A cautionary tale of employing doctors

For all of those out there anticipating the 2014 official roll out of Obamacare, officially known as Affordable Care Act (ACA), here is a cautionary tale.

Many years ago, as I was growing my cardiology practice, it became evident that diagnostic services for my specialty, like stress tests and echocardiograms, were done less efficiently and cost more at the local hospital, than in the office. This stimulated many groups in the 1980s and 90s to install their own ancillary diagnostic services. Patients loved not having to deal with the long waits and higher co-pay prices at the hospitals. And yes, the cardiologists did increase their revenues with these tests.

However, lower costs to patients, insurance companies, Medicare, and improved patient satisfaction were just as powerful a stimulus to the explosive growth of these diagnostic tests, and later even cardiac catheterization labs, when integrated into the physicians’ offices.

As the growth in testing spiraled upward, the hospital industry saw their slice of the outpatient revenue pie nosedive. Hospital lobbyists and policy makers cried foul and complained of greed and self-referral, which they said was spiking the rapid rise in healthcare costs. Studies laying blame on self-referrals being the major culprit for escalating healthcare costs have been inconclusive.

However, after years of lobbying and the passage of ACA, the hospital industry finally had the weight of the federal government on their side. It did not take long for Medicare to start dialing back the reimbursements for in-office ancillary tests and procedures, and outpatient cardiac catheterization labs were one of their main targets. Hospitals had lost millions of dollars to the burgeoning growth of these labs inside the cardiologist’s office.

Our twelve-man group had a safe and successful lab for about ten years. Then after ACA was passed, Medicare began to cut the reimbursements for global and technical fees in this area. The cuts were so draconian that it became impossible financially to continue the service. Never mind that we could provide the same service as the hospital more efficiently, with better patient satisfaction, and at a third of the cost.

Other diagnostic tests are being similarly placed under the reimbursement gun. Fiercely independent as a group, cardiologists have finally given up and began selling their practices to hospitals where they could be reimbursed based upon their work and not worry about reimbursement from insurance and Medicare. So powerful has been this incentive that at the end of 2012, it was estimated that more the half of US cardiologists had sold, or were in the process of selling, their practices to hospitals.

But now Medicare and Congress realize they may have made a mistake. A federal advisory panel just said that Congress should move immediately to cut payments to hospitals for many services that can be provided at much lower cost in doctors’ offices.

So after taking measures to increase the cost of care and testing, it has finally dawned on them that they have incentivized the wrong entity. Unfortunately the genie has left the bottle, and it is unlikely that the steady tide of cardiology groups selling their practices to hospitals will be stemmed. The end result will of course be higher costs to patients, insurers, and Medicare.

How bad is it? For example, Medicare pays $58 for a 15-minute visit to a doctor’s office and 70% more, $98.70, for the same visit in the outpatient department of a hospital. The patient also pays more: $24.68 rather than $14.50. When a patient receives an echocardiogram in a doctor’s office, the government and the patient together pay $188.  They pay twice as much, $452, for the same test in the outpatient department. From 2010 to 2011, the number of echocardiograms provided to Medicare beneficiaries in doctors’ offices declined by 6% while those in hospital outpatient clinics increased by 18%. Perhaps ACA should be renamed the Unaffordable Care Act.

The federal advisory panel now realizes that the hospital buyouts of doctors, which have turned independent practitioners into hospital employees, has led to higher spending by private insurers and higher co-payments for their policyholders.

So where is the accountability here for the original poor judgment and decision to attack the cost-saving independent doctors’ offices and labs? No one has been named in this advisory panel’s report cited above, and I doubt anyone will ever be held responsible.

This is the kind of government snafu we have to look forward to with ACA­­ — skewed incentives based solely upon lobbying and misinformation. Truly free market forces, which we have never had in medicine since the passage of Medicare, restrain costs. It is unlikely that the clock can be turned back, but I am betting that more increases in cost will result from ACA then savings.

David Mokotoff is a cardiologist who blogs at Cardio Author Doc.  He is the author of The Moose’s Children: A Memoir of Betrayal, Death, and Survival.

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  • Anthony D

    No, government intervention means raise in prices. It isn’t “free” healthcare, it isn’t “affordable” If you already had healthcare, your premiums might double or triple (mine have) Plus, the government isn’t responsible for the individual… the individual is responsible. We are making a nation of dependents – our country is in the toilet and ObamaCare is making us circle the bowl as the center drains away…

    EDIT: Of yeah, and its going to make healthcare worse. A doctor can’t opt out of performing an approved procedure (he is being forced into compliance) So if he is forced to do a procedure he does not feel comfortable with, he can do something wrong. Then his malpractice insurance goes up and guess what – so does overall healthcare costs. Some doctors will end up paying more than they make, and they will have to go out of business.

    Thousands of doctors, physicians, and specialists are leaving the country because of this. They see the errors in the bill and know that the ‘greedy, shortsighted politicians’ won’t do a damned thing about it. Why? Because they have something free dangling in front of their faces.

  • ninguem

    The only reason….the ONLY reason, that hospitals hire physicians, is they can bill far, far more for the same service, than that same physician can, doing the same service, in a private office.

    I’m looking at a bill from my son’s pediatrician. Two medical visits, $147 each, in the ball park for services rendered in this community.

    Thing is, my son’s pediatrician just sold out to the hospital. Now, the hospital outpatient pediatric practice adds FACILITY FEES. Bear in mind, it’s the same practice, in the same office, all that changed was the sign on the door.

    So what HAD BEEN a $147 service, is now $147 (doctor’s fee) + $191 (facility fee) = $338 each.

