation per work-week hour. Notably, family medicine, pediatrics, and general internal medicine have shorter residencies (3 years) than the other specialties.

As stated in a previous post, the data for infectious disease is particularly alarming. Physicians specializing in infectious disease have the lowest income per work week hour of all 29 specialties in the Medscape Physician Compensation Survey. In order to become board-certified in infectious disease, a physician must first complete a 3-year internal medicine residency and then complete a 2-year infectious disease fellowship. However, infectious disease specialists have both a lower total annual income and a lower income per work week hour than general internists. The implication is that an infectious disease specialist is financially penalized for doing a 2-year fellowship after internal medicine residency. As a result, many infectious disease specialists are either supplementing their income by working part-time as hospitalists or are leaving the specialty of infectious disease altogether to work as general internists or hospitalists. Because of the nature of physician billing and RVU determination, it is not possible for infectious disease specialists to increase their income by professional billing alone. There is an urgent need for U.S. hospitals to financially supplement their infectious disease specialists in order to preserve the infectious disease physician workforce.

Physicians are working fewer hours but are they happier?

The Medscape Physician Compensation Report found that 73% of physicians would choose medicine again if they were just now starting their career. However, the Medscape survey five years ago found that 77% of physicians would choose medicine again, indicating that physicians are less satisfied with their careers now than five years ago.

Undoubtably, the COVID pandemic has had an impact on physician job satisfaction. During the pandemic, many physicians retired early or left the workforce for other jobs. In 2019, there were 989,684 clinically active physicians practicing in the United States. In 2021 that number fell to 923,419, a 6.7% decrease. Hopefully, as the pandemic winds down and the practice of medicine gets back to normal, the exodus of physicians from the profession will slow.

The continued creep in paperwork and administrative tasks is a dissatisfying factor for many doctors – physicians reported spending an average of 15.5 hours per week on these chores, of which 9 hours are for electronic medical record documentation. Advances in artificial intelligence technology offers hope that the use of electronic medical records will be streamlined in the near future, giving physicians more time to engage in direct patient care. Over the past decade, there have been increasing concerns raised about the extent of physician burnout. Long work hours have been suggested to be a cause of physician burnout but the data suggests that physicians are less satisfied despite working fewer hours than in the past.

What about nurse practitioners and physician assistants?

The large number of retiring physicians coupled with reduced physician work week hours indicates that the overall supply of physician services is declining. Over the past decade, this has been offset by an increase in nurse practitioners. It is far less expensive to train a physician assistant or nurse practitioner (6 years education post-high school) compared to a physician (11 to 16 years education post-high school, depending on specialty). Many services traditionally performed by physicians can be equally or near-equally performed by PAs and NPs. However, specialized medical care and complex procedures still require the additional training and experience of physician specialists and so there is a limit to the degree that PAs and NPs can substitute for physicians.

Are the numbers good or bad?

The reduction in physician work hours is both good and bad. It indicates an improvement in a profession that has historically been seen as arduously time-consuming. But it also implies reduced availability of physician services to the general population. In the future, reduction in administrative and paperwork time coupled with strategic utilization of NPs and PAs could allow physicians to enjoy a good lifestyle while still ensuring that Americans have access to the best possible healthcare.

May 2, 2023

Emergency Department Inpatient Practice Medical Economics

It’s Time To Do Away With Observation Status

“Observation status” was originally conceived of as a way to watch patients presenting to the emergency department for a few hours in order to determine whether or not they needed to be admitted to the hospital. The purpose was to reduce unnecessary inpatient hospitalizations and thus reduce overall healthcare costs. But there has been a creep in the use of observation status as well as the healthcare bureaucracy to administrate it. The result is that observation status has now increased overall healthcare costs. It is time to consider eliminating observation status in the United States.

Summary Points:

  • In observation status, hospital admissions are considered to be outpatient rather than inpatient admissions
  • As an outpatient visit, patients are responsible for more of the hospital charges than they would be for an inpatient visit
  • Medicare will not pay for skilled nursing facility care for patients in observation status
  • Observation stays reduce Medicare costs by transferring costs to the individual patient
  • Overseeing observation status is expensive for hospitals
  • Overall per capita U.S. healthcare costs can be reduced by eliminating observation status

How did we get here?

Prior to 1960, emergency departments were staffed by residents and general practitioners. The doctor who saw you in the ER was generally the same doctor who took care of you in the hospital. Emergency medicine became a specialty in 1968 with the creation of the American College of Emergency Medicine. The first emergency medicine resident began training in 1970 and the first board examination in emergency medicine was offered in 1980. The result was that the doctor that took care of a patient in the ER was no longer the same doctor who took care of them once they were admitted to the hospital. In 1983, DRGs were first used to determine the amount of money that Medicare would pay hospitals for inpatient admissions for any given diagnosis. After the introduction of DRGs, it became immediately clear that there needed to be some way of determining which patients were sick enough to warrant admission to the hospital from the emergency room, otherwise, the hospitals would be incentivized to admit as many people as possible, even if they were not very sick.

Initially, that determination was left to the emergency room physician. But that ER doctor needed to find an inpatient physician who would agree to admit the patient. During my residency, we had a designated “medical admitting resident” each day who would make the decision about which patients were sick enough to require admission. Some residents got the reputation of being “sieves”, meaning that they would admit everyone that the ER physician called them about whereas other residents got the reputation of being “walls”, meaning that they would block admissions from the ER unless the patients were at death’s door. You always wanted to be on-call at night with a resident who was a “wall” because that meant you would have to do fewer history and physical exams, your inpatient service census would be lower, and you might actually get a few hours of sleep that night.

In order to provide some rules for which patients warranted inpatient admission, Medicare directed that patients who could be sent home within 24 hours should be observed in the ER rather than admitted to the hospital. However, keeping a lot of patients in ER beds for 24 hours was impractical so hospitals started putting those observation patients in regular hospital beds to avoid congestion in the emergency department. The unintended consequence was that this simply led to keeping patients in the hospital for longer than 24 hours, just so they could be classified as inpatients. This was especially a problem with outpatient procedures when many hospitals kept patients overnight for procedural recovery and then billed Medicare for both the outpatient procedure plus an inpatient hospital admission. Medicare countered in 2002 by agreeing to pay hospitals specifically for observation stays in order to provide an alternative to inpatient admission for those patients who were only mildly ill or who needed extra time to recover from an outpatient procedure. Initially, the only diagnoses that could be billed as observation stays were heart failure, chest pain, and asthma. In 2008, Medicare began paying for observation stays for all diagnoses.

In parallel with the development of reimbursement policies for observation stays, Medicare began policing hospital admissions by using the RAC (recovery audit contractors). RAC auditors would review the charts of patients who had been admitted to the hospital and if the auditor determined that there was not sufficient documentation in the chart to justify inpatient admission, Medicare would collect penalties from the hospital for overpayment. By 2014, the RAC program had collected $2.3 billion from hospital overpayments. One of the most common reasons by RAC auditors when denying an inpatient admission was that “…the patient could have safely and effectively been treated as an outpatient.” The auditors were often incentivized to deny admissions since more denials often led to bigger bonuses for the auditors. As a result, the denials were frequently capricious and arbitrary. 25 years ago, a coder for a commercial insurance company confided in me that her supervisors told her to randomly deny every 10th hospital admission because hospitals usually found that it was too expensive to contest denials. Fear of RAC audits resulted in physicians and hospitals increasing the use of observation status in order to avoid the risk of being penalized for an unnecessary inpatient admission.

A second strategy employed by Medicare was to create a list of surgical procedures that were classified as “Medicare Inpatient-Only Procedures”, meaning that those operations required an inpatient admission. Any surgical procedure not on the list was to be classified as an outpatient procedure unless there were extenuating circumstances that uniquely required a patient to be admitted to the hospital. Medicare pays much more if a surgery is performed as an inpatient (Medicare Part A) than if it is performed as an outpatient (Medicare Part B). Over time, the Medicare Inpatient-Only list shrank as more and more surgical procedures were reclassified as being appropriately done as outpatient and not requiring of hospital admission. Thus, knee and hip replacement surgeries were initially considered to require inpatient admission  but are now considered to be outpatient procedures.

Medicare also changed its definition of observation stays to be any condition that requires the patient to be in the hospital for “less than 2 midnights”. Although it could be argued that this gave hospitals longer than 24 hours to treat an observation status patient and send them home, the 2-midnight definition was somewhat arbitrary. For example, a patient presenting to the emergency department at 11:00 PM would spend 25 hours in the hospital before crossing 2 midnights but a patient presenting at 1:00 AM would spend 47 hours in the hospital before meeting the 2-midnight definition. However it is not how many midnights a patient actually spent in the hospital that Medicare auditors used when deciding whether to deny a hospital admission. Instead, it is whether the auditor believed that had the patient been managed appropriately, that patient could have been sent home before 2 midnights have elapsed. For example, if a patient came to the emergency department on Saturday evening with chest pain but the hospital could not do a cardiac stress test until Monday morning (2 midnights later), the auditor would still deny an inpatient admission since if the hospital offered 7-day a week stress tests, they could have sent the patient home on Sunday (after 1 midnight).

