PAM 2350 Prelim 2 Review

Tax Advantages of Employer-Sponsored Health Insurance
Employee saved money when employer provides health insurance
Insurance comes out of wages but is bought with pre-taxed dollars

In employer-sponsored health insurance, who actually pays the full health insurance premium?
Almost 100% of an employer’s contribution to a health insurance policy is shifted to workers in the form of reduced wages/salary.

Advantages of employer-sponsored health insurance
1. Risk pooling: addresses adverse selection because large employers have mix of healthy and sick workers
2. Workers generally share costs equally: community-rated premiums within an employer
3. Lower loading charges in large groups
4. Employers have incentives to keep their workforce healthy and productive

Disadvantaged of employer-sponsored health insurance
Often cannot successfully pool risk, which implies experience rating
– Especially in smaller firms and among self-employed
– Workers do not have the same employer throughout their life
– Some employers don’t offer health insurance; expensive to buy insurance on one’s own.
Gaps in coverage: no good risk pools for those outside the system (e.g., unemployed or self-employed)

If employer “paid” all $5,000 of premium, what would happen to the “salary after insurance payments”?
“Salary after insurance payments” would not change.

% of Non-elderly in the United States Are Uninsured

Uninsured People Receive About ____ as Much Medical Care as Insured People

Race/ethnicity most likely to be uninsured

Why is 12% of the Non-elderly U.S. Population Uninsured?
The U.S. is one of the few high-income countries that does not provide Universal Health Insurance or truly require it.

No universal health insurance in the US
Our government does not provide all of us with health insurance (and collect taxes to pay for it).

Our government does not compel or mandate that we all buy health insurance (although there will be an incomplete mandate beginning in 2014 due to the Affordable Care Act).

Health Insurance Coverage of the Nonelderly by Poverty Level, 2011
Not all people <100% FPL (federal poverty level) have Medicaid. Not all rich people 400%+ FPL have insurance.

Some high-income, healthy people choose not to buy community-rated policies because…
they are “unfairly” priced

Why don’t all firms offer health insurance?
Insurance Policies in the Individual or Non-Group/Employer Market Are Generally Much Worse Than Those Provided by an Employer
– Health insurers used to be able to deny individuals insurance if they have a pre-existing condition, but this could never happen with employer-provided insurance.
– Premiums tend to be higher in the individual market than the employer-sponsored market, due to adverse selection and higher loading charges in the individual market

The 2010 Affordable Care Act (ACA) Could Reduce the Uninsured Rate to ___% by 2017

Affordable Care Act: Medicaid Coverage
The federal government is offering states strong financial incentives to extend Medicaid coverage to an additional 16 million low-income people. Half the states plan to expand in 2014, but others may join in later.

ACA: Individual mandate
People must buy insurance or pay a fine.

The federal government will subsidize health plans for low- and middle-income households on new exchanges.

ACA: Employer mandate
Large employers must offer health insurance to their workers or pay a penalty.

Goal of ACA
Spread the risk across a larger pool of people.

An estimated 16 million additional people will be covered by private health insurance plans (as many as 32 million newly insured in total, including Medicaid).

Who is covered by Medicare?
Created in 1965
Elderly (age 65+) covered if they/spouse paid payroll taxes for at least 10 years

Disabled under age 65 covered (after 2-year waiting period)

End-stage renal disease (ESRD) patients (kidney dialysis) covered, beginning in 1973

Medicare Enrollment Trend
# of people Medicare serves will increase sharply
2012: 49.4 million people covered
Projected 2020: 61 million
Projected 2030: 77 million

Medicare Part A
Covers: Hospital, home care
Started in 1965
No monthly premium
100% enroll
Patient cost sharing: deductible, co-insurance

Medicare Part B
Covers: Physician, outpatient
Started in 1965
$105 monthly premium
95% enroll
Patient cost sharing: deductible, co-insurance

Medicare Part D
Covers: Prescription drugs
Started in 2006
$32 monthly premium
69% enroll
Patient cost sharing: deductible, co-insurance

Parts of Medicare Offered by private health plans
Part C and D

Which parts of Medicare are purchased by most people?
Part B and D

What is NOT covered by Medicare?
Long-term care/nursing home!!
Dentures + Dental care
Hearing aid

One way to “fill in” the gaps in Medicare
Supplemental health insurance

“Gaps” in Medicare coverage
$1,216 annual deductible for hospital care (Part A)

20% co-insurance for physician bills (Part B)

48% co-insurance for drug use between $3,000 and $5,000 of prescription drugs per year (Part D)

% the median Medicare enrollee spent on his/her income for medical care in 2010
(as much as they spend on food)

Why do Medicare enrollees spend as much on medical care as they do for food?
Part B and D premiums
Gaps in Medicare’s coverage

% of beneficiaries had some form of supplemental insurance coverage in 2010

2nd common way to fill in the gaps of traditional medicare
Joining a private Medicare Advantage Health Plan (Part C)

Medicare Plan C
Pays fixed amount to a private health insurer.
Plan must cover same set of services as traditional Medicare (but can cover more)

Medicare beneficiary’s choice
Medicare Advantage (Part C): Pay Part B and C premiums
Traditional Medicare: Pay Part B and D premiums, and maybe Medigap premium

How CMS pays physicians/hospitals as person uses medical care
CMS (Center for Medicare and Medicaid Services, the federal government)


% of All Medicare Beneficiaries Choose to Be in a Medicare Advantage (Part C) Plan

Why is that percentage (in Private, Medicare Advantage plan) not higher?
Part C plan is more like an HMO, managed care…with limited physician panels, hospital use, etc.

