The Physician Market, Part 1The 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

OUTLINEOUTLINE

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)1975 2003 2006

Anesthesiology 3.3 4.4 9.98Cardiovascular Diseases 1.8 2.6 5.02Diagnostic Radiology 0.9 2.7 2.97General Surgery 8.0 4.3 2.66Opthamology 2.8 2.1 1.61Orthopedic Surgery 2.9 2.7 4.7Pathology 3.0 2.1 0.98Psychiatry 6.1 4.6 1.28Primary 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 Are there “too many” specialists and “too few” primary care docs?and “too few” primary care docs?

Proportion of specialists in U.S. higher than in W. European countries and Canada (60% vs. 25-50%).Specialists more prone to use new, high-

tech medical procedues.

May explain why U.S. medical costs per capita are highest in the world.

Matching Physician Supply & Matching Physician Supply & RequirementsRequirements

“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.

Employment type 1989 1998 1999 2001 Self-employed 70.1% 62.3 51.4 54.8 Employee 23.9 36.1 48.6 45.2 Independent contractor 6.0 1.6 -- --Size of practiceSolo Practice 37.4% 25.9 22.0 20.52-8 persons 25.5 29.0 -- --2-9 persons -- -- 15.8 26.48+ persons 7.2 16.7 -- --10+ persons -- -- 12.5 14.9

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 2007Government 30.5 33.8 33.7Medicare 17.4 20.3 20.1Medicaid 5.2 7.2 6.9

Private 69.4 66.1 55.9Priv. Health Insurance 35.3 49.1 49.4Other Priv. Funds 3.9 6.9 6.5Out-of-pocket 30.2 10.1 10.4

Managed Care Reimbursement of Managed Care Reimbursement of PhysiciansPhysicians

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?Are there barriers to entry? Requirements for licensure to practice

M.D. from accredited med school.Internship or residency at recognized

institution.Pass a medical exam.

AdvantageProtects public from incompetent doctors.

DisadvantageState licensure boards controlled by

physicians who can restrict entry to keep salaries high.

Is market reform better than Is market reform better than government licensure?government licensure?

Market reform may encourage physician monitoring better than government regulation.More salaried docs are being monitored by

HMOs.Laws shifting medical malpractice liability

towards hospitals and HMOs.For-profit providers have direct financial

stake in quality of their physicians.

Production, Costs, and Production, Costs, and Economies of ScaleEconomies 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 SummaryPhysician 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 ConductPhysician Market Conduct

The legal environment and physician behavior.

The impact of managed care on physician conduct.

Defensive Medicine &Defensive Medicine & Malpractice Reform 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 &Defensive Medicine & Malpractice Reform Malpractice Reform

States which implemented direct reforms to their malpractice system (caps on damages, abolition of punitive damages) reduced hospital expenditures 5 to 9%.

Indirect reforms (caps on contingency fees, mandatory periodic payments) had no measurable impact on costs.

Why do we have a malpractice system?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 THEPROBLEMS WITH THE CURRENT SYSTEM CURRENT SYSTEM

Physician Advocates

Too many of the claims filed are not due to negligence.

Juries award large sums unrelated to actual damages.

The threat of claims leads to “defensive” medicine, which adds billions to the nation’s health expenditures.

PROBLEMS WITH THEPROBLEMS WITH THE CURRENT SYSTEM CURRENT SYSTEM

Patient AdvocatesThe 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 StudyHarvard Medical Practice Study(HMPS)(HMPS)

1) What is the incidence of “adverse events” and “negligent adverse events” in hospitals?

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?

SAMPLESAMPLE From 51 nonfederal, acute care hospitals in

New York

31,429 patients discharged in 1984

Stratified sample based on hospital and patient characteristicse.g. Geographic region, patients in high-

risk specialties

Criteria for an Adverse EventCriteria 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 followingWhich of the followingis NOT an adverse event?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 Criterion for a “negligent adverse event”“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 evidence2 Slight evidence3 < 50:50 odds, but close call4 > 50:50 odds, but close call5 Strong evidence6 Virtually certain evidence

Was the following adverse event Was the following adverse event “negligible?”“negligible?”

During a therapeutic abortion after 13 weeks of pregnancy, the physicians unknowingly perforated the patient’s uterine wall with a suction device and lacerated the colon. The patient reported severe pain, but was 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 Was the following adverse event “negligible?”“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 negligenceDetermination of negligenceis often difficultis 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 EventsDetermination of Adverse Eventsfrom Medical Recordsfrom 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.

RESULTSRESULTS

31,429 in original sample

30,195 locatedon first review

22,378 negative forscreening criteria

7817 positive forscreening criteria

7743 reviewedby physicians

6465 withoutadverse events

1278 withadverse events

972 with nonegligence

306 withnegligence

Figure 1. The Record-Review Process.

Numbers of medical records are shown.

Did the study cases sue for Did the study cases sue for malpractice?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.

STATEWIDE ESTIMATESSTATEWIDE ESTIMATES

27,197adverse events

due to negligence26,764 with nomalpractice claims (98%)

415malpracticeclaims (2%)

14,180 withstrong evidence

of negligence

12,858 withdisability 7462 with

disability<6mo (58%)

5396 withdisability

>6mo (42%)

2834 patients<70yo (53%)

2562 patients70yo (47%)

CONCLUSIONSCONCLUSIONS < 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 RESULTSFURTHER 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 PerformancePhysician Market Performance

Total Expenditures

Annual Rate of

Increase*Per Capita

Amount1980 47.1b --- 2051990 157.5 12.9% 6201993 201.2 8.5% 7651995 220.5 4.7% 8202000 288.6 5.5% 10202005 478.8 1585

*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 PerformancePhysician Market Performance

1986 1990 1995 1997 1998Practice Expenses

per physician 118.4 150.0 201.6 228.6 261.9Before-tax income 131.1 185.6 230.8 228.2 224.3

249.5 335.6 432.4 460.1 496.7

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

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

Physician salaries remain highPhysician salaries remain high

MeanInternal Medicine $191,525Family Practice $178,859Pediatrics $188,496

2006 PHYSICIAN SALARIES

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 PhysiciansEmployed 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