Category: Medical Economics

The Patient Protection and Affordable Care Act of 2010 has been one of the most polarizing pieces of legislation in recent history. Whether you call it the ACA or Obamacare, you probably either love it or hate it. One of the features of the Affordable Care Act was Medicaid expansion which was particularly objectionable to many Americans who believed that it was a threat to the idea of personal responsibility that has been central to American cultural identity. But there is a hidden side of Medicaid expansion that most people don’t realize, one that has left many critical access hospitals in the U.S. in danger of closing.

The Affordable Care Act left the decision of whether or not to participate in Medicaid expansion up to the individual states. Most states elected to participate but 19 states elected to not participate in Medicaid expansion. Through 2016, the federal government covered all of the cost of Medicaid expansion but by 2020, the federal government will only cover 90% of the cost of Medicaid expansion, leaving 10% up to the individual states. One of the main reasons that states opting out of Medicaid expansion offered was that they could not afford the 10% additional state portion of the Medicaid expansion.

On the surface, it might sound like the argument offered by these 19 states was correct. But under the surface, things are a lot more complicated and it all comes down to the “disproportionate share” funds.

There are 5,686 hospitals in the United States. Of these, about 250 are “safety net hospitals” that serve a disproportionate share of poor and uninsured patients. The federal government has long provided support for these hospitals in order to keep their doors open and provide care to those patients who cannot pay for it themselves. It makes sense: if you own a restaurant and a customer comes in asking for dinner but says he can’t pay for it, he doesn’t get served; but if a patient comes in to the emergency department with appendicitis and can’t pay for the appendectomy, the hospital and the doctors are legally required to provide care for him. The federal program that supports these safety net hospitals is the “Disproportionate Share Hospital” or DSH program that was enacted in 1981 as part of the OBRA act. Although 3,109 American hospitals have received some DSH funding, most of it is concentrated in hospitals in urban areas. Last year, federal DSH payments were $11.9 billion.

One provision of the Affordable Care Act that most people don’t realize is that it greatly reduces the federal DSH funds as it expands Medicaid, in fact, this is one of the ways that Medicaid expansion is funded. Under the original Affordable Care Act, Medicaid DSH allotments were to be reduced by $0.5 billion in 2014, $0.6 billion in 2015, $0.6 billion in 2016, $1.8 billion in 2017, $5 billion in 2018, $5.6 billion in 2019, and $4 billion in 2020. There have been some additional laws affecting DSH fund reduction since the Affordable Care Act with the net result of delaying the reductions in DSH funds. Currently Under current law, the aggregate reductions to the Medicaid DSH allotments will be $2.0 billion in 2018, $3.0 billion in 2019, $4.0 billion in 2020, $5.0 billion in 2021, $6.0 billion in 2022, $7.0 billion in 2023, $8.0 billion in 2024, and $8.0 billion in 2025.

Up until now, DSH expenditures have been concentrated in just a few states: New York, California, Texas, and Louisiana account for half of DSH expenditures and 10 states (one of which is Ohio) account for 75% of DSH expenditures. There has been a lot of legislative jockeying in the 6 years since the Affordable Care Act with the result that the DSH funds will eventually be reduced but not eliminated and the future DSH funds will be largely redirected to a different group of states, namely those that did not expand Medicaid.

On the surface, this might sound like a victory for those states that opted out of Medicaid expansion but there are two problems.

First, DSH funds are a lot less than Medicaid funds so the increased DSH funds in states that did not expand Medicaid will not offset the lower federal Medicaid funds that these states would have received with Medicaid expansion. Last year, the federal government spent $300 billion on Medicaid but only $11.9 billion on DSH.

Second, there is an important difference between how DSH funds are used versus how Medicaid funds are used. DSH funds go to hospitals, where as Medicaid funds not only goes to hospitals but also pays for doctors and medications. As a result, DSH covers the cost of being sick but Medicaid covers both the cost of being sick AND the cost of keeping people well.

Let’s see how this plays out for a patient with coronary disease. When he has a myocardial infarction, DSH funds help to pay for his cardiac catheterization and coronary stent placements but once he leaves the hospital, he has no way to pay for Plavix or a statin and he has no insurance coverage to see a primary care physician for on-going preventive care. On the other hand, Medicaid funds pays for the cardiac catheterization and stent but also pays for the Plavix, statin, and primary care physician. In a DSH model, the patient keeps coming into the hospital with more myocardial infarctions requiring additional cardiac catheterizations and ultimately ends up disabled whereas in the Medicaid model, the patient does not have additional myocardial infarctions, stays out of the hospital, and remains in the workforce.