How is Medicare Part A (Hospital care) financed?
“Pay-as-you-go” system (each person does not have an account): current workers pay for current retirees; future workers pay for current workers.

Financing Part A:
Employees and their employers split a __% Medicare payroll tax on wages.

+0.9% for high-income workers due to ACA

When is the Part A Trust Fund expected to run out?

How is Medicare Part B and D (Physicians and drugs) financed?
Subsidized, “pay-as-you-go” systems

General federal tax revenues cover 73% of Part B and 74% of Part D costs.

Elderly pay premiums for the remaining portion of Part B and Part D. Premiums slightly higher for high-income beneficiaries.

Medicare spending has increased sharply as a % of US medical spending.

In 1980, Medicare spending was __% of US medical spending.

15% ($37 billion)

In 2011, Medicare spending was __% of US medical spending.
21% ($583 billion)

As baby boomers retire, fewer workers will be paying taxes per each Medicare beneficiary.
In 2000: 4 workers/Medicare beneficiary
In 2020: ~3
In 2030(e): ~2

Source of Medicare Financing: What percentage comes from all taxpayers in the form of general taxes?

Source of Medicare Financing: What percentage comes from current workers in the form of payroll taxes?

If nothing changes, taxes (mostly on the non-elderly) will have to rise.

Source of Medicare Financing: What percentage comes from Medicare beneficiaries in the form of premiums/other?
Premiums: 13%
Other: 7%

What are the pressures of rising Medicare costs?
More people are retiring.
Elderly are living longer.
Medical costs are rising steadily in real terms.

What will happen in Medicare costs continue to grow at historic rates?
Medicare costs are predicted to increase from 3.7% to 5.8% of GDP between now and 2040.

To finance Medicare’s projected Part A deficit through 2080:
Medicare payroll taxes would have to increase immediately from 2.9% to 6.2%.

If we wait until 2030, tax would have to increase to 11%.

Other taxes (e.g., income tax) will have to rise to cover Part B and Part D subsidies, which will grow over time.

What are some other options to finance Medicare’s project Part A deficit?
The federal government can cut other programs or can issue more debt.

Percentage of Federal budget allocated to health care programs (Medicare + Medicaid) in 2012

If taxes/premiums aren’t raised, non-health expenditures will have to be cut.

Federal budget: Percentage dedicated to defense.

Federal budget: Percentage dedicated to social security.

Federal budget: Percentage dedicated to Safety Net, Interest, and Other.
Safety Net: 17%
Interest: 7%
Other: 13%

Medicare can be restructured.
The earlier Medicare is restructured, the less painful the changes will be.

Restructuring Medicare will be easier if the elderly (voters) acknowledge that…
it is a TRANSFER program.

Why do the elderly love Medicare?
Medicare transfers large amounts of money from the young to the old.

People who retired at age 65 in 1991 could expect to receive $5.10 of hospital benefits over their lifetimes for every $1 of payroll taxes they paid while working.

People who retired at age 65 in 2010:
Couple who earned low wages: will receive $4.2 of medical benefits for every $1 of taxes they paid.
Couple who earned high wages: a $2.4 to $1.0 ratio.

Possible Medicare Restructuring Policies and 10-year financial impact:
Raise payroll tax by 1 percentage point
$651 billion

Increase Part B and Part D premiums so they cover 35% of the costs
$241 billion

Increase taxes on alcohol, tobacco, and sugar beverages
$152 billion

Increase eligibility age from 65 to 67
$113 billion

Create Medicare “individual medical retirement accounts”

Medicare summary: The 4 components of Medicare.
Part A: hospital care primarily
Part B: physician and outpatient care
Part C: managed care plans (Medicare Advantage)
Part D: prescription drug health plans

Medicare is like “swiss cheese”
Patients face a lot of cost sharing, so many elderly pay for supplemental plans/join a private health plan to reduce out-of-pocket payments

Medicaid is really __ different programs.