The observation vs. inpatient status bureaucracy


In order to avoid losing money from admission denials, hospitals started to go to great lengths to insure that the medical record contained sufficient documentation to justify every hospital admission. This was greatly facilitated by the development of electronic medical records that permitted realtime review of each patient’s hospital stay to ensure that the patient’s chart had appropriate documentation to meet Medicare’s requirements to bill that hospital stay as an inpatient admission. Some of the measures that hospitals now take in order to oversee their hospital admission practices include:

  1. Physician training. When a patient is admitted to the hospital from the emergency room, the admitting physician has to enter an order directing that the patient is an “inpatient” or “observation” admission. This means that the physician has to estimate how long the patient will need to be in the hospital at the very beginning of the hospital stay and that estimated length of time dictates whether a patient will be inpatient or observation status. We now train residents in how to correctly estimate length of stay. For example, patients admitted for chest pain, syncope, and dehydration are generally observation status unless there are extenuating circumstances.
  2. Nurse admission reviwers. Hospitals will generally hire a group of nurses or other healthcare workers to review every patient’s chart on a daily basis to determine if the medical record documentation justifies inpatient admission. These nurses get special training in the Medicare inpatient admission requirements. If the patient’s chart does not contain the proper documentation, the nurse’s first step is usually to contact the physician since frequently, all that is needed is an extra sentence or two in the medical record describing how sick the patient actually is. If that does not resolve the issue, the next step is to contact a physician admission advisor.
  3. Physician admission advisors. Many times, the admitting physician is uncertain whether or not a patient’s illness justifies an inpatient admission order. Or the nurse reviewer’s determination is different from the physician’s admitting order for observation vs. inpatient status. For this reason, hospitals employ physicians whose main job is to arbitrate inpatient and observation orders. Often, this will be a private physician review company where the physician reviewers can access patient charts on a daily basis. Larger hospitals usually do this internally by hiring some of its own emergency medicine physicians or hospitalists to dedicate a certain number of hours per day reviewing admissions.
  4. Hospital medical directors. When another layer of physician review of how to classify a patient’s admission is required, it then goes to the hospital medical director. Even for a small hospital, this is usually several charts to review every week. It takes about 15-20 minutes to do one of these reviews and then contact the admitting physicians to try to talk them into changing an admission order from inpatient to observation or vice-versa. Frequently, it requires the medical director to either enter an administrative note in the electronic medical record or to send the hospital utilization review office a letter so that the hospital has a documentation  paper trail in the event of a Medicare denial. More often, the medical director is sent charts for patients who had an inpatient admission order but were discharged before 2 midnights had elapsed. This is a red flag for Medicare auditors. We then have to provide written documentation for why the patient should be billed as an inpatient. Sometimes, this is easy, for example, when a patient dies from their condition in the hospital before 2 midnights elapse. But more frequently, it is because the admitting physician legitimately believed that the patient would need to be in the hospital for at least 2 midnights when that patient first arrived at the hospital. Several years ago, I attended a Medicare seminar and one of the medical administrators from Medicare told us that when this happens, we should use the phrase “The patient had an unexpectedly rapid recovery and was able to be discharged after less than 2 midnights”. Pretty much every time a patient in inpatient status was discharged before 2 midnights, one of our hospital medical directors would review that chart and send the billing office a letter using that phrase.
  5. Pre-admission testing consultation. Patients who are planned to undergo a surgical procedure will frequently be sent for pre-operative medical consultation by an internist, family physician, or specially trained advance practice provider. Although designed to identify medical co-morbidities that could increase the risk of complications during surgery, these consultations are increasingly being used to determine whether or not a given patient’s surgery should be classified as an inpatient or an outpatient surgery. And most importantly, these consultations ensure that there is sufficient documentation in the electronic medical record to justify an inpatient procedure. For example, most knee replacement surgeries are now considered outpatient procedures. But if the chart documents that the patient has sleep apnea requiring CPAP, brittle diabetes, COPD requiring supplemental oxygen, and a history of vomiting after anesthesia, then that patient’s knee replacement can be done as an inpatient and the hospital gets paid considerably more. Surgeons are trained to be experts in surgery but are not trained in the nuances of co-morbid medical illnesses that they do not normally manage. Consequently, the surgeon’s outpatient notes often do not contain documentation of the significance of those medical co-morbidities and whether they are severe enough to warrant an inpatient admission for the surgery. That is why the pre-op medical consultation is so highly valued. If the surgeon admits the patient as an inpatient to do the surgery and then discharges that patient before 2 midnights pass, the chart once again gets sent to the medical director so that a letter containing the phrase “The patient had an unexpectedly rapid recovery and was able to be discharged after less than 2 midnights” is sent to the utilization review and billing offices for a documentation paper trail in the event of an admission denial by Medicare.
  6. Utilization review staff. Every hospital employs a large number of personnel devoted solely to coding, billing, and utilization review. Before a bill goes out to Medicare or a commercial insurance company, these staff will do a final review to ensure that all of the proper documentation justifying an inpatient admission is present in the chart, including physician admission advisor notes and hospital medical director correspondence.There will also usually be personnel whose only job is to work denials when Medicare or an insurance company denies an inpatient admission. These personnel will then prepare and submit documentation contesting that denial in hopes of overturning the denial and getting paid for the hospital stay.
  7. Attorneys and peer reviewers. When Medicare or an insurance company refuses to overturn an admission denial after the billing staff contest the denial, the next step is to turn to the legal system. This usually starts by paying an independent physician reviewer to opine whether the patient’s hospital stay should be classified as inpatient or observation. Next, hospital attorneys get involved by contacting Medicare attorneys about the denial. Sometimes, contested denials require adjudication, requiring more attorney time.
  8. Medicare staff. On the other side of the bill, Medicare and commercial insurance companies employ large numbers of staff to review charts to decide whether they think that hospitalizations should be inpatient or outpatient.

So, for any given patient’s hospitalization, there is an army of Medicare nurse reviewers, physician reviewers, utilization review staff, and attorneys that face off against an army of the hospital’s  nurse reviewers, physician reviewers, utilization review staff, and attorneys. In the end, more money is sometimes spent battling an admission denial than is actually paid to the hospital for the admission. Hospitals are willing to occasionally spend the excessive cost to contest a denial since it sends Medicare or the insurance company a signal that the hospital will not go down easily for future admission denials. It is kind of like a basketball coach throwing a tantrum about a penalty call in order to try to dissuade the referee from calling future penalties.

The net result of all of this is that the United States has created an enormous bureaucracy devoted to preventing and contesting hospital admission denials.  So, why don’t hospitals just classify more patients as being in observation status and avoid all of the expense of justifying inpatient status? The reason is money.

The finances of inpatient vs. observation status

The genesis of observation status was to reduce Medicare costs by eliminating unnecessary hospital admissions. For any given diagnosis, hospitals get paid much less if a patient is designated to be in observation status than if that same patient is designated to be in inpatient status. Overall, the reimbursement is about 1/3 less for observation stays. In other words, Medicare can reduce overall Medicare costs by pressuring hospitals to put more patients in observation status. The same holds for commercial insurance companies.

Until several years ago, Medicare also paid doctors less if patients were in observation status. However, it became clear to Medicare that this was incentivizing doctors to preferentially use inpatient status rather than observation status. And since doctors are the ones who write the admission orders, Medicare realized that it could reduce inpatient admissions by removing the physician financial incentive to put patients in inpatient status. Because the physician professional fees are much, much less than the hospital fees, by paying physicians the same whether a patient was in observation or inpatient status, Medicare would pay a little more to the doctors but would pay a whole lot less to the hospitals.

But the biggest savings to Medicare in observation status is that it transfers much of the cost of the hospital stay from Medicare to individual patients. This is because Medicare considers observation stays as outpatient visits. Outpatient services are billed to Medicare Part B but inpatient services are billed to Medicare Part A. This is hugely important to patients because patients have much higher co-pays and deductibles for their Part B charges than their Part A charges.

  • Medicare Part A covers inpatient admissions including a semi-private room, nursing care, medications, meals, and tests done during inpatient admissions. Part A also covers skilled nursing facility care, home health care, and hospice care. Medicare Part A is free to Americans over age 65 who have previously worked at least 10 years (or have a spouse who worked 10 years). There are no monthly premiums and no annual deductible. The amount that Medicare covers depends on the length of stay of the hospital admission:
    • $1,600 deductible per admission
    • Days 1-60: Part A covers in full
    • Days 61-90: patients are responsible for $400 per day co-pay, either by co-insurance or out of pocket if the patient lacks co-insurance
    • Days 91-lifetime reserve limit days: patients are responsible for $800 per day co-pay, either by co-insurance or out of pocket if the patient lacks co-insurance
    • After lifetime reserve limit days (total of 60 over the entire lifetime): Part A pays nothing and patients (or their co-insurance) are responsible for the entire costs
  • Medicare Part B covers hospital outpatient charges and physician professional charges. Unlike Part A, there is a monthly premium for Part B of $165/month with higher premiums for those with higher incomes. There is an annual deductible amount of $226. Patients also have additional deductibles and co-pays that are either paid by secondary insurance or out of pocket if there is either no secondary insurance or the insurance policy has limited benefits:
    • 20% co-pay for all physician charges
    • 20% co-pay for hospital outpatient charges (hospital room, nursing care, meals)
    • 20% co-pay for x-rays and procedures
    • Part B does not cover medications so the patient (or their Part D insurance) is responsible for medication charges during observation stays

The net result of these differences is that the patient will have greater out of pocket expenses for an observation stay than for an inpatient admission. This is especially true for the 7.5% of Americans over age 65 who are enrolled in Medicare Part A only and do not enroll in Medicare Part B – these patients pay the entire cost of their observation stay out of pocket.

