Medical Economics

Kicking Hepatitis C Down The Road

Hepatitis C has exposed one of the larger cracks in American healthcare financing. In particular, the drug Harvoni (ledipasvir-sofosbuvir) has shown us the inherent conflict between private health insurance (commercial insurance companies) and public health insurance (Medicare, Medicaid, etc.).

Hepatitis C is an enormous problem in the United States. There are about 2.7 million Americans with chronic hepatitis C – thats 1% of our population. Worldwide, there are about 200 million people infected with the virus. It is the #1 cause of liver transplant in the United States and it causes around 10,000 deaths per year. Half of the people infected don’t know that they are infected and there is no vaccine to prevent it. The most recent cost estimate for the virus in the United States is $6.5 billion per year. That is $21 for every man, woman, and child in our country. In other words, this is a big public health problem and big cost to our nation.

But things are changing for hepatitis C. Patients can now be essentially cured of the infection with Harvoni. The problem is that Harvoni costs $90,000 for a 12-week course.

So, here is what happens. A person acquires hepatitis C as a relatively young adult (when they have commercial insurance) and then the hepatitis C manifests itself 20-40 years later with cirrhosis or hepatocellular carcinoma as an older adult (when they have Medicare).

The commercial insurance company is financially motivated to prevent conditions that would arise when a person is relatively young and still covered by that insurance company, because those conditions are costly to treat. Therefore, it is cheaper for the insurance company to prevent a disease that is going to show up in 3-4 years than to have to treat that disease 3-4 years later. A example of this is an insurance company paying to treat high cholesterol with a statin in a 40-year old so that they don’t have to pay for the person’s myocardial infarction when they are 44-years old.

For hepatitis C, the insurance companies have little financial motivation to treat since the company isn’t going to be paying for the liver transplant or hepatectomy when the disease finally manifests itself – Medicare will. The insurance company is incentivized to get you to 65 without any expensive medical problems. There is no incentive for anything that happens to a person after age 65 – that’s Medicare’s problem.

On the other hand, Medicaid is incentivized to treat hepatitis C. The prevalence of hepatitis C is 7.5 times higher in the Medicaid population than in the commercially insured population and persons with hepatitis C on Medicaid are much younger than those who are commercially insured. Medicaid’s goal is to keep the person healthy enough that they can eventually become gainfully employed and therefore get off of Medicaid and onto a commercial health insurance plan. If that person develops cirrhosis, they likely won’t be working and will stay on Medicaid until they die, racking up higher costs for Medicaid.

Somehow we need to change the incentives so that all insurers are motivated to keep people healthy not just to age 65 but beyond. This will not only ultimately reduce healthcare costs in the United States by reducing the costs incurred by older Americans covered by Medicare but it will also keep Americans healthy enough that they can continue to work after age 65 which will reduce poverty among older Americans and put less financial burden on our nation in the form of Social Security. When the commercial insurance company denies coverage for Harvoni, it is not because the insurance company doesn’t think Harvoni will improve your health, it is because by not covering it, it will improve the company’s financial health.

We as Americans like to think that we have the best healthcare in the world. And as a Cleveland Brown’s fan, I keep thinking that this year we’re going to have a winning season. Somehow, reality always catches up.

November 3, 2016

Medical Economics

The 2017 Medicare Readmission Penalty

We have a readmission problem in the United States. About 1 out of 5 patients admitted to our hospitals are readmitted within 30 days. Those readmissions are costly: the average cost of 1 hospitalization in the U.S. is $15,000 but the cost of 1 hospitalization plus 1 readmission is $33,000, in other words, the readmission is more costly than the initial admission. Medicare has a solution: fine hospitals with higher readmission rates.

Here’s how it works. In 2013, Medicare looked at the readmission rates for 3 diagnoses: heart failure, myocardial infarction, and pneumonia. Hospitals with too high of a rate of readmission within 30 days of hospitalization were fined up to 1% of their total Medicare payments. The worse the hospital’s 30-day readmission rate, the larger the penalty they had to pay. In 2014, the maximum fine went up to 2% and in 2015, it went up to 3%. That is 3% of all of the hospital’s Medicare payments for all patients, not just for the heart failure/pneumonia, MI patients.

In 2015, Medicare added 2 additional diagnoses: COPD and joint replacement. For next year, Medicare is adding coronary artery bypass and graft surgery.