Federal government establishes broad guidelines for the Medicaid program.
Who must be covered.
What types of medical services must be offered.
Can beneficiaries be required to face cost sharing

In the Medicaid program, each state
Decides whether to make certain types of people eligible beyond what it required by the federal government.
Determines how much to pay physicians, hospitals, other providers.
Administers its own program

Medicaid Eligibility Rules
Federally mandated eligible groups
States prohibited from requiring much cost sharing (e.g., co-pays)

Medicaid Eligibility Rules: Federally mandated eligible groups
Children in households with low-income (children <6 yrs whose family income <133% of Federal Poverty Level) (children 6-19 yrs whose family income <100% of FPL)

Medicaid Eligibility Rules: Parents and Adults without Children
Eligibility depends on how generous a state decides to be

Medicaid Eligibility Rules: Other federally mandated eligible groups
Pregnant women whose family income <133% of FPL Blind or disabled persons who have little or no income Low-income Medicare beneficiaries Legal immigrants must wait 5 years after entering U.S.

Where poor and uninsured Americans live
Mostly in the South
26 Republican-dominated states not participating in an expansion of Medicaid (less generous coverage) are home to a disproportionate share of the nation’s poorest uninsured residents

Medicaid is a critical source of insurance for poor people, but it doesn’t cover all poor people. Why?
Poor adults without children are not eligible for Medicaid (yet)
32% uninsured <100% FPL 29% uninsured 100-199% FPL

Medicaid covers most important medical services!
Mandated benefits: hospital care, outpatient, (LONG-TERM) NURSING HOME CARE, home care, lab tests and other medical benefits

Optional benefits: prescription drugs (although all states cover them)

Medicaid enrollment has tripled since 1980
More non-elderly adults (parents), children, blind/disabled, aged.

70.4 million enrollees in 2011

Medicaid spending has also increased sharply over time
In 1980, Medicaid spending was 9% of US medical spending ($23.3 billion)

In 2011, Medicaid spending was 16% os US medical spending ($432.4 billion)

Medicaid spends relatively little on children and their parents.
Children ~$2,800/enrollee
Adults ~$4,300/enrollee

How much does Medicaid spend on the disabled and elderly?
Disabled ~$18,000
Elderly ~$16,000

Nursing home care accounts for __% and __% of spending for disabled and elderly.
39%; 74%

__% of Medicaid enrollees generate nearly 2/3 of the costs
26% (elderly, blind & disabled)

% of elderly and disabled enrolled in Medicaid vs. % of expenditures
Elderly: 9% enrolled and 20% cost
Disabled: 17% enrolled and 44% cost

Elderly + Disabled cost: 64% of Medicaid costs!

% of children enrolled in Medicaid vs. % of expenditures
50% and 20%

% of non-elderly adults enrolled in Medicaid vs. % of expenditures
24% and 15%

How is Medicaid financed?
Costs are shared between federal and state governments.
Federal government’s share is based on a state’s per capita income.
In Mississippi, state with lowest per capita income, federal government pays 74% of total cost. For every $1 Mississippi spends, federal government spends $2.90.
In highest-income states, federal government pays $1 for each $1 a state spends.

The federal government pays for about __% of overall Medicaid expenditures nationally.

Federal government pays __ – __% of the program costs.

State governments spent more on Medicaid than Elementary and Secondary education
Medicaid accounted for 24% of state government expenditures in 2011.
Education accounted for 20%.

How are state and local governments likely to respond to unfunded federal mandates?
must cover various groups, and the required groups have increased over time
must provide a comprehensive set of services
cannot use cost sharing aggressively

Other problems faced by state and local governments
Rapidly rising medical costs, especially among elderly and disabled

Pressure by citizens to keep sales, property, and state income taxes low and simultaneously improve education, highways, law enforcement…

Medicaid pays physicians __% less than private health insurers, on average (similar for hospitals)
even less than Medicare (18% less than private insurers)

What will the ACA do to Medicaid primary care fees?
The ACA will increase Medicaid primary care fees by 34% for 2 years to raise them to the Medicare level.

Medicaid Fee Generosity Varies Substantially by State
Medicaid pays physicians less than Medicare does.

As a Result of Low Fees, Many Physicians Don’t Accept New Medicaid Patients
33% of primary care physicians did not accept new Medicaid patients in 2011-2012.

Fewer physicians were not willing to accept new Medicare (__%) or privately-insured (__%) patients.
19%; 16%

Recent study: callers posing as mothers tried to schedule a physician appointment for their child:
42% denied appointment when caller “had” Medicaid versus 15% when caller claimed to have private insurance

Among MD practices accepting both patient types, wait time for Medicaid patients wait time did not differ.

Romney and Ryan may have converted Medicaid to a __________ system.
block grant

What would happen in a block grant system?
Federal government would provide a fixed amount of money to each state based on a formula; each state decides who to cover and what services to cover.

Block grant would rise at the rate of inflation and would account for population growth.

How much would Ryan’s plan have saved and how?
Ryan’s plan would have saved $810 billion over 10 years (about 34% of projected spending) by:
– repealing the ACA Medicaid expansions
– growing block grants less than medical cost growth rate

Urban Institute study: Ryan’s plan would result in 14 to 27 million fewer people covered vs. ACA expansion.

Summary of differences between Medicare and Medicaid:
1. Covers elderly primarily
2. Popular; all citizens expect to use Medicare eventually
3. Financed by the federal government
4. “Pay-as-you-go” system = wealth transfer from current workers (via payroll tax and other taxes) to the elderly
5. Relatively high payment rates: most physicians participate and see Medicare patients.