Another financial implication of observation vs. inpatient stays is in skilled nursing facility (SNF) coverage. Medicare Part A pays for 100% of SNF charges for up to 20 days (there is a $200/day co-pay for days 21-100). However, Medicare will only pay for SNF care if a person first has an inpatient hospital stay of at least 3 days. Medicare will not pay for SNF care after an observation stay. If a patient is in observation status (or has an inpatient stay of < 3 days) and gets transferred to a SNF, the patient is responsible for all of the SNF charges.

Why observation status is really, really dumb

CMS absolutely loves observation status. It reduces Medicare costs by paying the hospitals less for any given diagnosis and it also reduces Medicare costs by transferring much of the costs directly to the patient. This allows CMS officials to report to Congress that they are reducing federal spending on healthcare. Congressional representatives can then report to voters that they are reducing government spending. But there is no such thing as free healthcare… the cost of healthcare does not go away, it just gets transferred to the patient. The individual American ends up with more out of pocket costs for co-pays, medication charges, and SNF costs that would have otherwise been covered by Medicare Part A had their hospital stay been inpatient status as opposed to observation status. So, in the long run, the average American does not save any money by being in observation status.

Nationwide, 16% of all hospital stays are observation stays and 84% are inpatient stays. But this percentage can vary widely from hospital to hospital. A tertiary care referral hospital will usually have a lower percentage of observation stays since its patients tend to be sicker with more complex medical problems. On the other hand, a community hospital, especially one that cares for underserved patients, will have a higher percentage of observation stays, typically 25% or more. About the best a hospital can hope for is to break even on observation patients – most hospitals actually lose money on observation stays.

It’s bad enough that observation status does not really save money by transferring the cost of care to the individual patient rather than Medicare. The worst part about observation status is that it actually increases U.S. healthcare expenses. Not only do hospitals have to spend an enormous amount of money justifying inpatient admissions and working inpatient denials, but Medicare spends an enormous amount of money paying staff who police admissions in order to deny inpatient admission charges.

The net result is that observation status represents the epitome of U.S. healthcare dysfunction. It has led to an enormous bureaucracy devoted entirely to deciding whether Medicare or individual patients should pay for hospital care. And that bureaucracy is enormously expensive.

How can we fix this?

Americans pay way more for healthcare than people in any other country. In 2021, the average per capita healthcare cost in the U.S. was $12,914. It will undoubtedly be much higher in 2023. One of the contributors to this is too much of the healthcare costs go into trying to decide whether Medicare or the individual American will be responsible for paying for healthcare. Getting rid of the observation status designation can reduce U.S. per capita healthcare costs. Here is how to do it:

  1. Create low-acuity DRGs. For conditions that are currently commonly managed by observation status (chest pain, syncope, dehydration, etc.), CMS can create inpatient DRGs that pay the hospital less, thus simulating the amount that CMS would have paid for an observation stay.
  2. Require a modest Part A co-pay for hospitalization. The biggest argument against eliminating observation status is that Medicare costs would go up since co-pay costs currently paid by patients would go back to Medicare. The solution to this would be to require a small co-pay for hospitalization days 1-60. The amount to keep Medicare’s annual budget neutral could be as little as $10 or $20 per day.
  3. Outpatient should mean outpatient. How in the world we ever got to the point that we define outpatient care as needing to be in the hospital for more than 2 midnights is baffling. Either a patient needs to be in the hospital or they don’t. I once had a admission denial for a patient in respiratory failure admitted from the ER to our ICU on a mechanical ventilator. The Medicare reviewer said that in his opinion, I should have been able to correct the respiratory failure, extubate the patient, and discharge her before 2 midnights passed. Really?
  4. Eliminate the SNF 3-day rule. The whole idea behind the 3-day rule was that Medicare wanted to see if a patient really needed SNF care before it would pay for it. But the unintended consequence is that if one of our patients needs to go to a SNF, we have to figure out a way to admit them to the hospital for at least 3 days first. This means that we have to wait until they fall at home and break their hip or wait until they get septic from an infected decubitus ulcer if they are unable to get out of bed. For patients undergoing surgery, such as a knee replacement, we have to keep them in the hospital for 3 days after their surgery before they can go to a SNF for rehabilitation, even if they live alone and cannot walk after their operation.
  5. Eliminate the observation industry. By eliminating observation status, hospitals would no longer have to spend money on nurse admission reviewers, physician admission advisors, and medical directors who laboriously review charts for inpatient justification. Hospitals could reduce their utilization management staff and Medicare could reduce its admission reviewer staff. Hospitals, patients, and Medicare would have less need for attorneys to contest admission denials. Yes, a lot of people would lose their jobs but the overall U.S. healthcare costs would drop.

Elimination of the observation status designation would make everyone happy. Patients would not be surprised by unexpectedly high hospital bills. Doctors would not have to spend time entering unnecessary documentation in their hospital notes to justify why a patient warrants an inpatient admission. Hospitals would not have to pay as much for staff to oversee admission determination. A fundamental concept of industrial engineering is that the more complex a process is, the more energy it takes to keep that process working. Observation status has created a terribly complex process. It is time to simplify the U.S. admission process.

January 22, 2023

Medical Economics Physician Finances

Inflation Is Like A Disease – Here Is The Cure

As a physician, I have spent decades diagnosing diseases and then prescribing treatments. For many diseases, there is more than one single cause and there are more than one possible treatment. Sometimes the treatment is easy but sometimes the treatment is worse than the disease. Inflation is no different. Here is how to fix inflation from a physician’s vantage point, when we look at inflation the way we look at a disease.

What causes inflation?

In 1976, my college macroeconomics professor said that understanding inflation at its basic level is simple – it is too many dollars chasing too few goods and services. 46 years later, that central tenet is still true: inflation occurs when demand exceeds supply. In this sense, inflation is similar to a medical condition like respiratory failure. In respiratory failure, the patient gets short of breath when the body’s demand for oxygen exceeds the supply of oxygen that the lungs can deliver. The treatment of respiratory failure is to either increase the supply of oxygen being delivered to the body’s tissues or reduce the demand for oxygen by the body’s tissues. Preferably, you do both.

Like respiratory failure, there is usually not just one simple cause of inflation but instead there are several alterations in the things that cause demand for goods and services as well as the things that affect the supply of goods and services. Although demand can be affected by changes in what consumers want to purchase, it is more often caused by the amount of money consumers have in their hands to make purchases. In our nation’s current bout of inflation, there are contributions from both the supply side and the demand side. In addition, there is an effect of the national psychology attendant to inflation expectations.

  1. Alterations in demand for goods and services:

    1. Increased disposable income from COVID relief programs. When COVID surged, the U.S. unemployment rate spiked and the government response was to inject money into the economy in the form of COVID relief checks. This resulted in many Americans having cash on hand and no place to spend it during the COVID isolation period. In 2021 and 2022, when isolation restrictions eased up, many Americans started to spend these built up cash reserves and we all started to buy stuff.
    2. Exceptionally low interest rates to borrow money since 2010. Borrowing money has never been less expensive in the U.S. as it has been for the past 12 years. Low interest rates result in more people buying houses and cars. Low interest also result in companies borrowing more money to expand their business operations. As more people borrow money, there is more money circulating in the economy and that results in more money available to spend on goods and services.
    3. Historically low federal income tax rates enacted by the 2018 income tax cuts. The current U.S. income tax rates are among the lowest Americans have had in generations. This graph shows the effective income tax rates for all incomes in 2016 (before the 2018 tax cuts) and in 2020 (after the 2018 tax cuts). As a result of these tax cuts, all Americans had more money to spend on goods and services over the past year.
    4. Federal student loan forgiveness programs. In August 2022, President Biden authorized $10,000 per person federal student loan forgiveness ($20,000 for those with Pell grants). This week, former students can start to apply for those funds. The economic effect of this will not be felt until individuals get their forgiveness applications approved but many affected Americans have already changed their spending habits based on the expectation that they will have $10,000 or $20,000 more to spend on goods and services than they had budgeted for earlier this year.
    5. Increasing federal deficit spending since 2002. The U.S. government has a long habit of spending more money than it takes in each year. In fact, the only years that the government ran an annual surplus in recent memory were in 1998 – 2001 due to combined efforts by Democratic president Bill Clinton and Republican House Budgetary Chairman John Kasich. When the government spends money, it primarily goes to purchasing goods and services and puts more money in the hands of Americans that produce those goods and services.
  2. Alterations in supply of goods and services:

