Insurance companies fail at rating physicians on cost

by Emily P. Walker

A physician profiling method used by private insurance companies to steer patients toward lower-cost physicians isn’t reliable, researchers found.

According to a study published in the March 18 issue of the New England Journal of Medicine, 43% of physicians who are ranked as “lower cost” doctors according to a common formula used by insurance companies are not actually treating patients for any less than physicians with comparable practice patterns.

“Consumers, physicians, and purchasers are all at risk of being misled by the results produced by these tools,” John Adams, PhD, of the RAND Corporation, and colleagues wrote.

Insurance companies are increasingly offering incentives for patients to chose physicians deemed as providing lower-cost, they wrote, and some plans award bonuses to doctors who are deemed “low cost.”

The healthcare reform legislation pending in Congress promotes “value-based purchasing,” which would rely on some classification system to analyze physicians’ costs and determine who spends relatively less than their peers while delivering the same quality of care.

However, no evaluation has been performed to determine how accurate the cost-ranking physician profiles currently in use are.

So, the RAND researchers examined claims data from 2004 and 2005 from four health insurance plans in Massachusetts.

They first grouped claims into 600 different types of episodes representing various patient care services and constructed patient-specific risk scores taking into account age, gender, and complexity of condition. They then calculated costs of each episode and physician cost profiles for each of the 12,789 physicians represented in the data.

The researchers estimated the reliability of each physician’s cost profile and used the reliability results to estimate the percentage of physicians in each specialty who would be classified inaccurately in a system like that used by the insurance company in which physicians in the lowest quartile are labeled as lower cost.

Their calculations indicated that 59% of physicians had “unreliable” cost-profile scores, and 22% had scores that would be considered “misclassified.”

Across the 10 specialties included in the study, otolaryngologists were the least likely to be misclassified, while vascular surgeons were the most likely to be put in the wrong group: 29% of otolaryngologists were ranked as being low cost, but were actually not any more low cost than their peers, and 67% of vascular surgeons were misclassified in the low-cost category.

Conversely, 10% of Ob/Gyns should have been ranked as lower-cost but were not; 22% of vascular surgeons and internists were also wrongly left out of the lower-cost category.

The findings suggest “that there are serious threats to insurance plans’ abilities to achieve cost-control objectives and to patients’ expectations of receiving lower-cost care when they change physicians for that purpose,” the study authors concluded, adding that users of the ranking systems should work to address the reliability of their data.

“These findings bring into question both the utility of cost-profiling tools for high-stakes uses, such as tiered health plan products, and the likelihood that their use will reduce healthcare spending,” they said.

James Rohack, MD, president of the American Medical Association, said the study verifies what the organization has long known.

“The RAND Corporation study published today verifies the [American Medical Association's] longstanding contention that there are serious flaws in health insurer programs that attempt to rate physicians based on cost of care,” Rohack said in a prepared statement. “Inaccurate information can erode patient confidence and trust in caring physicians and disrupt patients’ longstanding relationships with physicians who have cared for them for years.”

Emily P. Walker is a MedPage Today Washington Correspondent.

Originally published in MedPage Today. Visit for more practice management news.

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  • Mark

    If I’m a patient, do I want a ‘cheap’ doctor or a ‘costly’ doctor. this is a tough choice. I’m going to go with the popular costly doctor who does what it takes to get the job done, takes on more difficult, expensive cases rather than the old fogey who sees a cough and presribes amoxicillin or chloramphenicol. Selling a physician as ‘cheaper’ is like selling a steak that’s ‘a good enough cut for you’.

    • arb

      There have been many marketing studies showing that consumers perceive higher cost to mean higher quality, even when the less expensive product is exactly the same as or better than the higher priced product.

      This can be mitigated somewhat by awareness and education.

      Quality in medical services is difficult to assess. Price is not an indicator of quality. It can be an indicator of “perceived” quality. It can also be an indicator of highly successful marketing campaigns. Medical services are not immune to these practices. Practitioners have an added advantage of a vulnerable population and are capable of exploiting these perceptions to their advantage.

    • Anonymous

      Problem is, when determining the quality of something is difficult for the consumer (as it often is with respect to medical services), price tends to have little correlation to quality, at least away from the extremes. You really want a top quality provider, who may not necessarily be the most expensive provider, and if there are several providers of similar quality which meets your needs, you would likely choose one of the less expensive ones.

  • R Watkins

    And we’re supposed to be surprised?

    Let’s see, private insurance companies have proven that they can’t (or won’t):

    process clean claims correctly; provide accurate coverage information; track referrals and prior-auths; provide up-to-date formulary info (just to name a few incompetencies).

  • sam rey

    One Survey of pcp, specialists profile fee schedules and income showed that they are within.close parallel to the inflation/ increased in the cost of living with the general population. Compared to the rests of re embursement incomes to other health care providers such as hospitals device manuf, drug companies and retailers, malpractice and law makers etc cost hit the ceiling. Yet md’s are blamed and made to take what cms dictates.

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