Summary of differences between Medicare and Medicaid:
1. Low-income families, disabled, and poor elderly
2. Stigma of welfare. Perception by many that they won’t use Medicaid.
3. Financed by state & federal governments
4. Paid with general federal and state tax revenues
5. Low payment rates: many physicians do not participate – either do not see new Medicaid patients or require a long wait.

Ultimate implication of Medicaid’s low payment rates.
Those granted coverage by ACA may be effectively uninsured.

ACA: Insurance Highlights
Expands health insurance coverage to 26(?) million people through a combination of private and public sector initiatives.

Offers subsidized health insurance on exchanges and offers incentives for states to expand Medicaid coverage.

Subsidies for private health insurance offered to families making up to about $92,000 per year.

Health insurers can no longer deny people coverage for a pre-existing conditions or impose a lifetime limit on spending.

ACA: Mandates and Fines
Fine individuals:
$695 or 2.5% of household income in 2016 if don’t have health insurance.

Fine employers:
$2,000 per worker for not offering insurance. Small employers (< 50 employees) are exempt

ACA: Rationale for subsidies, mandates, and fines
Health insurance works best when ALL individuals are included (healthy and sick, young and old).
People who need a lot of medical care in 1 year are supported by people who do not need a lot of medical care in that year, and vice versa the next year. Without an individual mandate, some people might try to buy insurance only when they get sick.

Employer mandate: an incentive for employers to continue offering health insurance, or to start.

Subsidies: some people cannot afford insurance on their own.

Estimated Impact of ACA on # of Non-
Elderly with Insurance:
Small projected decrease (-2, -6mil)

Estimated Impact of ACA on # of Non-
Elderly with Insurance:
Increased enrollment (+9, +12mil)

Estimated Impact of ACA on # of Non-
Elderly with Insurance:
Individual Market
Small decrease in enrollment (-2-4mil)

Estimated Impact of ACA on # of Non-
Elderly with Insurance:
Substantial increase in enrollment (+7 to +24mil)

Estimated Impact of ACA on # of Non-
Elderly with Insurance:
Substantial decrease (-26 mil by 2016)

How will the exchanges work?
Each state operates an exchange, which is essentially a website, where many private health insurers can offer plans that are grouped according to generosity: platinum, gold, silver, bronze, and high-deductible.

People who are eligible for “expanded” Medicaid CANNOT receive a subsidy if their state decides not to expand Medicaid.

Anyone can use the exchange, but premium subsidies go to…
a) low-income people not offered insurance by employer

b) low-income people whose employer offers a plan where the employee share of the premium is more than 9.5% of his/her income.

Government Subsidy Decreases With a Person’s or Family’s Annual Income
People required to pay from 3% of their income (at 140% of poverty level) to 9.5% of income (at 300%+ of poverty level).

ACA: Estimated average subsidy per enrolled person

How will the exchanges work (cont)?
Government’s subsidy is set based on the 2nd least expensive silver plan. If a person picks a gold or platinum plan, they pay more than shown in the next slide; if they choose a bronze plan, they may pay nothing/less.

Insurers should compete by offering relatively low prices/ premiums as long as people pay some of the premium.

Large # of potential new customers will get insurers’ attention.

Some additional details about ACA
People < 30 years of age are the only ones who can buy an inexpensive, high-deductible plan to avoid paying the fine? Premiums on the exchanges will be higher than they are now for the young/healthy and lower than they are now for the old/sick because insurers on the exchange can only vary the premiums (slightly) by age and smoking status.

Some additional details about ACA: Employer-mandate
REMEMBER: most Americans will continue to receive insurance through their employer, and the ACA does not affect these health plans much.
If an employer does not offer insurance and at least 1 employee uses a premium subsidy on the exchange, the employer pays $2,000 per worker. If an employer offers insurance, they pay a $3,000 fine for each worker who still decides to use a premium subsidy on the exchange.

Medicaid Expansion in the ACA
An estimated 12 million newly insured (16 million if ALL states expand their programs)

Income limit for Medicaid eligibility will increase to 138% of federal poverty level in 2014 for ALL people. Many adults who are currently ineligible can now qualify.

Federal government will fund 100% of the costs of newly eligible enrollees for the first 3 years, before eventually lowering their support rate to 90%. States will pick up the remaining 10% thereafter.

Supreme Court made the Medicaid expansion optional – the federal government can’t pull existing funding for states that opt out of the expansion.

Medicaid expansion is optional
23 states are currently planning to opt out

Where poor and uninsured Americans live
26 Republican-dominated states not participating in an expansion of Medicaid are home to a disproportionate share of the nation’s poorest uninsured residents

Why are many states refusing to expand Medicaid?
They are turning down billons of dollars of new funding from the federal government.

This money would improve the health of the currently-uninsured, and would ultimately go to physicians, hospitals, and other health providers.

Why would a state turn down money from U.S. taxpayers?