    1. COVID brought supply chain disruptions. These disruptions made it difficult to get foreign-produced products into the United States. These supply chain disruptions also made it difficult to get raw materials and production components into the U.S. resulting in decreased domestic production. As a result, products such as appliances made abroad and U.S.-manufactured cars that depend on foreign-made computer chips became suddenly scarce.
    2. Changes in consumer buying patterns during COVID. As a result of the pandemic, Americans wanted computers in order to work from home and wanted new suburban homes to work and live in. This resulted in heightened demand for houses and computers. There were also transient demand spikes for toilet paper and subscription video streaming services, like Netflix. During the pandemic, consumers could not spend money on services (like travel, restaurants, and concerts) and shifted their spending patterns to goods, like appliances, TVs, and furniture. Quite rapidly, the demand for these goods exceeded the supply of these goods.
    3. COVID rebound spending. As isolation practices eased, Americans started to act on their pent-up consumption appetite. We started eating out at restaurants again. We began planning vacations involving air travel and car rental. We started buying new clothes to wear as we returned to the office. But restaurants had just recently laid off staff, airlines had stopped replacing retired pilots, and car rental companies had sold off their rental car stocks. As a result, these industries were unable to meet the rebounded demand for their goods and services.
    4. War in Ukraine. The global disruption in gas and oil supply resulting from global sanctions on Russia after its invasion of Ukraine has been felt in most Western nations, including the United States. As a result, the worldwide supply of gasoline exceeded the supply and the price per gallon spiked.
    5. Foreign import tariffs. A tariff is a tax on imported goods. By making these goods more expensive, the demand for those goods drops and is replaced by demand for more expensive domestically-produced goods. In addition, tariffs can cause foreign manufacturers to redirect their sales to other countries that do not have tariffs in order to maximize their profits. As a result, the amount of foreign-produced goods falls and U.S. consumers pay more for a given item. Tariffs introduced by President Donald Trump resulted in a drop in supply of many foreign-produced goods.
    6. Low unemployment rates. The supply of services is often reflected in the unemployment rate. When the unemployment rate rises, there are too many workers competing for too few jobs and when the unemployment rate falls, there are too many jobs for too few workers causing employers to increase wages to attract workers. The pandemic resulted in many workers retiring early and also restricted the flow of immigrants and seasonal foreign workers into the United States thus shrinking the labor pool. Consequently, we now have too many job openings for too few workers, particularly for low wage jobs and farm workers.
  3. Alterations in the expectation of inflation:

    1. Worker expectations. When workers think inflation is getting worse, they proactively demand increased wages. This was evidenced recently but the increase in unionization over the past year with the assumption that by unionizing, they could use collective bargaining to get pay raises.
    2. Manufacturer and employer expectations. Forecasts of inflation also affects the costs of goods and services – when companies forecast inflation in the near future, they increase the price of their goods and services in anticipation of increased costs to produce those goods and services in the future.
    3. Consumer expectations. The psychology of inflation is often discussed in terms of worker and employer expectations but consumer psychology is just as important. When consumers hear that inflation is going up, they come to believe that they should be paying more for goods and services. This can result in a mentality of: “Well, normally I’d never pay $25 for a pizza but inflation is happening so I guess it is OK to spend that much”.

How do we cure inflation?

With disease, we often focus too often on treating the symptoms rather than treating the underlying cause. Symptom-based treatments can provide transient relief but do not cure the underlying disease. You can give a patient with sepsis Tylenol and make his fever go away but he’ll still die of sepsis. Similarly, a disease with multiple causes requires treating all of the underlying causes and not just one. When a trauma patient is bleeding from 5 different gunshot wounds and you only suture one of them up, the patient will still bleed to death. Treating inflation is no different – you have to treat the underlying causes. Some of these treatments are relatively easy but others can be too politically painful to realistically implement.

Treating alterations in demand for goods and services:

  1. Eliminate COVID relief spending. Much of this has already occurred but many state and local governments still have unspent federal COVID relief funds and they are looking for things to spend that money on. Unspent funds should be returned to the Federal government to prevent further cash injection into the economy.
  2. Increase interest rates. The Federal Reserve is already addressing this by progressively increasing the federal fund rate. The downstream effect is rising mortgage rates and car loan rates that in turn reduce demand for new house construction and automobiles.
  3. Raise income taxes. This is probably the single most effective way for the federal government to cool off inflation. It takes money out of worker’s pockets and thus reduces their demand for goods and services. However, increased taxes is viewed as a politically nuclear option and no elected official wants to go on record for voting for higher taxes. Even politicians who lean to the left usually only want to increase taxes on the wealthy. However, selectively increasing taxes on the wealthy can increase federal government revenues but has less effect on inflation. The wealthy tend to spend their extra income on investments and luxury goods but to really cool off inflation, one must decrease the demand for everyday goods. For that reason, for tax increases to be effective in reducing inflation, everyone would have to pay higher taxes, not just the wealthy.
  4. Eliminate loan forgiveness programs. Unfortunately, once you promise people money, it is exceptionally difficult to then take it away – it would be political suicide. Nevertheless, even lowering the income threshold for loan forgiveness eligibility would effectively take cash out of the economy.
  5. Decrease federal spending. Much of the huge spike in federal spending from 2020 – 2022 was on COVID programs such as vaccines, medications, and testing. The public health advocate in me wants to continue free access to vaccines and tests but to reduce inflation, it is better to start asking Americans to pay for these goods and services themselves. Belt-tightening inside the Washington Beltway is never popular but to fight inflation, federal spending should be limited to only those programs and federal departments that are vital to keep the country running safely.

Treating alterations in supply of goods and services:

  1. Improve supply chain disruptions. Many of the COVID supply chain issues have been resolving over the past year as the country has gotten back to work. However, transportation bottlenecks still exist in some areas and union strikes could cause additional transportation disruptions in the near future.
  2. Re-set consumer buying patterns. The free market is already doing this to an extent. Computer sales are falling as people return to the office after working from home. Netflix subscriptions are falling. Home sales are decreasing due to a combination of people no longer fleeing to the safety of the suburbs to avoid COVID, no longer needing more space to work from home, and no longer being able to buy houses with rock-bottom mortgage rates.
  3. Temper COVID rebound spending. The government can’t just tell people to stop buying stuff. But fortunately, the combination of a year of high inflation plus a year of spending down COVID-related household cash reserves has already tempered America’s recent buying spree.
  4. End the war in Ukraine. This one is not under the United States’ control but until the war ends, normalization of trade relations with Russia as well as resumption of Ukrainian agricultural and manufactured goods exports will continue to cause international inflationary pressure. In addition, Western countries, including the U.S., are spending much cash on military items with the downstream effect of that cash going into military production worker wages.
  5. Lift foreign import tariffs. There are compelling political reasons to continue some tariffs but from an economic standpoint, the more inexpensive goods we get into the country, the better from an inflation standpoint. First, increased imports reduce the cash supply by getting U.S. cash out of the country and thus out of circulation in the U.S. economy. Second, increased imports keep the cost of American-made goods lower by increasing competition.
  6. Increase the unemployment rate. It would be politically poisonous to simply eliminate jobs but if the unemployment rate increases, circulating cash is taken out of the economy as the supply of workers drops. In addition, employers would no longer have to keep increasing wages to attract workers. However, an alternative strategy could be more palatable, namely, increase the number of workers by increasing foreign immigration. We currently have too many foreigners trying to get into our country illegally in order to find employment and escape unsafe living conditions. By legalizing the presence of many of these undocumented foreigners, we can increase our workforce, particularly for lower wage jobs and farm work jobs. Our immigration problem and our low unemployment problem are the solutions to each other.

Treating alterations in inflation expectation:

  1. Politicians as psychologists. Changing the psychology of an entire country is hard, but not impossible. This is where the charisma of individual leaders can have an impact. Another ways by having agreement between the political parties. Getting Republicans and Democrats to come together on  anything is hard anytime but even more so in an election year. During election years, it is far too easy for both parties to point the blame for inflation on each other. It is far to easy for a political party to say “Elect us because the other guys are going to make inflation worse”. Nevertheless, consensus on legislation portrayed as being inflation-reducing can send a powerful psychological signal that can help Americans of both parties.
  2. Just do something. In medicine, doctors often prescribe antibiotics for bronchitis and sinusitis even though they know that the infection is most likely viral and the antibiotics won’t do anything. But it is the patients’ expectation that something is being done to cure their disease. If Americans see no-one doing anything to reduce inflation, their expectation will be that it is just going to keep on going until someone does something. Thus far, the public face on inflation control has been the Federal Reserve and to give the Fed credit, they have made aggressive interest rate increases. But ideally, there should also be executive branch action and legislative branch action to fight inflation so that our country’s perception is that war is being fought and will soon be won.

It really is like a disease

Admittedly, I am neither an economist nor a politician. But as a doctor, I see so many similarities between inflation and disease. In fact, inflation can be seen as a disease of the country’s economy. And just like most diseases, you can’t just treat the symptoms and hope that it goes away on its own, you have to treat the causes of the disease, preferably all of the causes.