On the surface, the penalty system sounds good – you fine the worst performing hospitals. And in some cases, the hospitals have high readmission rates because they truly aren’t doing a good job and deserve to get fined. But if you look closer, a lot of the factors that affect whether a patient gets readmitted are beyond the control of the hospital. Several studies have found that the risks for readmission include:

  1. Patients who take more than 5 prescription medications
  2. African American race
  3. The elderly
  4. Patients with low health literacy
  5. Patients with Medicaid (a marker for low income patients)
  6. Patients who are socially isolated

So the penalty that a hospital pays may reflect more on the demographics of the patient population that they serve rather than the quality of care delivered while those patients were in the hospital.

Recently, Medicare has announced the penalties that hospitals will be paying next year, in 2017 (each year, the penalty is based on previous years). Overall, 2,597 hospitals will be penalized for a total of $528 million in penalties. Nationwide, 49 hospitals were fined the maximum 3% of the hospitals’ total Medicare payments. The average hospital was penalized 0.73%. About 1,400 of the nation’s hospitals were exempt if they are children’s hospitals, psychiatric hospitals, Veterans Administration hospitals, or critical access hospitals.

Our hospital (Ohio State University Hospital East) is considered part of the larger Ohio State University Wexner Medical Center so we are included in OSU’s data. Here is the 2017 penalties for Central Ohio hospitals:


The good news for Central Ohioans is that all of our area’s hospitals were below the national average meaning that all of our county’s hospitals are doing a good job with readmissions compared to hospitals in other parts of the country. I’m also pleased that OSU had the lowest Medicare penalty.

Commercial insurance companies are also jumping on board and are often looking at readmission rates for all diagnoses and not just the 6 that Medicare is currently looking at. In future posts, I’ll write about some of the things that we are doing at our hospital to reduce readmissions.

September 29, 2016

Medical Economics

How Residents Are Paid

If your hospital has residents, someone has to pay them. Ultimately, it is the American taxpayers. For the purposes of this post, when I use the word “resident”, I’m referring to interns, residents, and fellows all bundled together. Here at the Ohio State University, a 3rd year resident gets a salary of $55,679 and has a 38% benefit rate ($20,398) for a total cost of about $76,077 per year. We have 805 residents and the total cost for us is $60 million a year. So where does all of that money come from?

In 1965, Congress created Medicare and realized that we would need a lot of physicians to care for all of the older Americans who would be newly covered by Medicare. So Congress created 2 mechanisms to fund resident education: Direct Graduate Medical Education payments (DGME) and Indirect Graduate Medical Education Payments (IGME).

Direct GME payments cover:

  1. Residents’ salary & fringe benefits
  2. Salaries and fringe benefits of supervising faculty
  3. Other direct costs (GME office administration, accreditation fees, etc.)
  4. Residents’ share of overhead costs (electricity to run the hospital, etc.)

Overall, it costs about $152,000 per year to train a resident when all of these expenses are considered. Medicare only covers the proportion of the direct costs that apply to Medicare patients. The remainder of the costs are born by the teaching hospital, attending physicians, private payers, Medicaid, and Children’s GME. The direct GME payments are based on the cost to train residents in the 1984 and not the cost that the teaching hospital incurs today. It is calculated by the hospital’s cost per resident in 1984 adjusted for inflation; that number is then multiplied by the number of resident FTEs at the hospital (this number was capped in 1997) and then multiplied by the percentage of the care provided by the hospital that is provided to Medicare patients (versus all other payers). To make things more complex, Medicare will only pay fully for the number of years it would normally take a resident to complete their first residency; Medicare covers anything over that at 50% (eg, fellowship years, residents that need to repeat a year, etc.). Yet even more complexity: primary care residencies are calculated differently than non-primary care residencies.

Indirect GME payments cover:

  1. The cost to support the unique features of teaching hospitals such as burn units, trauma centers, neonatal intensive care units, and treatment of more complex patients.
  2. The additional time it takes to care for patients when there are learners (residents) involved.

The indirect GME is calculated by the “intern and resident to bed ratio” or IRB. So, if your hospital has 170 residents and 666 beds, you divide 170 by 666 to come up with an IRB of 0.255. Teaching hospitals are defined as being “major teaching hospitals” if their IRB is > 0.25. Medicare plugs the IRB into a complex equation to determine the extra amount that the hospital will be paid per DRG to cover indirect resident costs.

