Lecture Health economics - Chapter 8: The physician market (Part 1)

Lecture Health economics - Chapter 8: The physician market (Part 1). This chapter presents the following content: Physician market structure, conduct in the physician market, physician market performance, physician practice management companies.

The Physician Market, Part 1

Professor Vivian Ho Health Economics

Fall 2009

These slides summarize material in Santerre & Neun: Health Economics, Theories Insights and Industry Studies, Southwestern Cengate 2010

Physician Market Structure

Conduct in the Physician Market Physician Market Performance Physician Practice Management Companies

1970 1990 2003 2005 Total Number 334,028 615,421 871,535 902,053

Patient care 83.4% 81.9% 79.4%

Total per 100,000 pop'n 161 244 295 304

Trends in Physician Numbers

Physician Market Structure

Physician Distribution by Major Specialties (Percent)

Primary care specialists* 38.8 40.2 46.95

*The AMA defines primary care as including family practice, general practice, internal medicine, obstetrics/gynecology, and pediatrics.

Physician Market Structure (cont.)

Are there “too many” specialists and “too few” primary care docs?

Proportion of specialists in U.S higher than in W European countries and

Matching Physician Supply &

Requirements

“Future physician supply does not

appear well-matched with requirements.

(Politzer, 1996)

A shortage of 33,000 primary care

physicians is predicted by 2020.

The same set of assumptions also

generates a surplus of specialists.

Distribution of Physicians by Mode of Practice

Most docs self-employed, but % is dropping.

Fall in solo practice docs, rise in salaried docs.

Reflects rise in ambulatory care by HMOs.

Distribution of Physician Revenues by Source of Payer

% of revenues from Medicare/Medicaid high, but

lower than for hospital sector.

% of revenues paid out-of-pocket also higher than for hospital sector.

1980 2002 2007 Government 30.5 33.8 33.7

Managed Care Reimbursement of

Physicians

MCOs hope to modify physician

behavior in order to control costs.

88% of all practicing docs in 2001 had

at least one managed care contract.

In 2001, 49¢ of every $1 of physician revenue came from an MCO.

Are there barriers to entry?

Requirements for licensure to practice

M.D from accredited med school

Internship or residency at recognized

State licensure boards controlled by

physicians who can restrict entry to keep salaries high

Is market reform better than

government licensure?

Market reform may encourage

physician monitoring better than

For-profit providers have direct financial

stake in quality of their physicians

Production, Costs, and Economies of Scale

Do certain physician organizations have

a production or cost advantage?

Group practice physicians are 22% more productive than those in solo practice

(Brown, 1988).

The lowest-cost practice size has been

estimated at 5.2 physicians (Pope & Burge,

1996).

Economies of scale may exist for practices

as large as 100 physicians (Marder & Zuckerman, 1985)

Physician Market Structure Summary

Physicians have outpaced growth in the general population.

The U.S may have too many

specialists and too few generalists.

A move towards multi-physician

practices.

Production & cost advantages

Pressures of managed care

Despite barriers to entry, competition is increasing.

Physician Market Conduct

The legal environment and physician behavior.

The impact of managed care on

physician conduct.

Defensive Medicine &

Malpractice Reform

Physician malpractice premiums

account for 1% of US health care

spending.

Physicians may over-provide care in order to avoid malpractice suits.

Defensive medicine may add another $4b

to $25b to the nation’s health care bill

Defensive Medicine &

Malpractice Reform

States which implemented direct

reforms to their malpractice system

(caps on damages, abolition of punitive damages) reduced hospital

Why do we have a malpractice system?

The malpractice system compensates victims for negligence and deters future

negligence.

Tort Law: entitles an injured person to

compensation as a result of someone’s

negligence

Damages include economic losses and “pain and suffering.”

PROBLEMS WITH THE CURRENT SYSTEM

PROBLEMS WITH THE CURRENT SYSTEM

Patient Advocates

The number of claims filed grossly

underestimates the extent of physician

negligence

Large jury awards are infrequent

Current quality control mechanisms are

inadequate

Defensive medicine is a byproduct of

generous insurance coverage for patients, not malpractice insurance

Harvard Medical Practice Study

2) What are the total economic losses

patients suffer from adverse events?

What fraction is covered by the tort system and other insurance?