October 19, 2022

Medical Economics

What Is The Difference Between Medicare Parts A, B, C, & D?

If you want to understand Medicare, don’t ask your doctor. Medicare details are not taught in medical school and with most physicians now being employed by either hospitals or large group practices, physicians do not need to understand the intricacies of Medicare in order to run their medical practice. I am a physician who was formerly the treasurer of a $1.5 million physician group practice and formerly the medical director of a 200-bed hospital but it was not until I turned 64 and started to plan for Medicare that I realized how little I knew about it. As the annual Medicare open enrollment period begins, seniors are getting inundated with advertisements to join commercial insurance Medicare Advantage plans. But what are these plans and are they right for you or your patients?

Summary Points:

  • Medicare and Medicare-related insurance plans are incredibly complex.
  • Most Americans and most physicians do not fully understand the nuances of Medicare-related health insurance options for people over age 65.
  • Cheaper Part C and Part D plans are sometimes the most expensive option in the long run.


What is Medicare?

In simplest terms, Medicare is nationalized healthcare for Americans who are either over age 65 or who are disabled. There are additionally two medical conditions that qualify a person to be eligible for Medicare: kidney disease requiring dialysis and amyotrophic lateral sclerosis (ALS). Medicare is primarily funded in two ways: (1) federal payroll (FICA) taxes deducted from paychecks when Americans are employed and (2) Medicare monthly premiums after Americans turn age 65. The payroll taxes cover Medicare Part A and the monthly premiums pay for Medicare Parts B & D.

Medicaid is a different but related program that pays for healthcare for low-income individuals, low-income families, and disabled citizens. Unlike Medicare that is entirely funded through the federal government, Medicaid is funded by both the federal government and state governments. As a result, each state makes its own rules about Medicaid resulting in Medicaid eligibility and services varying widely from one state to another.

Medicare (Parts A & B) and Medicaid were created in 1965 by Title XVIII of the Social Security Act. Prior to that time, 40% of American seniors had no health insurance and had no way of paying for healthcare. Since 1965, Congress has passed additional laws expanding or clarifying Medicare coverage including the creation of Medicare Part C in 1997 and Medicare Part D in 2006.

Currently, according to the most recent CMS data, 18.4% of Americans are covered by Medicare and 17.8% are covered by Medicaid. However, because most healthcare costs occur in elderly people, Medicare accounts for a disproportionately higher percentage of total U.S. healthcare expenditures at 21.1%. Although not shown in the graph below, the percentage of healthcare costs paid by Medicare fell in 2020 because of federal COVID programs that are included in the “Other Third Party Payers and Programs” (maroon line).

The components of Medicare include Parts A, B, C, and D. In addition, there are Medigap plans that can supplement Parts A & B.

Medicare Part A

Medicare Parts A and B are often called “traditional Medicare” or “original Medicare” since these were the components when Medicare was originally created in 1965. Medicare Part A covers hospital charges for inpatient admissions and also covers skilled nursing facility charges. Once a person turns age 65, Medicare Part A is free if that person (or their spouse) has been employed and paid payroll taxes for at least 10 years. You do not get Medicare Part A automatically, you must sign up for it, preferably 3 months before your 65th birthday. If a person (or their spouse) has not been previously employed and paid payroll taxes for 10 years, then they can purchase Medicare Part A at a cost of either $274 or $499 each month, depending on the total number of years that person or their spouse did pay payroll taxes.

Medicare Part A does not cover all hospital charges, however. There is an annual $1,556 deductible that the individual must first pay. After paying the deductible, the portion of hospital charges that Medicare Part A covers depends on the duration of hospitalization:

  • Days 1-60: $0 after the Part A deductible.
  • Days 61-90: $389 copayment each day.
  • Days 91-150: $778 copayment each day while using the 60 lifetime reserve days
  • After day 150: all hospital charges paid by the individual

There is a similar payment scale for skilled nursing facilities with Medicare Part A covering all costs for the first 20 days. For days 21-100, there is a  $194.50 co-payment per day. After 100 days, the individual is responsible for all daily charges.

Medicare Part B

Medicare Part B covers physician charges (both inpatient and outpatient) as well as office visits, outpatient hospital charges, chemotherapy, and many intravenous drugs administered in a physician office. Unlike Medicare Part A, a person must pay monthly premiums in order to receive Medicare Part B, starting at age 65. It is important to sign up within 3 months of turning 65 because failure to sign up in time will result in a 10% monthly penalty (in addition to the monthly premium). The monthly premium depends on the person’s annual income. This is based on the modified adjusted gross income (MAGI) reported to the IRS two years ago (thus, your 2022 Medicare Part B premiums are based on your 2020 income tax forms. The MAGI includes income such as employment wages, pensions, 401(k)/403(b)/457 withdrawals, interest, dividends, and social security payments.

Medicare Part B has an annual $233 deductible and a 20% co-pay for most charges. Notably, “observation status” admissions to the hospital are considered outpatient visits and are thus covered by Medicare Part B and not Part A. Part A only covers “inpatient status” admissions which generally require a patient to have a hospital stay of greater than 2 midnights. Overall, about 20% of hospitalizations are considered to be observation status but for some hospitals, that number can be as high as 50%. As a result, many patients face unexpected 20% co-pays for hospitalizations.

Medigap. These are health insurance policies that can cover Part A deductibles, Parts A & B co-pays, and foreign travel health costs. There are 10 different Medigap plans, 8 of which are open to new enrollees. Each plan has different degrees of extended coverage. They are sold by commercial insurance companies and the monthly premiums vary but average about $155 per month. There are a number of rules pertaining to Medigap plans:

  1. You must have Medicare Parts A & B
  2. You cannot have a Medicare Advantage Plan
  3. Medigap plans do not cover medications
  4. If you sign up for a Medigap plan more than 3 months after turning 65, you will pay a penalty and insurance companies can refuse to sell you a Medigap plan

Medicare with other group insurance. Many people over age 65 receive health insurance through their employer, their union, or their retirement system. In this case, healthcare coverage is provided by both Medicare and the commercial group health insurance. There are rules that dictate whether Medicare pays first or the group health insurance pays first. These are sometimes called primary and secondary payers. In general, the group health insurance will provide the same types of coverage that a Medigap plan and a Part D prescription drug plan covers and thus these individuals should not sign up for a Medigap or Part D plan. These group health plans are often more expensive than Medicare Advantage Plans but usually have more comprehensive coverage with lower deductibles and co-pays.

Medicare Part C

Medicare Part C (also known as Medicare Advantage Plans) can best be thought of as privatized versions of Medicare Parts A & B combined with a Medigap policy and a Part D prescription drug plan. Under these plans, commercial health insurance companies are paid each month by Medicare to outsource your healthcare coverage. In return, the commercial insurance companies pay the services normally covered by Medicare Parts A & B. Medicare Advantage plans also pay for charges that would otherwise be covered by a Medigap policy and usually cover prescription drug costs as well. These plans sometimes provide additional services not covered by traditional Medicare Parts A & B such as fitness programs, dental insurance, and vision insurance. Overall, 45% of new Medicare enrollees chose to enroll in Medicare Part C rather than traditional Medicare.

To enroll in a Medicare Advantage Plan, a person must first be enrolled in Medicare Parts A & B. New Medicare enrollees can sign up for a Medicare Advantage Plan at the time of enrollment in Medicare (age 65). People currently on traditional Medicare Parts A & B can also change to a Medicare Advantage Plan during the regular open enrollment period: October 15 – December 7. People currently on a Medicare Advantage Plan can switch to a different Medicare Advantage Plan either during the regular open enrollment period or during the Medicare Advantage Plan open enrollment period: January 1 – March 31.