In 1997, Congress set “caps” on the number of residents that they would pay for and this was basically the number of residents each hospital had in 1997. There were some exceptions to the caps. For example, the caps for rural hospitals were set at 130% of their 1997 resident number and critical access hospitals do not have any caps at all. Inpatient rehab facilities and inpatient psychiatric hospitals also have a different funding rule. However, there are a lot more residents in training now than there were in 1997. The result of all of this is that 2/3 of hospitals train more residents than their Medicare funded cap slots; all told, this is 11,000 resident FTEs nationwide that are not covered due to the cap limitations.

When all is said and done, the hospital gets paid about $25,000 in direct GME and $50,000 in indirect GME per resident. It costs about $15 billion per year to train residents in the United States. Overall, Medicare spends about $3 billion on direct GME and $7 billion in indirect GME per year. The other $5 billion is made up primarily by Medicaid and the Veterans Administration.

Teaching hospitals are getting paid less per resident due to rising numbers of residents that exceed the Medicare caps set in 1997. At the same time, residents cannot do as much as they could 20 years ago: there are duty hour restrictions, limits to the number of patients a resident can manage in the hospital, and increased requirements for attending physician supervision of the residents. Together, these factors have led to hospitals having a harder and harder time making residency programs financially viable.

Many hospitals have begun to hire advanced practice providers (nurse practitioner, physician assistants, nurse midwives, and nurse anesthetists) to do the work previously done by residents. the typical salary+ benefits cost for an advanced practice provider is around $130,000 versus $76,000 for a resident. So for now, residents are less expensive and can work more hours than advanced practice providers.

September 24, 2016

Medical Economics

The FLSA Ate My Part-Time Job

FLSA is the Fair Labor Standards Act. This is about to have a huge impact on hospital employees who work part-time or who job-share. The FLSA was originally drafted in 1932 by Senator Hugo Black. It established the 40-hour work week, designated that overtime had to be paid at time and a half, and directed that children under age 16 cannot work during school hours. Every few years, there are amendments passed by Congress and there are rule changes enacted by the Department of Labor.

The newest rule change will go into effect on December 1, 2016 and will require anyone making less than $47,476 per year to get paid overtime if they exceed their work hours. On the surface, this doesn’t sound too bad – workers making relatively lower incomes cannot be taken advantage of by being required to work excessively long. But here’s the catch: it doesn’t matter if you are a full-time employee or a part-time employee. So, if an employee is part-time at 50% and in a position that would normally pay a salary of $94,000 per year, that employee now needs to be paid overtime if they work more than 20 hours per week since their annual income is $47,000.

The implication of this is that they now have to be paid hourly (including clocking in and clocking out) rather than being paid an annual fixed salary. But here is the problem… you can’t just change one employee to hourly pay, you have to change the job title to hourly pay which means that you have to change all of the employees with that particular job from salaried to hourly. That’s a problem because most of the hospital employees who went to graduate school to learn a profession want to be treated like they are in a profession and get a salary.

So you have a few options, none of which is great:

  1. Increase the employee’s part-time percentage. The problem with that is that is that some employees only want to work 50% time and may not be very happy if they are required to go to 70% time.
  2. Change the job title from salaried to hourly. The problem with that is that you could lose those full-time employees in that job title who want to get a salary rather than be paid hourly.
  3. Change the employee to your contingent pool. The problem with that is that the employee may no longer qualify for full fringe benefits.

If you have 2 employees who are job-sharing a single position (for example, because they have children at home and want to work half-time at this point in their lives), then they are particularly vulnerable because it may become too difficult and expensive for an employer to permit job-sharing.

I certainly don’t have the solution but I do worry that in a hospital, where a lot of the employees are women, that the FLSA rule change may inadvertently restrict part-time employment options for them. Some of the best and most talented employees I work with are part-time. We agree to hire them part-time because they are so good and 2 fantastic 50% employees are a lot better than 1 mediocre 100% employee.

We’ll find a way to make it work because we can’t afford to lose many of our part-time employees. Hopefully, in the future, the Department of labor will make another rule change to define the $47,476 as applying to a 100% full-time employee so that we do not inadvertently create barriers to part-time employment.

September 17, 2016

Medical Economics

Where Did All The Women Physicians Go?

exit-sign-1420381288g32I’m a doctor. I look for signs and symptoms to diagnose diseases. In the past 4 months, we’ve had 6 really talented women physicians in our department resign and that is a symptom. So, what’s the disease?

