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AAOS Now

Published 11/1/2011
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Matthew J. Twetten, MA; Kevin J. Bozic, MD, MBA

A second look at physician fee payments

Health Affairs article triggers questions on methodology, conclusions

Are physician fee payments primarily responsible for rising healthcare costs in the United States? That was what media outlets inferred from an article that appeared in the September 2011 edition of the journal Health Affairs. In a time of budget balancing and deficit reduction, such a conclusion could result in targeting physician fees as a way to control costs.

Although the study was titled “Higher Fees Paid to U.S. Physicians Drive Higher Spending For Physician Services Compared to Other Countries,” indicating a much more limited effect, media reports quickly extrapolated the authors’ narrow statement to the broader question of total healthcare spending.

Authors Miriam J. Laugesen and Sherry A. Glied compared physician fees across six economically developed countries and concluded that physician fees are primarily responsible for rising costs in physician services. Their analysis compared public and private fees paid to physicians in the United States for a typical established-patient visit (CPT code 99213) and for a total hip replacement (CPT code 27130) with public and private fees paid for these services in the United Kingdom, France, Germany, Australia, and Canada.

On average, the authors found that fees for a typical patient office visit were 21 percent (public payers) to 41 percent (private payers) higher in the United States compared to the other countries studied. For total hip replacement, average fees paid in the United States were 41 percent (public payers) to 54 percent (private payers) higher than in the other five countries.

The authors also looked at the difference in average physician income across the six countries, the difference in the number of physicians per capita, and the average volume of the services under review. On average, they reported, primary care physicians in the U.S. earn approximately 35 percent more than primary care physicians in the other countries, and U.S. orthopaedic surgeons earn approximately 52 percent more than orthopaedic surgeons in the other five countries.

Although the average number of primary care physicians per capita in the United States is comparable to the density of primary care physicians in the other countries, the number of orthopaedic surgeons in the United States per capita is considerably higher (approximately 45 percent) than in the other countries.

Interestingly, the volume of services provided for these two services across the six countries did not correlate with either physician fees or the number of physicians per capita. In fact, on a per capita basis, the United States had a considerably lower volume of established patient visits than other countries. The number of total hip replacements per capita in the United States was about average.

That got attention!
Within 2 days of publication, several media outlets had run stories that seemed to link physician fee payments to total healthcare spending. In reality, physician fees and physician services together account for only about one third of total U.S. healthcare spending. Physician fees are about 12 percent of total healthcare spending, while physician services account for 21 percent of total healthcare spending
(Fig. 1).

The Wall Street Journal, The New York Times, MSNBC, National Public Radio, Medscape, Modern Healthcare, and American Medical News were among the national media outlets that ran stories. With headline such as “Doctors’ Fees Major Factor in Health Costs” and “To Control Health Care Costs, Put Docs on a Different Pay Scale,” media outlets seemed to blame physicians for the current healthcare financial crisis.

Both the American Academy of Family Physicians (AAFP) and the AAOS mounted rebuttals to the charges. AAFP President Roland Goertz, MD, MBA, noted that the study’s conclusion “completely ignores the systematic flaws that increase costs.” The AAOS response recognized the seriousness of the problem while stressing the relatively small percentage of the total healthcare dollar that goes to physician services. R. Dale Blasier, MD, a member of the AAOS Coding, Coverage, and Reimbursement Committee, noted that the authors’ choice of an orthopaedic procedure wasn’t based on a bias against orthopaedic surgeons.

“The article was about physician fees in general and just happened to pick an orthopaedic procedure,” pointed out Dr. Blasier. “It could have just as easily been a cardiology procedure or a dermatology procedure; the differences across the countries in the study would be largely the same.”

In his response to the article, AAOS President Daniel J. Berry, MD, focused on the commitment by the AAOS and the orthopaedic community to continuously improve quality, reduce costs, and add value to medical care. Dr. Berry also emphasized the value that total hip replacement has for patients. “The Health Affairs article focused solely on payment rates, without even considering the surgery itself. Total hip replacement is one of the most cost-effective procedures we have for returning patients to a highly productive and satisfying life.”