When a person enrolls in a Medicare Advantage Plan, he/she continues to pay regular monthly Medicare Part B premiums to Medicare and additionally pays the Medicare Advantage Plan monthly premiums to the commercial insurance company. These latter premiums can vary widely from as little as $0 to more than $200 per month. A recent study found that 69% of Medicare Advantage Plans in 2022 had no additional premium and the average Medicare Advantage Plan premium that includes prescription drug coverage is $58 per month. On the surface, the Medicare Advantage Plans appear to be a great deal – for the same price or just a few dollars more than Medicare Part B, you can also get prescription drug coverage, lower co-pays, lower deductible limits, dental care, and vision care. However, like most things in life, you get what you pay for and there are features of Medicare Advantage Plans that can make them less desirable than traditional Medicare to some people:

  1. Restrictions in which physicians you can see. With traditional Medicare, you can see any physician in the country who accepts Medicare; only 1% of non-pediatric physicians have opted out of Medicare which means that a person with traditional Medicare can see any of 99% of U.S. physicians who treat adults. With Medicare Advantage plans, enrollees are limited to only those physicians who in network for that particular commercial insurance plan. A Kaiser Family Foundation study found that the average Medicare Advantage  Plan only covers care by 46% of physicians in any given county. Medicare Advantage Plans generally fall into one of two categories: (1) HMOs that restrict enrollees to seeing only physicians who are members of that HMO and (2) PPOs that have a lower cost for in-network physicians and a higher cost for out-of-network physicians. These restrictions work fine for most healthy people but those requiring specialized care for chronic diseases or those who need elective surgeries can find themselves unable to be treated by specialists of their choice. For example, I specialized in interstitial lung diseases and for many years was the only pulmonologist in Columbus who specialized in these diseases. Patients belonging to a Medicare Advantage Plan sponsored by one of the other health systems in Columbus were not able to see me unless they paid for their office visits themselves, out of pocket.
  2. Restrictions on which skilled nursing facilities you can use. Each Medicare Advantage Plan will also have a group of in-network skilled nursing facilities. A study published last month found that enrollees in traditional medicare had access to more of the top-rated skilled nursing facilities than enrollees in Medicare Advantage Plans.
  3. Prior authorization requirements. Medicare Advantage Plans almost always require prior authorization before a patient can see a specialist or undergo a procedure. Prior authorization is quite laborious for physicians and office staff and frequently, physicians will just not order a consult or a test because it takes too much time. As an example, many Medicare Advantage Plans require prior authorization when a physician orders a CT scan. The chest CT scan is a standard part of the work-up of every patient with interstitial lung disease. My office staff would typically complete the initial prior authorization forms but after the insurance company does its preliminary review, it would frequently require a “peer-to-peer” review that would require me to speak directly to another physician who works for the insurance company. This would require me to first call the insurance company myself to schedule a day and time for their physician to call me back. Then the physician would call me and almost always approve the CT scan. I would then need to contact the radiology department with the approval number. Not only would this require a minimum of 4 phone calls but I would often be put on hold when calling myself – once I was kept on hold for 45 minutes just to get a routine chest CT approved! As a result of prior authorization, many patients are either unable to get a recommended specialist consult, procedure, or test or there is a delay in getting the consult, procedure, or test.
  4. Long hospitalizations are more expensive. A recent study found that the average Medicare Advantage plan has lower out-of-pocket costs to enrollees for hospitalizations of 6 days or shorter than traditional Medicare. However, for hospital stays longer than 6 days, the out-of-pocket costs are higher for the average Medicare Advantage Plan than for traditional Medicare.
  5. Variable deductibles and co-pays. The degree that each Medicare Advantage Plan covers deductibles and co-pays varies considerably and many of the low cost plans can be more expensive than traditional Medicare in the long run. It is essential that seniors look at the fine print of each Medicare Advantage Plan that they are considering enrolling in.
  6. Variable prescription drug coverage. Each Medicare Advantage Plan covers prescription drugs differently and just because a plan advertises prescription drug coverage does not necessarily mean that the enrollee will save money on the drugs that they take. Plans often restrict enrollees to purchase medications from a specific pharmacy. Co-pays and deductibles for prescribed medications can vary considerably from plan to plan. And perhaps most importantly, each plan will have a different drug formulary listing which drugs the plan will actually cover. There are only 2 drugs approved to treat idiopathic pulmonary fibrosis and each cost about $100,000 per year. Many of my patients who switched to lower cost Medicare Advantage Plans found that these drugs were not on the new plan’s formulary or had co-pays of as much as $40,000 per year. These patients had to either pay out of pocket or stop taking the medication.

Because it would seem that the Medicare Advantage Plans offered by commercial insurance companies provide much more comprehensive medical care at a lower cost than traditional Medicare plus a Medigap policy, many pundits have suggested that all of Medicare should be privatized. However, there is a dark side of the Medicare Advantage Plans. First, they bill Medicare for each senior that they enroll. However, they get paid by Medicare based on how sick each enrollee is. For that reason, the plans have gone to great lengths to document every medical condition that each enrollee has and in many cases, they have exaggerated these conditions by inflating enrollees’ “risk scores”. A report by the Kaiser Family Foundation found that Medicare Advantage Plans overcharged the federal government by $106 billion between 2010-2019. The problem seems to be accelerating as $34 billion of these overcharges were in 2018-2019 alone. There is a bright side to this, however. Because insurance companies are incentivized to document every medical condition that each enrollee has in order to increase patients’ risk scores, the insurance companies are incentivized to get their enrollees screened for as many diseases as possible. This resultant emphasis on screening has led to many Medicare Advantage Plans out-performing traditional Medicare when it comes to disease screening and routine wellness visits.

A second dark side of the Medicare Advantage Plans is that they use prior authorization denial and payment denial in order to avoid paying for costly procedures and tests. An April 2022 report by the U.S. Office of the Inspector General found that 13% of prior authorizations that were denied by Medicare Advantage Plans actually met regular Medicare approval criteria. Furthermore, the OIG found that of services that were performed but that Medicare Advantage Plans later denied payment for, 18% of denials met Medicare criteria and should have been paid. These denials are a strategy used to increase the profits of Medicare Advantage Plans and is potentially dangerous for patients.

A third dark side of the Medicare Advantage Plans is that although they are great for people when they are reasonably healthy, they often limit coverage for people once they become ill. The U.S. Office of the Inspector General found that sicker people who are in Medicare Advantage Plans were more likely to disenroll and return to traditional Medicare than healthy people. This is especially true for seniors who develop cancer and find that cancer specialists or cancer hospitals that they want to utilize are not in the Medicare Advantage Plan’s network.

Medicare Part D

A Medicare Part D plan is a prescription drug insurance policy sold by a commercial insurance company approved by Medicare. It is required that enrollees have Medicare Part A and/or Part B. Having a Medigap plan is permitted but not required. Seniors can enroll in a Part D plan either when they turn 65 and enroll in Medicare Parts A & B or during the open enrollment period between October 15 – December 7 each year. However, if you do not enroll in a Part D plan when you are first eligible to enroll in Medicare, then you will have to pay a 12% annual penalty if you enroll in a Part D plan at a later date. If you are enrolled in a Medicare Advantage Plan (Medicare Part C), you cannot enroll in a Medicare Part D plan.

The cost of Medicare Part D depends on both the cost of the specific Part D plan and the modified gross annual income of the enrollee. Each Part D plan has different costs, depending on drug coverage. The average Part D base premium is $33.37. Similar to Medicare Part B, there is an additional add-on cost to the base premium for those people with higher modified annual gross income:

Part D plan costs do not stop with monthly premiums, however. In addition, there is an annual deductible that can vary from $0 to more than $480, depending on the individual Part D plan. There are also co-pays on each drug each month. The co-pay amount varies from plan to plan and can vary depending on specific drugs within a plan. A person’s costs also change during the coverage gap (also known as the “donut hole”). Each year, the coverage gap begins when a person has spent $4,430 in out-of-pocket expenses in their Part D plan (for deductible and co-pay amounts). When in the coverage gap, there is a limit that Part D will cover for drugs and the enrollee pays up to 25% of the cost of a drug out-of-pocket. Once a person’s annual out-of-pocket drug expenses reach $7,050, the coverage gap ends and “catastrophic coverage” begins resulting in the individual only having to pay a 5% co-pay for prescribed drugs for the rest of the year.

As with Medicare Advantage plans, each Medicare Part D plan has its own formulary of covered drugs and the drugs on the formulary can change each year. For this reason, it is important that seniors considering a Part D plan look carefully at the plan’s formulary to confirm that their current prescription drugs will actually be covered.

Sign-up recommendations

In my opinion, there are really only three realistic options: (1) Sign up for a Medicare Advantage Plan. (2) Sign up for a combination of traditional Medicare + a Medigap plan + a Part D plan. (3) Sign up for Medicare Parts A & B and continue your group health insurance plan through your employer, union, or retirement system. Relying on traditional Medicare alone is risky because Medicare Parts A & B deductibles and co-pays can be financially devastating if you do not have a Medigap policy. Prescription drug costs can be financially devastating without a Part D plan.

Part A. If you or your spouse has previously worked for at least 10 years, Medicare Part A is free – never turn down free healthcare. Sign up 3 months before you turn 65. You sign up through Social Security (on-line or in person).

Part B. Sign up the same time you sign up for Medicare Part A. If you continue to work past age 65 and get comprehensive health insurance through your employer, then sign up when you retire (although some employers will require you to sign up for Medicare Parts A & B at age 65 even if you are continuing to receive employer-provided group health insurance). You sign up through Social Security (on-line or in person).

Medigap. Sign up at the same time you sign up for Medicare Parts A & B. You should only buy a Medigap policy if you are enrolling in traditional Medicare (Parts A & B) and you should not buy a Medigap policy if you intend to sign up for a Medicare Part C Advantage Plan. If you have group health insurance through your employer, union, or retirement system, you do not need a Medigap policy. You sign up through a commercial insurance company.

Part C (Medicare Advantage Plans). Sign up as soon as you have signed up for Medicare Parts A & B and have your Medicare number. Medicare Advantage Plans are usually preferable to traditional Medicare + a Medigap policy + a Part D plan for people who are relatively healthy. People with serious diseases, such as cancer, need to be careful when signing up for a Medicare Advantage Plan since traditional Medicare + a Medigap policy + a Part D plan may be less expensive in the log run and may allow more choices in physician specialists and specialty hospitals. If you have group health insurance through your employer, union, or retirement system, you do not need a Part C plan. You sign up through a commercial insurance company.