Will the newly-insured have good insurance?
Nationally, Medicaid pays physicians fees that are 42% less than what private health insurers pay physicians.

If we are headed for a physician shortage, physicians may not be willing/able to accept newly-insured Medicaid patients.

At least the ACA will increase primary care Medicaid fees to be equal to Medicare fees for 2 years.

People who get insurance on the exchanges should be OK, because private health insurers pay physicians relatively high fees.

The ACA has already reduced the
uninsured rate somewhat
The ACA allows people under the age of 26 to be
covered by their parents’ health insurance plan (first took effect in 2011).

Number of people in the U.S. without health insurance fell from 50.0 million in 2010 to 47.3 million in 2012.
WHY? This occurred largely because 1.6 million people between the ages of 19 and 25 picked up health insurance between 2010 and 2011.

Typical economic relationship between independent physicians and hospitals
Medicare + Medicare patient pay physician’s practice (fee for office visits and hospital care)

Medicare + Physician’s practice pay hospitals a facility fee for hospital care

Hospitals pay for nurses, technicians, medical equipment, and medical supplies when a patient is treated in their hospital

Many other practice arrangements exist:
radiology, anesthesiology, pathology, emergency med
Hospital has an exclusive contract with the physician group practice, which pays its physicians a salary

Many other practice arrangements exist:
hospitals that purchase an MD’s practice
Hospital/health system pays physicians a salary

The health system collects practice revenues, pays all practice expenses, keeps any profit.

Health system tries to capture most of a physician’s hospital admissions.

Many other practice arrangements exist:
HMO as employer
Staff Model HMO pays physicians a salary

MD only treats that HMO’s patients. HMO pays all practice expenses (e.g. Kaiser Permanente in CA)

Few MD’s work for HMO’s.

Hospitals now employ __% of physicians, substantially more than 5 years ago.

% of physician practices owned by physicians

If the hospital employs physicians, it pays them a salary and keeps any practice profits.
MD can still admit to other hospitals; the insurer still pays the practice.

Why are physicians increasingly selling their practices to hospitals and becoming hospital employees?
A summary of physicians’ motivation
Operating a private practice is become more expensive, complex, and risky:
Private health insurers and Medicare are trying to shift physicians and hospitals away from fee-for-service so they take more responsibility for population health and costs (the ACA is hastening this).
To succeed under these new reimbursement models, physicians and hospitals need to be more unified.
MDs need to install expensive information technology to improve quality and reduce costs; hospitals can help pay to install these systems.

Lifestyle choice: hospitals can help run the practice, allowing physicians to spend more time on patient care (or golf)

Although MD’s are forming larger groups, __% remain in practices w/ fewer than 10 MD’s

% of physicians in solo practice has dropped since 1983
1983: 41%
2012: 18.4%

Although insurers can pay physician practices by fee-for-service (FFS) or capitation, capitation is rare these days (was more common in the 1990s)
Capitation: the practice receives a fixed amount of money per enrollee/patient per month, regardless of whether the MD sees the patient and regardless of what services the MD provides

Fee-for-service: a pre-determined schedule of fees for each service that a physician performs for a patient: the busier the physician, the greater the revenue to the practice.

Note: a group practice gets to decide how to pay its MD members: salary w/ or w/o a performance bonus; or a % of the fees a physician actually generates for the practice

Medicare pays physicians with a FFS system called “RBRVS”
Resource-based relative value scale
introduced in 1992

Not to: level the playing field between specialists and primary care physicians (pediatrics, family practice, general internal medicine)
To: slow the growth rate of Medicare Part B spending
To: limit out-of-pocket payments for elderly

Overview of Medicare’s RBRVS Payment System
Patient visits are categorized into one of 12,000 different current procedural terminology (CPT) codes for office visits, consultations, and surgery
Each CPT code is assigned 3 separate relative value units (RVU)
-physician work
-practice expense
-malpractice expense

Congress sets payment for each RVU unit ($36.87 in 2011)
how much MD is paid = RVU for the CPT x geographic adjustment conversion x payment per unit
No “balance billing”
MD’s can decide whether or not to participate in Medicare

Over __% of MD’s do participate in Medicare.

“balance billing”
Medicare forbids MD’s from “balance billing” (collecting more than patient’s co-payment); MD must accept Medicare’s RBRVS payment amount as final

Under RBRVS system, specialists who do procedures get paid more per hour than primary care physicians who spend more time speaking with patients
Primary care: $114/hour
Specialists: $244/hour

The Medicare physician fee schedule usually becomes the benchmark for private health insurers
74% of private health insurers pay physicians by adjusting the Medicare RBRVS schedule up or down (on average, private insurers pay physicians about 25% more than the RBRVS amount)

Medicare currently pays physicians __% less than private health insurers, on average

Why do some practices receive much higher private fees?
Physicians can often get higher private health insurer fees if they join a large group practice that is “important” to the insurer

The real incentive for joining a large group practice is getting twice 80% of Medicare, twice the rate of practicing independently.