In Ohio, our legislators and our governor understood all of this and realized that failure to expand Medicaid was going to result in our safety net hospitals facing budget deficits or closing and Ohioans’ federal income tax dollars going to the other states that did expand Medicaid. But the legislators also knew that the average Ohio taxpayer did not understand all of the nuances of DSH funds and Medicaid expansion so they were in a bind: if they didn’t pass Medicaid expansion, federal funds were going to go to other states and not Ohio but if they did pass Medicaid expansion, they were going to have a hard time being re-elected because of the visceral reaction that many Ohioans had against the Affordable Care Act.

The solution was nothing less than brilliant. The legislature voted against Medicaid expansion thus saving face and ensuring their reelection and then the governor found a way to expand Medicaid via executive action thus ensuring Ohio did not lose out on the federal Medicaid expansion funds in a time of reduced DSH funds. In return, the legislators did not excessively criticize the governor or attempt legislation to overcome the executive action. Everybody won.

The major flaw in the opponents of Medicaid expansion is that whether or not you have Medicaid expansion, people are still going to get sick and when they get sick, hospitals and doctors are still going to be morally and legally obligated to take care of them when they are hospitalized, even if the patients can’t pay for it. With the reduction in DSH funds, there is a danger that those hospitals will close without the off-setting Medicaid funds. But even more concerning, without Medicaid expansion, states have no way to keep low income patients well.

Our medical students and residents realize this and it makes Medicaid expansion states a lot more attractive to start a medical career in than those states that did not expand Medicaid.

August 15, 2016

Value = quality divide by price. So… does the United States have high quality and low price? Unfortunately, no. Every year, I look forward to the OECD annual health report and the newest version was released in June. The OECD is the Organization for Economic Cooperation and Development. It consists of most of the world’s industrialized countries and from it we can get a scorecard of how the United States is doing compared to other countries. For this post, I’ve chosen 5 OECD member countries to compare to the U.S. for simplicity: Canada, France, Ireland, Japan, and the U.K.; however, you can just as easily choose just about any combination of OECD and get similar results.

Since last year, not much has changed and by the metrics used in the report, Americans continue to have poor value in healthcare and in fact, the value that we get is among the lowest in the world. Let’s start with a look at our cost of health care as a percentage of our gross domestic product. Americans spend far more than any other country on healthcare. Currently, we spend 16.9% of our GDP on healthcare. That is 50% more than the next OECD country, Switzerland, which spends 11.5% of it’s GDP on health care. The U.S.’s cost of health care continues to keep going up: in 2000, we only spent 12.5% of our GDP on health care.

One reason why health care costs can be expensive is that there are a lot of physicians. But as it turns out, the number of physicians per capita is in line with or less than other OECD countries. The causes of the high cost is more related to suboptimal management of chronic medical conditions such as asthma, COPD, and diabetes. Americans are the most obese among the OECD countries with 29.5% of the U.S. population reporting that they are obese (the next closest is Latvia at 25.7%). With obesity comes additional health costs. We also do a lot of testing. Only Estonia does more CT scans per capita than the U.S. and only Turkey does more MRIs per capita than the U.S.

Americans could still have good value if our health care quality is superior to other countries. However, by many measures, it is not. Our infant mortality rate of 6 deaths per 1,000 live births is the third highest of all reporting OECD countries; only Mexico and Turkey have higher infant mortality rates. Our traffic injuries per million population is the highest of all reporting OECD countries. Our average life expectancy for both men and women is lower than the OECD average. Currently, the female life expectancy at birth in the U.S. is 81.2 years. The only OECD countries with a shorter life expectancy are Hungary, Latvia, Mexico, the Slovak Republic, and Turkey. The average life expectancy in the U.S for a male born today is 76.4 years, also one of the shortest among OECD countries.

How does the United States compare to other countries for health insurance coverage? Well, of the 34 countries with insurance data in the OECD, the only country with a lower percentage of the population covered by either government or private insurance was Greece. Thus, the U.S. was the second worse in the OECD. Thus access to healthcare in the U.S. is lower than nearly every industrialized nation.