Part D. Sign up as soon as you have signed up for Medicare Parts A & B. Only sign-up for a Part D plan if you intend to enroll in traditional Medicare and not in a Medicare Advantage Plan. If you have group health insurance through your employer, union, or retirement system, you do not need a Part D plan. You sign up through a commercial insurance company.

This all seems really, really complicated

When first enacted, the U.S. Federal income tax system was very simple. Since that time, there have been dozens of new tax laws passed that have resulted in the tax code becoming extraordinarily complicated. The same thing has happened with Medicare – when first enacted, it was simple. But since then, numerous pieces of legislation have added, modified, or deleted parts of Medicare coverage resulting in Medicare now becoming so complex that most people need help navigating all of the decisions they must make when signing up for Medicare. It is important to carefully consider factors such as in-network providers, deductibles, co-pays, and medication formularies when selecting among Medicare options. Like most things in life, when it comes to Medicare options, you get what you pay for and often the cheapest option in the short-run can end up being the most expensive option in the long-run.

October 17, 2022

Medical Economics

Understanding Hospital Ratings (and how hospitals can game those ratings)

Consumers use ratings in everything that they buy. Amazon rates merchandise, Consumer Reports rates cars and appliances, Trip Advisor rates hotels, Yelp rates restaurants, and Google rates about everything. There are also rating systems for hospitals. But are these rating systems a reflection of the actual quality of care in the hospital or a reflection of the patient population served by the hospital? And if the latter, do hospitals attempt to choose their patients in order to improve their ratings?

The main four hospital rating systems are published by U.S. News & World Report, CMS’s Hospital Compare, Healthgrades, and Leapfrog. In an 2019 article in NEJM Catalyst, the authors rated the rating systems and found that all of the rating systems had flaws. In the article, each rating system was given a letter grade and none received an “A”.

  • U.S. News & World Report: B
  • CMS Hospital Quality Star Ratings: C
  • Leapfrog Safety Score: C-
  • Healthgrades: D+

Each of these rating systems uses different measures to determine hospital ratings. In order to understand what the rating really means, you need to first understand how the ratings were made.

U.S. News & World Report

The highest rated system was U.S. News & World Report’s annual hospital ranking. Each year, U.S. News & World Report updates their methodology in order to continually improve on its accuracy and relevancy. This process of annual methodology revision has resulted in the U.S. News & World Report ratings becoming more accurate each year. This year, the rankings are determined by four elements that are each weighted differently in determining the overall hospital rank:

  1. Patient outcomes (37.5%) – measured by the number of Medicare patients who died within 30 days of being admitted to the hospital in 2018, 2019, & 2020. The measure was adjusted to factor in each patient’s age & gender, the type of care received, co-morbidities, and whether patients were on Medicaid as well as Medicare. The Medicaid adjustment is important because it is a marker of low-income Medicare patients. A criticism of this measure is that the survival data is 3-5 years old and may not reflect the hospital’s current survival data.
  2. Patient experience (5%) – measured by the HCAHPS patient satisfaction surveys
  3. Other care-related indicators (30%) – measured by nurse staffing, patient volume, certain clinically proven technologies and professional & specialty-specific recognition
  4. Expert opinion (27.5%) – measured by an annual survey to board-certified physicians about which 5 hospitals they consider to be the best for their particular specialty.

CMS Hospital Quality Star Ratings

The current (2022) year CMS Hospital Quality Star Rating is based on five elements:

  1. Mortality (22%) – measured by the number of Medicare patients with specific diseases who died within 30 days of admission in 2017, 2018, and 2019. The diseases include: myocardial infarction, coronary artery bypass & graft surgery, COPD, heart failure, pneumonia, stroke, and surgical patients.
  2. Patient safety (22%) – measured by eight different safety measures obtained from 2017 to 2020. Some of the measures include central line infections, C. difficile infections, and surgical site infections.
  3. Readmission (22%) – measured by the number of patients with 11 specific diagnoses who required readmission within 30 days of discharge from the hospital. Data are from 2017, 2018, and 2019.
  4. Patient experience (22%) – measured by the HCAHPS patient satisfaction surveys from 2019.
  5. Timely and effective care (12%) – measured by 13 different elements from 2019 and 2020. Some of the measurements include percent of staff vaccinated for influenza, ER length of stay times, percent of ER patients who left without being seen, appropriate follow-up interval for routine screening colonoscopy, and number of patients with low back pain who got an MRI without first getting physical therapy.

Leapfrog Safety Score

The Leapfrog Group was founded in 2001 by a group of large employers who wanted to have objective quality metrics in order to change the way that these companies purchased healthcare for their employees. They give hospitals a grade of A through F based exclusively on patient safety. Leapfrog uses data from CMS and from their own survey. A criticism of Leapfrog is that only about half of U.S. hospitals return the Leapfrog survey. In addition, there is no audit process in place to validate the self-reported survey responses, creating opportunities for falsifying survey responses in order to appear more favorable. The Leapfrog grade is based on two elements:

  1. Process measures (50%) – these are 12 different measures of how healthcare is delivered by the hospital such as whether there is computer order entry, how the ICU is staffed by physicians, and how frequently staff practice hand hygiene. The measures are assessed on data from 2020 to 2021.
  2. Outcome measures (50%) – these are 10 different measures such as: frequency of MRSA infection, frequency of patient falls, and frequency of air embolism. The measures are assessed on data from 2018 to 2021.

Half of the Leapfrog Safety Score is based on process measures that only indicate whether the hospital has those specific processes in place and does not indicate whether those processes actually improve patient care in that particular hospital. Another criticism of the Leapfrog Safety Score is that it does not incorporate mortality, which can be argued is one of the more important measures of the effectiveness of hospital care.


Healthgrades bases its rating on outcomes for 33 medical conditions and procedures. The data for hospitals in 34 states is derived only from Medicare reported data. In the other 16 states, data is derived from both Medicare reports and all-payer reports. Outcomes are adjusted for a large number of co-morbidities. However, there are a large number of exclusions, for example, any Medicare patient under age 65. The elements of the rating are:

  1. Mortality cohorts – these measures are based on the number of patients with 17 different diagnoses who die within 30 days of admission. The diagnoses include conditions such as bowel obstruction, cranial neurosurgery, and pancreatitis.
  2. In-hospital complication cohorts – these measures are based on whether complications occurred in patients undergoing 15 different surgical procedures such as appendectomy, prostatectomy, and hip replacement. In addition, complications occurring during one medical condition (diabetic emergencies) is included.

The problems with the rating systems

All four of the hospital rating systems have flaws. One of the most important flaws is that they rely heavily on Medicare data. This data is quite robust for assessing the outcomes of Medicare patients. However, the only patients in the Medicare database are those who either are over age 65, are receiving dialysis for kidney failure, or are disabled. Currently, only 18.4% of the U.S. population is on Medicare so there is no hospital outcome data for the majority of Americans. Because hospital ratings drive hospital quality improvement processes, American hospitals have been more strongly motivated to improve care to patients older than age 65 with less attention given to improving care to younger patients.

A second flaw is that most of the outcome data is based on information that is several years old. In the case of U.S. News & World Report, the data is up to 4 years old and in the case of CMS, the data is up to 5 years old. Hospitals are constantly improving their patient care practices and most hospitals have made changes in those practices over the past 5 years. As a result, the data from which the ratings are derived can be significantly out of date and not reflective of current hospital practices.

A third flaw is that the rating systems rely on surveys. The HCAHPS survey data is used by the U.S. News & World Report rating and by the CMS Hospital Quality Star rating. Nationwide, on average only 26.7% of patients respond to the HCAHPS survey and there is wide variation with many hospitals having significantly lower response rates. A 2019 study in the Patient Experience Journal found that the higher a hospital’s HCAHPS survey response rate, the higher that hospital’s average HCAHPS score was from those surveys. The implication is that patients are more likely to fill out a survey if they were unhappy with their care so that the sample of patients responding to the survey is not representative of the total hospital patient population. Those hospitals that can convince more patients to fill out surveys will thus have higher HCAHPS scores.

Leapfrog sends surveys to hospitals to fill out but only about half of U.S. hospitals respond to their survey. Those Leapfrog surveys are typically filled out the the hospital’s quality staff who can have a conflict of interest in their survey responses since those staff generally also have their job performance evaluations based on the reported quality outcomes. As a result, the Leapfrog surveys can portray the hospital as performing better than it actually is. For hospitals that do not respond to their survey, Leapfrog obtains surrogate data from other sources. It is not clear if data from those other sources is equivalent to the survey data so it is uncertain if valid comparisons can be made between those hospitals that do fill out Leapfrog surveys and those hospitals that do not return surveys.