Health insurers might lose enrollees if they don’t offer a broad network of high-quality physicians.

But…although MD’s are forming larger groups, 58% remain in practices w/ fewer than 10 MD’s

Hospitals now employ __% of physicians, substantially more than 5 years ago

Summary of physician practice issues
Physicians generate revenue for their practice by treating patients in their office as well as at a hospital.
Physician practices are paid by health insurers (and patients) regardless of whether or not a hospital owns the practice.
Practices can be paid according to a fee schedule (most common) or by capitation (not common these days)
Medicare’s RBRVS fee schedule bases a physician’s payment on the time and effort/intensity/skill/stress of a task and physicians’ practice and malpractice costs
Private insurers usually pay MD’s by adjusting the Medicare fee schedule. Larger and more powerful physicians practices usually receive higher private fees.
Physicians are increasingly giving up some of their independence and becoming hospital employees.

Overview of a physician’s career
Medical school (4 years)
Residency training (1-5+ years)
Practicing medicine (30+ years)

Medical school
4 years
American Medical Association accredits 141 US medical schools

Structure/regulations strongly influence # & mix of MDs in US

Residency training
1-5+ years

Positions available in 26 specialties at 1,200 teaching hospitals
Must receive at least 1 year of training at an accredited program to be licensed in US

Practicing medicine
30+ years
Physician fees and physician income vary substantially across specialties

Number of physicians per capita in US has almost doubled since 1960…
but the US has fewer physicians than most high-income countires (except Japan)

2 – 3x as many people apply to US Medical Schools per available position
Almost 50% of applicants now are female
# of first-year medical students = 15% higher than 2005

40 new medical schools opened in the 1960s and 1970s,
but few more opened until very recently

Medical schools are expanding capacity to try to address a future shortage of physicians
Several government agencies have predicted that there will be a shortage of physicians in 2020. These predictions were made BEFORE the ACA, which will increase the demand for physician services.

2006: Association of American Medical Colleges recommended a 30% increase in capacity of U.S. medical schools to increase the supply of physicians.

16 new medical schools have opened since 2002, and most existing schools are expanding class sizes.

AAMC estimates that 1st year medical school enrollment will be 30% higher in 2017 (is 15% higher already).

Osteopath enrollment will double between 2002 & 2017.

Physician “extenders” likely to take on a greater role to ease shortage.

If the US incurs a physician shortage, “physician extender” occupations are likely to take on greater responsibilities
Certified registered nurse anesthetist: $158,000
Physician assistant, surgery: $108,000
Physician assistant, primary care: $94,000
Nurse practitioner: $91,000
*These incomes will probably rise

Residency training: overview of the national resident matching program (the “Match”)
Initiated in the early 1950s to try to bring some organization to a chaotic process of placing medical students in residency positions.
4th-year medical students interview w/ residency programs.
Students rank their favorite programs (e.g. Johns Hopkins pediatrics) in descending order of preference.
Residency programs likewise rank the student applicants.
A computer algorithm assigns students to residency positions in about 8 minutes. Results announced each March.
Students are obligated to attend program they matched to.
2 days before assignments are announced, students who did not receive an assignment can “scramble” for open spots.
Osteopathic residency programs have their own Match.

Let the lying begin!
Applicants and programs may volunteer their interest in one another, but one party can’t suggest that its ranking depends on the level of interest of the other party.

36% of family practice program directors indicated that hearing that a student will rank the program “high” or “number 1” improves an applicant’s ranking

Based on 4 studies, between 31% and 90% of applicants and program directors believe they are lied to during the process.

There are enough residency positions for all graduates of US allopathic medical schools
So…what’s going to happen as US medical schools expand?

Almost all US medical students receive a match…
International med school graduates:
US citizens: 53%
Non-US: 48%
Osteopath grads who enter the “big” match: 75%

…but not everybody receives his/her top choice
Fewer people in 2013 receive his/her top choice: around 51.6%
More people received a choice other than their 1st, 2nd, 3rd: 16.2% – 25.5%

Why don’t all US medical school graduates receive a match, or match to their favorite program?
The pain is concentrated in certain specialties.

% of US medical school graduates who DID NOT match to their preferred specialty in the 2013 match
Plastic surgery: 29.32%
ENT: 26.8%
Orthopedics + Dermatology: 22.9%
General surger: 10.3%
Emergency med + OB/GYN: 8.6%
Anesthesiology + Peds + Psych + Radiology: 2.4%

Median physician income by specialty, 2013
1. Ortho, $413,000
2. Cardiology, $351,000
3. Radiology, $340,000
4. Anesthesia, $338,000
5. Dermatology, $321,000
5. Plastic Surgery: $321,000
6. General Surgery: $295,000
7. Emergency Medicine: $272,000
8. OB/GYN: $243,000
9. Psych: $192,000
11. Internal medicine, $188,000
12. Peds, $181,000
14. Family practice, $176,000

Getting high test scores in medical school helps students enter competitive (and high-income) specialties
Overall average = 227
Ortho, radiology, ENT, derma, plastic surgery: +240
Anesthesiology, internal med, surgery: 226-7
OB/GYN, pediatrics, emergency: 220-3
Family prac, psych: 213-4

Future physician specialty mix: only __% of US medical students plan to practice primary care
24% in 2014
Compared to 40% in 1997
17% in 1992
Compared to 34% in 1983

Specialty choices track income prospects quite closely
“Primary care income as a % of Non-primary care income” and “Preference for Primary Care” have both declined over the years

Can medical students with debt afford to enter low-paying primary care specialties?
“Median 4-year cost of attendance” and “Education debt of indebted medical school graduates” are both on the rise.