3) What percentage of adverse events

(negligent and non-negligent) lead to

malpractice claims?

From 51 nonfederal, acute care

hospitals in New York

Criteria for an Adverse Event

A definable injury caused at least in part

by medical management (negligent or not).

The injury must have produced measurable disability that prolonged the hospital stay or reduced function at time

of discharge.

The injury must have been unintended.

NEJM 1989

Which of the following

is NOT an adverse event?

Intracerebral hemorrhage caused by anticoagulants

Incisional hernia Amputation of a gangrenous leg Fall from a hospital bed

Failure to diagnose an ectopic pregnancy

NEJM 1989

Criterion for a

“negligent adverse event”

An injury caused by the failure to meet standards reasonably expected of the average physician, other provider, or

institution

Rated on a 6-point scale

1 Little or no evidence

2 Slight evidence

3 < 50:50 odds, but close call

4 > 50:50 odds, but close call

5 Strong evidence

6 Virtually certain evidence

Was the following adverse event

discharged without evaluation She returned

one hour later to a hospital emergency room

with even greater pain and evidence of internal bleeding She required a two-stage surgical

repair over the ensuing four months

Was the following adverse event

“negligible?”

A patient with peripheral vascular disease required angiography After the procedure, which was performed in standard fashion, the patient’s renal function deteriorated as a

result of exposure to angiographic dye The hospital course was stormy because of

kidney failure, but the patient’s renal function slowly returned to normal The adverse event caused a prolonged hospital stay

Determination of negligence

is often difficult

Many medical procedures are inherently risky There are uncertainties in

diagnoses and treatments.

Physicians differ in the quality of care

and success rates for reasons other

than negligence.

Patients’ underlying health conditions

differ.

Determination of Adverse Events

from Medical Records

Nurses and medical records

administrators screened records for

signals of adverse events.

Examples: Admission to any hospital after discharge, unfavorable drug reaction in

hospital, neurologic defect at discharge

Two board-certified internists of

surgeons reviewed each screened

record.

7817 positive for screening criteria

7743 reviewed

by physicians adverse events 6465 without

1278 with adverse events 972 with no negligence

306 with negligence

Did the study cases sue for

malpractice?

Further analysis was limited to 280

negligence cases which occurred or were discovered in the index hospitalization

98 / 31,429 patients filed claims against 151 health care providers

 Not all of these patients were victims of

negligence, according to HMPS.

The sample estimates were re-weighted to represent the population of 2.7m discharges

in 1984

415 malpractice claims (2%)

14,180 with strong evidence

>6mo (42%)

2834 patients

<70yo (53%)

2562 patients 70yo (47%)

< 2% of patients identified as victims of

negligence filed a malpractice claim

Of the estimated 3570 statewide claims made

in 1984, only 415 were defined by HMPS as negligent care

Both patient and physician advocates have legitimate complaints The current malpractice system does not do a good job compensating victims for

negligence.

FURTHER RESULTS

Only 50% of patient claims filed

eventually receive some compensation.

About 1% of negligence victims receive some compensation.

The rate of adverse events differs by

medical specialty, although the

negligence rate is constant.

However, negligence rates vary across

hospitals

Components of a Capitated Contract

• Payment methods

Capitation rate/schedule - Managed care organizations employ actuaries who predict the cost of care as a function of population characteristics

Physician Market Performance

Total Expenditures

Annual Rate of Increase*

Per Capita Amount

*Average since previous year listed

Physician expenditures have slowed in the 1990s, more in line with the growth of the overall economy But they may be on the rise again

Physician Market Performance

Revenue per Self-Employed Physician, ($1,000s)

Increases in revenues are due to increases in expenses AND higher income for physicians

Physician salaries remain high

When managed care grows, salary growth for

specialists slows, while pay for primary care docs rises

Physician groups getting large enough to want their own specialists

Female docs’ salaries exceed males in a dozen or so specialties

Employed vs Independent Physicians

Employed physicians worked 5-7 fewer hours

a week

Employed physicians’ median net income

was $142,000 in 1996, vs $198,000 for all

private-practice physicians

Practice mgmt Companies typically pay

physicians $300,000-$400,000 per physician for practice assets (land, equipment)

 Tradeoff: 20% of practice’s net revenues