The AAOS letter to The Wall Street Journal was published on the homepage of the AAOS website. AAOS Medical Director, William R. Martin III, MD, brought together members drawn from the AAOS Health Care Systems Committee, the AAOS Coding, Coverage, and Reimbursement Committee, the AAOS Council on Advocacy, and the AAOS Board of Directors, as well as healthcare economic consultants, to provide both specific and general perspectives to guide the various AAOS responses. Based on the input from this group of experts, the AAOS has developed a more technical response to Health Affairs that will be published in the November edition of the journal.

“The problem with the Health Affairs article and our current payment system in general,” said Peter J. Mandell, MD, chair of the AAOS Council on Advocacy, “is that the focus is entirely on the cost of the procedure and not on the benefits a specific procedure provides or the value it delivers.”

What the data really say
In reviewing the article, the AAOS workgroup recognized that the authors made some valid points regarding differences in healthcare spending between the United States and other developed countries. But they also had several concerns. The authors’ conclusion that the overall variation in healthcare spending for physician services is driven primarily by the difference in physician fees, for example, is simply not supported by the data.

The Medicare payment for a hip replacement surgery has decreased by 7 percent in nominal (actual) dollars since 2000. That’s a drop of 32 percent in real (inflation-adjusted) dollars. Over the past decade, Medicare payments have either stayed flat or decreased. Total Medicare expenditures, however, have continued to increase, according to the Centers for Medicare and Medicaid Services.

“If the authors’ predicted relationship between fees and total expenditures were true (that a change in fees causes a change in total expenditures), we would expect that as fees went down, total expenditures would also go down,” noted Peggy Naas, MD, MBA, member of the AAOS Health Care Systems Committee. “That hasn’t happened. In reality, the relationship between individual fees and total spending is overshadowed by other significant cost areas—such as changes in payments for drugs, durable medical equipment, and payments to nonphysician providers—that have had a greater impact on overall changes in total expenditures. The authors did not even attempt to include any of these other variables as controls.”

The authors also ignored differences in payment for preoperative and postoperative care among countries. In the United States, the fee for hip replacement surgery includes all day-of-surgery care, all in-hospital care, discharge management, and postoperative evaluation and care up to 90 days after the surgery. A review of the public physician fee schedules for Canada and Australia seems to indicate that neither of these countries includes all of these elements in their fees for hip replacement. Instead, the fee covers only care provided in the hospital setting or on the day of the procedure itself.

Although the authors acknowledged two other factors that could be important explanatory variables, they did not incorporate these factors into their statistical models. The most significant factor is that the other countries in this study provide universal health care, which is not currently the case in the United States.

Macroeconomic trends in income distribution could also be an important explanatory variable. If the average incomes of primary care physicians and orthopaedic surgeons are compared to the average income of the top 1 percent of income earners in the six countries, the United States ranks lower than all other countries. This means that, relative to the top income earners in each country, primary care physicians and orthopaedic surgeons in the other five countries are closer to the top incomes in their respective countries, compared to U.S. physicians.

The AAOS believes that more research and work must be done on the important question of why the United States spends more money on health care per capita compared to other countries. Such research is important not only because of the current fiscal crisis but also because measures of overall health suggest that health outcomes in the United States are no better—and are sometimes worse—than in many countries with lower per capita healthcare spending.

The AAOS believes that payment and delivery reform that is focused on proper incentives for quality care can promote better health outcomes in the United States. The AAOS is working diligently with all stakeholders to achieve this goal and will update members on these efforts.

Kevin J. Bozic, MD, MBA, is the chair of the AAOS Health Care Systems Committee. Matthew J. Twetten, MA, is the AAOS senior manager of regulatory, quality, and medical affairs. He can be contacted at twetten@aaos.org