Private schools are more expensive than public schools by ~$175K.

The difference between cost and debt in public schools has stayed relatively the same since 1999-2009 and increased a bit since 2009-2011.

The difference between cost and debt in private schools has stayed relatively the same since 1999-2009 and increased a bit since 2009-2011.

Average resident’s salary

After-tax monthly income

Monthly loan payment

Loan payment as a % of after-tax income
Assumes a $160,000 15-year loan with an 8% interest rate

As a young physician:
CV surgery, ortho surgery, plastic surgery, anesthesiology, dermatology, general surgery
INCOME (Debt payment as a % of after-tax income)
$423K-$278K (7%-11%)

As a young physician:
Internal medicine, family practice, pediatrics
INCOME (Debt payment as a % of after-tax income)
$167K-$155K (18%-20%)

General conclusions about physician career choices
There are generally 2-3 times as many applicants to medical schools as there are available positions.

Medical schools are expanding to try to address a predicted shortage of physicians over the next 10-20 years. Without a corresponding increase in the # of residency positions, this might be too little, too late (especially with ACA expansion).

Physician practices are likely to adapt by asking physician extender to take on more of MDs’ responsibilities.

Over 93% of US medical school graduates are assigned to a residency position in the Match.

Specialties with high-incomes and attractive lifestyles are popular, and thus difficult for medical students to enter. There is a “tournament” to enter these desirable specialties.

Hospitals have become less important since 1980…
Percentage of personal health care spending by type of service
1980: 47%
2011: 37%

“Rx drugs” as a percentage of personal health care spending by type of service
1980: 6%
2011: 12%

“Physician services” as a percentage of personal health care spending by type of service
1960-1980: 22%
2011: 24%

Structure of a typical hospital
Hospital grants physicians admitting privileges.

MD admits some or all of her patients. MD volunteers to be on-call periodically for clinical consults.

Outpatient services of hospitals
Emergency room
Outpatient surgery
Diagnostic testing

Inpatient services of hospitals
Labor + Delivery
Intensive care units
Med/surgery units

Clinical support services of a typical hospital
Physical therapy
Occupational therapy
Nuclear medicine
Blood bank
Home care

Non-clinical support services
Nursing administration
Social services
Medical records
Data processing
Admitting department
Plant operations

The physician as orchestra conductor: Physician and hospital incentives not always aligned
1. MD schedules elective surgery; refers patient to hospital for pre-admission tests
2. Patient admitted; transported to operating room
3. MD performs surgery: RN, OR tech, surgical supplies, anesthesiologist
4. Patient recover in Recovery Room
5. MD admits patient to Coronary Care Unit: 1 RN for every 2 patients
6. MD visits patient; orders lab tests, x-rays, medication. Hospital staff perform tests and administers medication.
7. Patient complains of complications. Resident on-duty calls MD and administers treatment.
8. MD transfers patient to Med/Surg unit for days 3-4. 1 RN for every 6 patients.
9. MD discharges patient to: home, nursing home, rehab hospital. May recommend home care.
10. MD’s bill insurance company; hospital bills insurance company.

Typical economic relationship between physicians and hospitals
Medicare/Medicaid/Insurance plan pays both the physician’s practice and hospital a fee.

Physician’s group practice (divided) obtains revenue from office visits and from services provided to hospital patients. (Minus rent, staff, and malpractice insurance.)

Hospitals pay for nurses, technicians, medical equipment, and medical supplies used on hospitalized patients.

Before managed care, insurers paid whatever a hospital charged, fostering the “medical arms race”
Hospitals needed physicians’ loyalty in order to attract patients and make money.

Hospitals competed with one another to provide physicians with the most productive environment, offering the highest quality care to patients.

Hospitals installed the most advanced and sophisticated diagnostic equipment and medical devices.

Indemnity health insurers (pre-managed care) financed these technologies by paying hospitals whatever they charged.

When insurers paid whatever a hospital charged, this spurred increased hospital spending, 1960-1980
Hospital spending grew faster than MD and prescription drug spending.

In response to the increase in hospital spending, Medicare instituted the ___ in 1983.
Diagnosis Related Group (DRG)

Diagnosis Related Group (DRG)
1. Government estimates the average cost of treating Medicare patients in each of the 746 different DRG’s across all 6,000 hospital in the US.