If they were accepting academic leadership positions elsewhere or if they were being recruited as educators or researchers then I would see this as a sign of success in our university’s mission to develop medical faculty. But they didn’t; they all went in to private practice. They weren’t brand new academic physicians who realized they had taken a wrong career turn, they were women who were 5 – 15 years in academic medicine who had already committed a quarter to a half of their careers at a teaching hospital and left.

Some physician turnover is good and turnover tends to correlate with economic conditions. In 2009 (during the depth of the recession), annual physician turnover was low at 5.9%. Now that the economy has recovered, turnover has increased to 6.8%, the highest rate since turnover data was first collected in 2005. Many of these 6.8% of physician jobs turned over because of retirement – a lot of older physicians decided to postpone retirement during the recession so there was a backlog of physicians ready for retirement once the economy turned around. A healthy workforce has a relatively predictable percentage of physicians retiring and starting their careers so that the workforce is constantly rejuvenating.

Sometimes, physicians leave in order to take a career advancement or because their spouse is relocating to a different community. Sometimes physicians leave because they weren’t a good fit in your hospital or were not practicing high quality medicine (and often we actively encourage those physicians to leave). Not surprisingly, the highest turnover is in the first 3 years of practice – 5% of physicians leave a practice after one year, 10% leave in year two and 10% leave in year three. That’s a total of 25% turnover in the first three years of practice. And physician turnover is costly: the recruiting costs of replacing a physician is about $40,000 and the indirect costs (of lost revenue, etc.) can range from $250,000 to $1,000,000, depending on the specialty.

Leaving academic medicine for private practice is usually a one-way ticket. It is pretty easy to go from being a university physician to practicing in a community hospital but it is the exceptional physician who goes from private practice into academic practice.

So why do physicians leave a practice?