A fourth flaw in the ratings is that only a limited number of medical conditions are evaluated. U.S. News & World Report’s rating is based on overall mortality with the result that not much is known about the quality of care for patients who do not die. The CMS Hospital Quality Star rating also uses mortality but only for 7 specific conditions. CMS readmission data is limited to patients with 11 specific diagnoses and its patient safety data is based on only 8 complication diagnoses. The Leapfrog rating does not incorporate mortality data and only incorporates a very limited number of complication diagnoses. The Healthgrades rating is disproportionately based on surgical outcomes and incorporates very little outcome data on non-surgical patients.

The problem of healthcare gerrymandering

In politics, gerrymandering is when politicians set district boundaries in order to choose their voters to win elections. In medicine, the equivalent of elections are annual hospital ratings. Medical gerrymandering is when hospitals choose their patients in order to improve their ratings. After years of having to explain low hospital ratings to hospital CEOs, Deans, and hospital board members, I’ve come to realize that it easy for hospitals to game the rating systems. Here are some of the specific ways that hospitals can improve how they look on the various surveys. Some are legitimate but others are quite nefarious.

Diagnosis selection. It might seem like a patient’s diagnosis is pretty straightforward but this is not always the case. For example, pneumonia is typically defined as a respiratory infection accompanied by an infiltrate on a chest x-ray. But what if the x-ray is normal and the infiltrate is only seen on a chest CT scan? Or what if the x-ray is normal but the doctor believes that the patient has pneumonia based on physical exam? These pneumonia patients tend to be less sick and therefore less likely to either die or be readmitted. Consequently, by being liberal with diagnosis definitions in less ill patients, the hospital can reduce the death rate and readmission rate by including more patients who have mild illness. Often, the diagnosis that is submitted to CMS or other rating organizations is based on the DRG diagnosis that is selected for a given patient’s admission. The DRG diagnosis is usually chosen by the hospital’s coding department staff and if there are 2 possible diagnoses that they can chose from, they will usually chose the DRG diagnosis that pays more. For over a year, I reviewed the charts of all patients who died in our hospital and found that in some, the DRG diagnosis did not really match the patient’s actually clinical diagnosis. By changing the DRG diagnosis, the patients were sometimes re-classified with a diagnosis that was not included in the rating data.

Co-morbidity selection. As a general rule, the more co-morbidities that a patient has, the more likely they are to die or be readmitted to the hospital. Once again, these co-morbidities are generally selected by the coding staff. When I reviewed the inpatient charts of those patients who died in the hospital, I was often able to find co=morbidities that the coding staff overlooked. Because the U.S. News & World Report rating system takes into account these co-morbidities, the more you can list, the better your overall rating will be.

Classify dying patients as being in observation status. Hospitals usually lose money on those patients who are kept in observation status. Observation patients are considered to be outpatients so they have more co-pays and the hospital cannot charge the insurance company for a lucrative inpatient DRG. As a general rule, patients who are anticipated at the time of admission to require a hospital stay of “less than 2 midnights” are considered to be in observation and are not considered to be inpatient admissions. This turns out to be very important in hospital rankings because the mortality rates are only based on those patients who have an inpatient admission. In other words, patients in observation status who die are not included in the mortality calculations for hospital rankings. It is very common to have patients admitted to the intensive care unit after an out-of-hospital cardiac arrest or some other catastrophic medical event and those patients die in the ICU a few hours later. The hospital finance department will want those patients to be classified as inpatients (since they have a medical condition that would have required a stay of greater than 2 midnights if they had lived). However, I trained our admitting physicians to put those patients (who were anticipated to die within 24 hours) in observation status when first admitted to the ICU. If they died within the first day of their ICU stay, they would die in observation status and not be included in our inpatient mortality data. If they survived for more than a day in the ICU, the physician would change their admission level of care order from observation to inpatient admission so that the hospital got paid for the admission. Because inpatient mortality is based on Medicare patients, some hospitals further game the system by only classifying Medicare patients with impending death as being in observation status and leaving commercially-insured patient who are not on Medicare as being inpatient status.

Keep “frequent flyers” in observation status. Similar to mortality rates, only patients with an inpatient admission are included in readmission rate calculations. There are some patients who you know are likely to return to the hospital within 30 days. If you keep them in observation status rather than admit them as inpatients, they won’t count against the hospital’s 30-day readmission rate.

Enroll dying patients in hospice. Medicare does not include patients who are enrolled in hospice in mortality data. However, patients must either already be enrolled in hospice prior to an inpatient admission or become enrolled in hospice during their first hospital day. Identifying those patients who have ultimately terminal diseases and getting them enrolled in hospice early not only helps serve the patients’ palliative care needs but also eliminates those patients from counting toward the hospital’s mortality rate if they die within 30 days of an inpatient admission.

HCAHPS survey response rates. As described in the last section, the patients who do not fill out HCAHPS surveys tend to be those who were more happy with their care. Hospitals that have tactics in place to get more patients to fill out their HCAHPS surveys will get a higher average score on their surveys. Therefore, hospitals that put resources into getting as many patients as possible to respond to the HCAHPS survey will have higher ratings than hospitals with a low survey response rate.

Flood U.S. News and World Report with expert opinion surveys from your own physicians. Americans in 2022 have survey fatigue. We are constantly receiving phone surveys, mail surveys, and email surveys. There are just too many surveys so we don’t bother to fill most of them out. Physicians are no different and many (or most) physicians who receive a U.S. News & World Report expert opinion survey just toss it in the trash. But if a hospital can convince all of its doctors to respond to the expert opinion survey (and rank the hospital in their top 5), then it can move up in the overall ratings. With expert opinion accounting for 27.5% of the overall U.S. News & World Report rating, this strategy is low-hanging fruit for hospitals, especially for hospitals with a large medical staff.

Choosing your patients. The best way to improve the hospital’s rating (and most immoral) is for the hospital to select the patients that it admits. Whether a patient dies within 30 days of being admitted and whether a patient is readmitted within 30 days of discharge is only partially dependent on the medical care delivered while that patient was admitted to the hospital. Socioeconomic factors that the hospital cannot control are at least as important. Age, income level, employment status, housing status, health insurance status, access to transportation, level of education, smoking status, primary language spoken, marital status, alcohol use, drug use, psychiatric co-morbidity, and race can also have a profound impact on disease outcomes, particularly after discharge. Hospitals that care for a larger percentage of older, low-income, unemployed, homeless, uninsured, smoking, low education level, foreign born, or racial minority patients will inevitably have worse mortality and readmission rates than hospitals that mainly care for patients coming from a high socioeconomic group. There are several ways that a hospital can alter their inpatient population in order to improve their overall outcomes and thus their ratings.

    • Location, location location. By building a hospital (or a satellite hospital facility) in an affluent suburban area, that hospital will naturally attract a more affluent patient population. For hospitals that own primary care practices, by locating those physician offices in affluent suburban areas, it can ensure more affluent patients being admitted to the hospital.
    • Nurture referring physician relations. One of the most important reasons that patients choose to go to a particular hospital is whether their physician recommends that particular hospital. If the hospital fosters relations with private practice primary care physicians who are located in affluent neighborhoods, it can improve the average socioeconomic status of that hospital’s inpatients and by doing so, improve the hospital’s rating.
    • Nurture referral hospital relations. For those hospitals that receive a relatively large number of hospital transfers, by fostering referrals from smaller hospitals that are located in affluent communities, the hospital can skew its inpatient population to a patient group that is more likely to have better readmission and mortality rates.
    • Discourage unfavorable patients. In large cities, patients usually have a choice of emergency departments and hospitals to utilize. When patients have a bad experience at one hospital, they will tend to go to another hospital in the future. Cab vouchers and free meals in the emergency department can encourage low income patients to come to the hospital. On the other hand, liberal use of collection agencies for unpaid bills can discourage those patients. Hospitals have ways to tacitly discourage low income patients, minorities, smokers, and foreign-born patients from coming back. If the outpatient physicians affiliated with the hospital do not accept Medicaid or require up-front full payment from uninsured patients, then those patients will migrate to other health systems. This is the ugly side of American healthcare but unfortunately, ugly exists in every state and every large city.
    • Encourage favorable patients. Hospitals cannot get away with giving something tangible to one group of patients and withholding that something from another group. At the worst, it may be against the law and at best, it results in bad publicity. However, there are subtle ways to attract patients who are more likely to have better mortality and readmission outcomes. Since these outcomes are based on Medicare data, the trick is to attract “favorable” patients over age 65. Adding extra free wellness programs as part of commercial insurance contracts makes the hospital attractive to those seniors who can afford to purchase secondary health insurance. Similarly, free hospital-sponsored wellness programs in affluent neighborhoods can attract more affluent seniors. Hospital advertising campaigns that feature physically fit seniors hiking, swimming, and going on vacations to foreign countries will appeal to healthy, affluent Medicare enrollees.

I spent most of my career practicing in an urban hospital that served a patient population that would be considered “unfavorable” from a socioeconomic standpoint… and if I had to do it all over again, I would not change a thing. Idealism was one of the reasons I went into medicine in the first place. But for every hospital that is motivated by idealism, there is at least one hospital that is motivated by profit and fame. Unfortunately, our hospital rating systems reward the latter and not the former.

September 16, 2022