2. Government pays each hospital the estimated average national cost for that DRG, plus a little bit for profit.

3. This payment is the same regardless of how long the patient spends in the hospital or how many services the patient receives (ex. whether a hospital hires a lot of nurses or uses expensive surgical equipment).

How much Medicare pays hospitals for various cardiac DRGs
Cardiac pacemaker implant, where patient has no complications: $11,911
Angioplasty with a drug-eluting stent: $18,163
Cardiac valve repair, patient has major complications: $54,839

How does this DRG payment system affect hospital behavior?
Hospital stays are now much shorter.

Hospital stays are now much shorter:
Average length of hospital stay (in days) in 2009-2011
5.4 days

Hospital stays are now much shorter:
Average length of hospital stay (in days) in 1991
7.2 days

As with physicians, private health insurers pay hospitals more than Medicare (and Medicaid)
Medicaid and Medicare payments are below the hospitals’ break-even point.

Decrease in private payments during 1999 can be attributed to the height of managed care, but payments from private payers have steadily risen since then.

The ACA is encouraging hospitals and physicians to accept BUNDLED PAYMENTS to help align incentives between the two.
5-year voluntary Medicare program begins in 2013 and focuses on 10 specific health conditions.

Instead of making separate payments to physicians and hospitals, Medicare will make a single bundled payment for an episode of care (not exceeding current $ amount).

Money needs to be shared between the physician(s) and hospital.

What are Medicare’s objectives? How can physicians and hospitals succeed?
With a single bundled payment, physicians should work with the hospital to reduce costs.

The ACA also created the Accountable Care Organization (ACO) program
Voluntary, 3-year program that began in 2012
A group of physicians and hospital(s) agree to be accountable for quality and cost of care provided to a group of Medicare patients (ex. the 20,000 Medicare patients treated by Mass General and its physicians).
Medicare forecasts those patients’ costs for next year.
Hospitals and physicians continue to be paid FFS (MD’s by the RBRVS system; hospitals by DRG system).
If quality and cost targets are met, the ACO receives about 50%-60% of the savings (and Medicare the rest).
The ACO can eventually choose to be paid a fixed amount per patient per year (ex. capitation, not FFS).
About 150 organizations signed up in 2012.

Why hospitals have been buying physicians practices and employing physicians recently (besides trying to capture more of the physicians’ admissions)?
Health systems that can gain the cooperation of physicians and work with physicians are more likely to reduce costs, improve quality and thrive under these new reimbursement systems.

About __% of US hospitals are for-profit: they pay sales, property, and corporate taxes that help pay for government programs (ex. education).

__% of hospitals are nonprofit: they don’t pay any taxes.

Why would the government allow so many hospitals to avoid paying taxes?
For-profit hospitals get a larger profit before ($19 mil) and after ($12 mil) taxes

For-profits are more productive in terms of operating expenses (less than non-profit)

There is little difference in amount of charity care.
The cost of providing charity care for nonprofit and for-profit:

Profit for nonprofit hospitals
$6 million
Nonprofits are exempt from taxes
Nonprofits can issue tax-exempt bonds

Conclusions on Hospital Topic
Hospitals must attract physicians (and their patients) in order to generate revenue/profit.
Hospitals used to compete with one another for physicians’ loyalty by offering more and more sophisticated technology.
Hospitals still do this, but also try to attract patients from health insurers by cutting costs and accepting lower prices.
Medicare’s DRG system creates incentives for hospitals to reduce costs and get patients out of the hospital faster.
The ACA is ushering in new reimbursement methods that encourage physicians and hospitals to work together to reduce costs and improve quality.
For-profit hospitals are generally more productive than non-profit hospitals, but otherwise behave similarly.

Amenorrhea absence of menstruation Bacterial vaginosis excessive growth of bacteria, smell WE WILL WRITE A CUSTOM ESSAY SAMPLE ON ANY TOPIC SPECIFICALLY FOR YOU FOR ONLY $13.90/PAGE Write my sample Candidiasis fungal infection in oral cavity; white patches. Caused by …

If you were to ask any American if he or she would like to receive free health care for the rest of their life, I am pretty sure they’re answers would all be the same. With governors in more and …

Americans spent $2.1 trillion, or about $7,026 per person, on hospitalization, doctor visits, prescriptions, nursing homes, and other forms of health care in 2006 (U.S. Department of Health and Human Services).

For decades, the American system of health care has relied primarily on employer-sponsored insurance programs as a gateway through which individual’s access health care services. Gaps have been filled in through public insurance programs – such as Medicare, Medicaid, the …

For decades, the American system of health care has relied primarily on employer-sponsored insurance programs as a gateway through which individual’s access health care services. Gaps have been filled in through public insurance programs – such as Medicare, Medicaid, the …

Krugman (2009) described the progressive developments in the Congressional Budget Office, which finally succeeded in the proposed legislation from Senate Committee on Health, Education, Labor and Pensions, abbreviated as HELP. The major obstacle in the earlier proposals was the inability …

David from Healtheappointments:

Hi there, would you like to get such a paper? How about receiving a customized one? Check it out