  1. Time. Physicians who trained in the 1970’s and 1980’s are the last of the baby boomer generation. During their residencies, every other and every third night call were the norm and they expected to work 70-hour work weeks when they were in practice. For physicians who trained in the 1990’s and 2000’s, work-life balance is a priority and flexibility to adjust work hours during different phases of life is essential to retain them. It’s not just the total hours but it is the predictability of hours, particularly for physicians with children at home. The ability to offer physicians 50%, 70%, or 90% positions during different seasons of their life gives you an employment advantage. For surgeons, guaranteed OR block time is a plus.
  2. Compensation. Nobody goes into academic medicine expecting to make as much as they would in private practice. Most academic physicians will accept 80% of the going private practice salary in the community to be at a university hospital and they’ll accept 60% if the leadership is charismatic and the work environment is exciting & rewarding. Once you get below 60% of the going private practice salary, physicians will leave for private practice, regardless of how great the work environment is. You can look at national salary benchmarks such as the MGMA but the law of supply and demand works most effectively on a local basis and if you have the only cardiologists trained in MRI interpretation in the region, every other hospital is going to be trying to out-bid the salary you are paying them.
  3. Equal compensation. According to a recent JAMA article, the average female physician at a public medical school makes $206,641 and the average male physician makes $257,957. In fact, in all specialties except for radiology, men make more than women. Even if you adjust for age, specialty, years of experience, specialty, faculty rank, Medicare payments, and research productivity, women physicians in academic practice make on average 8% less than men physicians. I once had a division director tell me that he had to pay a particular male physician in his division more than a female physician of the same academic rank because the male physician “…was the sole bread-winner of the family and needed to make more because his wife wasn’t working.” Ridiculous.
  4. Toxic culture. When I wake up in the morning, I’m excited to go to work. That’s not the case with many physicians and if you have a work environment where physicians are constantly trying to undercut each other and there is not a culture of respect and mutual support, then you’re going to lose your physicians. By and large, your physicians are doing wonderful things: they’re diagnosing the diseases that no one else could, operating on the diseases that would otherwise kill their patients, and counseling patients on how to prevent those diseases in the first place. They’re good people doing important things for your patients and your community… and and you need to let them know that you see it.
  5. Opaqueness. This is the lack of transparency. If your doctors cannot figure out how the finances are flowing or how decisions are made that affect their careers, you can tell them goodby because they will not stay. If a physician sees colleagues seeing fewer patients, leaving the hospital earlier in the day, not handing in their billing cards, not following up on consults, etc. and they don’t get penalized, then that physician is going to assume that no one cares that he/she is working that much harder or is that much more conscientious.
  6. Bad leaders. No one likes to fire a division director, department chairman, or CEO. But if you keep a poorly functioning leader, then you are in essence firing all of the good people who work underneath them. If one specialty in your hospital has a bad reputation for the physicians being abrasive, being burned out, or providing substandard care, then you need to start by looking at the leader of that specialty.
  7. Lack of mentorship. Everyone talks about mentorship but not very many people practice it. Establishing a culture of mentorship in your hospital doesn’t happen overnight and it requires mentorship to be a practiced priority for leaders at the highest levels.
  8. Lack of role models. If you hire a woman physician and she looks around and sees that the division directors, the department chairmen, and the Dean are all men, how long do you really expect that she is going to stay at your institution? For that last sentence, you can also substitute the word “woman” with “race”, “religion”, or any other demographic with the same result. But it is not just that. Even beyond gender, religion, and race, it is whether you identify the leaders as being like you. So for example, I’m a more-or-less caucasian male married to another physician with 4 kids. When I was looking for role models, I didn’t really care about race or gender, I cared about whether my role models were able to be successful and be married to a spouse who worked and still be able to raise normal kids. A leader who had to give up everything that he or she could have had in order to obtain their leadership position is not going to be a role model for most of their physicians.
  9. Loss of autonomy. Right or wrong, physicians want to work for physicians and not administrators. If they feel they have no control over their lives or are being put into a rat race chasing RVUs then they will feel like they have no real control over their career. And they will become burned out. No physician went through 4 years of college, 4 years of medical school, 3 years of residency, and 3 years of fellowship to become a chess piece on an administrator’s chess board.
  10. Patient overload. The patients of today are different than the patients of yesterday. Thirty years ago, as an intern or resident, I could manage a service census of 25 patients and still be home by 7 pm; today, the patients are sicker, the treatments we use are more complicated, and the time demands to get them in and out of the hospital are more acute so 25 patients thirty years ago is equivalent to 15 patients today. Similarly, I could see 25 outpatients in a half day clinic in 1996 but in 2016 with the increased complexity of the diseases, the physician documentation demands of electronic medical records, and the changes in patient expectations, I can only now see 15 outpatients in the same time period. The time allocated for a physician to see patients needs to match the time necessary for that physician to practice quality medicine for those patients.
  11. Inadequate on-boarding. Today’s physicians come out of residency well trained to practice medicine. But they are not necessarily well trained to work in your hospital. There are so many factors to consider including who to consult for what problems, how to efficiently use the electronic medical record, how you transfer a patient to the ICU, what is the blood transfusion policy, etc. If you through your newly hired physicians into practice hoping that they will swim rather than sink, a lot of them are going to sink.
  12. No opportunities for advancement. Promotion to Associate Professor or to full Professor should be a recognition of excellence and not a recognition of sacrifice. If the only way to get promoted is to give up time with ones family by doing all of the academic work at home in the evenings and weekends that you couldn’t do during the weekdays because you were too busy seeing patients all day, then you will lose good physicians out of frustration. It is unfortunate that in academic medicine, we don’t promote faculty for being excellent, we promote them for talking about (or publishing about) excellence.

So why did our 6 mid-career women leave? I think that in each case the reasons were a little different but I think that what they all had in common was that they did not feel valued. And since I am a hospital medical director, maybe that starts with me. Yesterday, I had back to back meetings from 7:30 AM to 6:00 PM and by the end of the day, after after answering patient phone calls and dealing with angry doctors/nurses/patients/administrators, I was looking to go home. What I should have been doing was looking to find one of those quiet physicians who always get their work done well and on time and asked him or her what is going on in their life and what I can do to help them achieve their own future successes. And maybe remind them of just how good of a job that they are doing.

September 15, 2016

Medical Economics

What You Didn’t Know About Medicaid Expansion

ACAThe 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

Medical Economics

How Does U.S. Health Care Compare To Other Countries?

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.

cost per GDPSince 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.

Life expectancy 2Americans 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.

insured population 2How 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

Medical Economics

Do You Need A Medical Rock Star?

Rock StarRecruiting 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

Medical Economics Medical Malpractice

The Geography Of Malpractice

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

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

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



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

malpractice 2

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

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

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

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

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

malpractice 3

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

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

August 2, 2016

Medical Economics Physician Finances

What Is The Return On Investment For Residency?

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

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

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

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

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

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

Medscape Physician Compensation Analysis

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

AMGA Physician Compensation Analysis

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

Merritt Hawkins Physician Compensation Analysis

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

MGMA Physician Compensation Analysis

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

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

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

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

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

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

August 1, 2016