The OECD summarizes all of the different member countries in their “Health at a Glance 2015” documents. Their key findings were:

• “Life expectancy in the United States is lower than in most other OECD countries for several reasons, including poorer health-related behaviors and the highly fragmented nature of the US health system.
• The proportion of adults who smoke in the United States is among the lowest in OECD countries, but alcohol consumption is rising and obesity rate is the highest.  
• The quality of acute care in hospital in the United States is excellent, but the US health system is not performing very well in avoiding hospital admissions for people with chronic diseases.”

If you were to design an effective and efficient health care system from scratch, no one would design a system anything like what we have in the U.S. today, regardless of one’s political party affiliation. There are some great things about American health including the quality of our hospitals and our healthcare professionals. For a hospital medical director, it is up to us to maintain the high quality of acute care medicine and work to improve the quality of health of patients before and after they come into our hospitals. For every American, finding ways to reduce the cost of our healthcare is imperative if we are to remain competitive in world economic markets. It is up to us to decide how we catch up to the rest of the world while preserving those aspects of health care that we presently do better than anyone else.

August 9, 2016

Recruiting famous physicians

In hospital administrative circles, we have a word them, the Medical Rock Stars. They are the high-profile physicians that bring fame and notoriety. They’re the ones that the newspapers and television news reporters always seem to quote. They’re the ones that when you introduce yourself at a cocktail party, you get the question “So you work at that hospital, the one that Dr. Rock Star works at?”. They’re bigger than life and they bring excitement and vibrancy to your hospital. Hospitals value them and will spend a lot of money to recruit them.

But are they worth it? The answer is… sometimes. In order to decide whether or not to go after a medical rock star for your hospital, you have to have the right expectations.

What audience will they be playing to? Rock ‘n roll stars don’t get famous by playing every night in the local club. They get famous by traveling around the country playing in coliseums and stadiums and they are on the road a lot. The medical rock star is similar; they spend a lot of time being visiting professors at other hospitals and a lot of time making presentations at national and international meetings. They are not going to be at your hospital 5 days a week, 48 weeks a year.

What requests will you have to honor? Rock ‘n roll stars are notorious for making unusual demands to their concert venues. The band Van Halen famously required a bowl of M&M’s with all of the brown ones removed in their dressing room. Celine Dion requires her dressing room be precisely 73.4 degrees F. Paul McCartney once required 19 leafy six-foot plants and 4 leafy four-foot plants in his dressing room. Medical rock stars’ needs are usually not quite so bizarre but be prepared to hear about the need for unusual specialized medical equipment, office furniture, and support staff. The expense of a medical rock star doesn’t stop with salary.

What is your balance between rock stars and non-rock stars? In the music industry, some of the best musicians in the business are the studio musicians. They play day after day, they’re consistently good, but they don’t have the charisma or stage presence to be a rock ‘n roll star. It is the same at hospitals. You will need a core group of reliable clinicians who are great doctors but are never going to be famous. The sad reality of academic medicine is that in a university, you don’t get tenure or get promoted for being the best teacher or the best medical practitioner, you get promoted for writing papers about teaching and giving presentations at national meetings about the practice of medicine. Many of the best clinicians and clinical educators that I have ever known retired after 30 or 40 years of academic practice as assistant professors (the entry level academic rank) without ever being promoted up the academic ranks. But these physicians form the foundation of medical care at our hospitals: they take care of patients day after day and week after week, they are reliable, they practice high quality medicine, and they often make great clinical teachers.

How long will you be able to keep your rock star? The thing about medical rock stars is that every hospital wants them. From the first day on the job at your hospital, they are already being recruited by other hospitals. Part of their job as a medical rock star is to travel the country giving grand rounds and lectures. When they are traveling, they are frequently being offered jobs at the very same places that they are traveling to. On the other hand, the non-famous primary care physician working in your hospital’s outpatient clinic has his or her patient schedule booked solid for the next 6 months and can’t even leave the city on a weekday to go on a job interview. You will rarely keep the medical rock star at your hospital their entire career but you need to make the most of the time that you have them and not be surprised when they submit their resignation after 5 years at your hospital to take a position elsewhere.

So, do you need a medical rock star? The answer is… maybe. Your hospital will be brighter for the light that shines off of them but that light can be fleeting. Cherish the time that you have them but don’t expect them to stay around forever

August 8, 2016

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

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

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

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

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

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

Medscape Physician Compensation Analysis

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

AMGA Physician Compensation Analysis

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

Merritt Hawkins Physician Compensation Analysis

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

MGMA Physician Compensation Analysis

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

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

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

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

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

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

August 1, 2016