    Forget about “economies of scale” and clinical integration, in fact they are LESS efficient with layers of bureaucracy, compared to a private practice.

    All it’s about is the dollar, and they can extract twice as much as a private doctor, for the same service.

    • http://www.twitter.com/alicearobertson Alice Robertson

      Conglomerated medicine can hurt patients because while it looks like they have a larger selection of options for the patient, in truth, once you see a doctor in a certain specialty if you change all the doctors can see this and you are viewed with skepticism. They can see the private doctor notes, and will rarely disagree with a colleague within that conglomeration. They will send you to a different department for even a mundane diagnosis (eczema, psoriasis, even hives) because departmental lines can’t blur or override. What could have been done by one good doctor is now filtered out into different appointments which means a new charge with attached facility fees for the hospital, and less options for the patient.

      Just as you shared what could have been wrapped up in one $150 appointment is now broken into several with facility fees attached to each appointment. And a lot more work for the patient (you go to an internist or GP, who can’t treat without a specialist involved, so you are stuck going to several visits for what could have been wrapped up in one or two).

      And let’s add that eventually not only will our private info be available to the NSA, but to HHS (who hasn’t won that battle *yet*).

    • Suzi Q 38

      I was wondering about the “facility fee.”
      My neurosurgeon charged me one, and so did my neurologist.
      I complained to my family at dinner, LOL.
      My daughter works at a first tier hospital and she says that the doctors there charge the same facility fee.
      Another reason to stay away from the hospital groups, if possible.

    • http://warmsocks.wordpress.com/ WarmSocks

      You might contact the hospital and ask about financial assistance. When Children’s Hospital started adding a $275 facility fee for office visits to the outpatient clinic, we filled out some paperwork to get them to waive all costs not covered by insurance.

  • buzzkillerjsmith

    Right on. The feds to from zero to 100 and then back again but they really how no idea what to do. But there’s a ratchet effect: Once docs are absorbed by CorpMed it is very hard to go back. In my field, primary care, the administrative burdens and poor income due to a relative lack of procedures makes resuscitating a single-specialty group almost impossible.

    Perhaps the idea is to pen us all up like sheep and then slowly or quickly shear us. This is a high-risk strategy given that fact that the American public might have something to say about all this in time. Gutting the medical profession instead of clamping down on CorpMed might not work out so well over time. We’ll see.

    • http://onhealthtech.blogspot.com Margalit Gur-Arie

      The difficulty may very well be relative. I suspect that if Medicare ratchets down payments to CorpMed, like getting rid of facility fees, they will begin firing the newly acquired doctors in last in first out order.

      • buzzkillerjsmith

        Could happen. But if docs can’t make a living on their own and can’t make a living at CorpMed there will be a lot of pts not getting medical care. I’m not sure that is a sustainable situation either.

        • http://onhealthtech.blogspot.com Margalit Gur-Arie

          They will make a living on their own. Maybe it will be a bit harder, or a bit different model, but I’m sure the demand will be there. Besides, regarding cardiologists, I am not so sure why they, of all specialties, are selling out. This is anecdotal, but I’ve seen several very profitable practices around here sell themselves mostly out of fear.

          • buzzkillerjsmith

            May our lives harder and we might very well stop doing this, which could lead to an increase in the number of urgent care centers. Quite a model for medical care in this wealthy country, eh?

            The solution is of course to pay doctors, especially PCPs like me, an appropriate income. Given our current payment models, this is tough. Unless of course it is decided that our value is not high enough to induce medical students to go into the field. Or we could just start buying stock in companies that own a lot of urgent cares.

          • buzzkillerjsmith

            Just a bit more. We have had several docs in this town bail from primary care to see sore throats all day long in the urgent care. For about 20 extra bucks per hour. It makes economic sense.

          • Cyndee Malowitz

            That is horrible – what a waste of an education.

          • http://onhealthtech.blogspot.com Margalit Gur-Arie

            I think we are largely in agreement on how to fix the PCP problem, which most likely is the missing building block for a good solution to the entire health care problem. Regarding the specific issue of selling out though, and particularly for highly payed specialties, I think that a leveling of the playing field with CorpMed would put an end to the consolidation trends, because as difficult as it may be for an independent practice to turn some profit, there is absolutely no way for a hospital system to deliver the same services, with the same quality, at a lower cost.

          • buzzkillerjsmith

            I agree absolutely the doctors’ groups are more cost-effective than CorpMed (in general, there are some exceptions) and that much of CorpMed would involute should the playing field be leveled. But will it be? The question’s above my pay grade.

          • http://onhealthtech.blogspot.com Margalit Gur-Arie

            Mine too…. but looking at history, I can’t think of an example where CorpXXX was ever displaced after it took hold of an industry.

  • adh1729

    “Truly free market forces, which we have never had in medicine since the passage of Medicare, restrain costs”. Governmental intervention has never been well-meaning or sincere. The government didn’t suddenly start loving the senior citizens in 1962. Socialism has always been the goal: the government taking your dollars and telling you how to spend them (because you are too stupid to figure it out yourself.) We never needed the government in health care or education. We never needed to fight all those stupid wars (1898, 1917, 1941, etc all the way to the present.) USA is utterly screwed.

  • Barb M

    Unfortunately, it must all get worse before it can begin to get better. Patients are beginning to cry “uncle”. It’s begun.

  • karen3

    the consolidation also is a negative for quality. Nobody dares complain.

  • doc99

    AMA was in a high stakes card game with all the major players at the healthcare table. AMA ignored the first rule of professional gambling – if you look around the table and can’t spot the mark, you are the mark.

  • lissmth

    Premiums are already up as much as 200% for young men. Of course, huge central planning costs dearly.