Business of Medicine - PowerPoint Presentation

Business of Medicine Nathan Spell, MD, FACP Assoc. Prof. and Vice Chair for Quality and Clinical Effectiveness, Department of Medicine Assoc. Dean for Education and Professional Development Emory University School of Medicine

Outline How doctors are paid RVU’s, payor mix and charges v. payment, NPSR, base and variable pay How hospitals are paid CMS, Insurance contracts and “population management” Implications for future physician compensation models Personal Finance

How doctors are paid Base +/- Variable +/- Bonus = Total Comp Guaranteed salary is common at first, may be adjusted in future based on productivity Minimum expectations for productivity, on-call, “citizenship” Productivity, quality, satisfaction, value (cost containment) Features of good compensation models: Perceived as fair Understandable Able to be calculated easily/frequentlyAligned with patient needsAligned with business needsMinimize perverse incentives Usually based on financial measures (productivity, value (cost containment))

How productivity is calculated: work-based v. payment-based CPT Common Procedural Terminology (What you say you did on your bill) RVU Relative Value Unit (How much weight the CPT carries) Volume(How many of each service you did) 1) # RVUs (How much work you did) 2) Payment per CPT or RVU(Set by CMS, negotiated in contracts) Volume NPSR Net Patient Service Revenue ($) Collection Rate (How well your practice collects on what is owed by payers and patients)

Circa 2012 “ Payor Mix” refers to the proportion of your patients are in each category.

CMS reimbursement FY2017 for basic ambulatory problem-based visits CPT code level New patient Established patient 99201/99211 44.56 21.08 99202/99212 75.38 44.19 99203/99213 109.60 74.0199204/99214166.36108.3599205/99215 209.48146.68 https:// www.cahabagba.com /documents/2016/11/2017-georgia-01-fee-schedule.pdf

How hospitals are paid DRG (Diagnosis-Related Group) A group of conditions requiring similar resources Tiered by complications/comorbidities within each DRG Length-of-stay matters only for statistical outliers Inpatient v. observation stays Obs payments overall are lower, but patient pays a percentage of Obs fees v. a flat rate per Inpt stay (over $1000 for Medicare for a 90d period after admission)So, out-of-pocket expense for Pt can be higher for Obs Per diem (rare)Bundled PaymentsSingle payment that is shared between hosp, docs, and post-acute care, rather than separate payments to each group

What’s happening in the bigger health care marketplace that will affect how doctors and hospitals are paid?

Technology & drugs, administrative costs, chronic diseases, and the aging population are the leading drivers of health care costs. –Congressional Budget Office

Contributors to low value care Fee for service payments We get paid only when we do something We get paid more for high tech than low tech Pricing failures Paying too much (brand when generic is fine) Lack of competition on priceOverutilization Using high tech when low tech is fineDoing unnecessary thingsVenue failures (home v. office v. ED v. hosp)Care coordination failures (wasteful)Quality failures (not delivering the right care)

12 Total 2009 US health care expenditures ~2.7 trillion dollars Federal government pays ~40% of the total, or about $1 trillion per year Patrija B. Kavilanz , CNNMoney.com , Aug. 10, 2009

Variation in Per Capita Medicare Spending by Hospital Referral Region, 2000 Source: The Commonwealth Fund, from Eliot Fisher, presentation at AcademyHealth Annual Research Meeting, June 2006.

FFS P4P Shared Savings Capitation Global Risk Bundled/Episode Payments Traditional insurance contracts Pay for performance:Medicare , Blue Cross (QHIP)ACO’s EHC commercial contractsMedicare demonstration projects Geisinger Cleveland Clin . Kaiser Perm. VA health sys. Kaiser contracts, etc. (how much risk depends on contract) Driven by fee for service Risk/opportunity for total costs of care

Savings to insurer Shared Savings Model Shared with health system Cost per patient per year Time Unmanaged Inflation Rate Actual performance for measurement year Proportion of savings depends on hitting quality targets

16 1% 5% 10% 49% 64% 24% Source: S. H. Zuvekas and J. W. Cohen, “Prescription Drugs and the Changing Concentration of Health Care Expenditures,” Health Affairs , Jan./Feb. 2007 26(1):249–57. 50% 97% $36,280 $12,046 $6,992 $715 Expenditure threshold (2003 dollars) Population Health: Distribution of expenditures, 2003 (total US population, not insured population)

2017 2017

Pathway for change V= Pt Sat +Outcomes COST

MIPS components

Maximizing MIPS performance Accurate risk adjustment of patient population Infrastructure needs Team based care Population care Reducing unexplained variation Performance Outcomes/Cost Publically reported Everything efficiently and without waste

Implications for physician compensation models Calculate productivity based on management of risk-adjusted* RVU or panel size? *Based on patient complexity/comorbidity as captured in ICD-10 codes billed Avoid incentives for over-use Reward efficiency and effectiveness Patient satisfaction? Reward team-based care v. individual performance

Personal Finance 101 Income Outlays

Nate’s Principles of Personal Finance Have a plan Protect the assets you have Never pass up free money Recognize the miracle of compounded interest Avoid taxes now through pre-tax savings Take advantage of tax-free growth Decide whether to pay off debt fast

Have a plan: monthly budget What is your “Financial Fuel”* in your monthly budget for spending, saving or investing? Take home pay – expenses = financial fuel * Alok Deshpande Expenses Rent/mortgageUtilities/home careCar payment/gasInsuranceChildrenCredit card payment Student loanCell phoneFoodEntertainmentTithe/donatePersonal items

Protect the assets you have Early in your career, your lifetime earning potential (ability to work) is your greatest asset Long-term Disability insurance protects it and is relatively cheap if you are young and healthy Most policies cover ~2/3 of your income Raise coverage as your income grows Can’t be cancelled if you keep up payments and you bought the policy independently If you get it through employer, it is not transferrable when you leave Always keep at least 1 month of expenses in your checking accountBuild up 6 months of expenses in your checking account until you have investments or other assets to call on in case of emergencies (your employer may provide “short-term disability” for 3-6 months so that your salary continues until long-term disability insurance kicks in)

Never pass up free money Does your employer offer matching funds in your retirement account, health savings account, etc ? If so, be sure to save at least the minimum to get all matching funds you are entitled to. Example: Your salary = $100,000 Your employer matches 1:1 for the first 2% of salary you invest for retirement in a 401KTherefore, invest $2,000 yearly to get the FREE $2,000 from your employer

Recognize the miracle of compounding interest Start investing now, even if in small amounts Unless you are an investment prodigy, invest in diversified low-cost mutual funds with annual expense ratio < 0.5%

Avoid taxes now through pre-tax investments or savings Saves your marginal tax rate now (could be 30-40% federal and state, equivalent to > 5 years average stock market returns) Employer-based retirement options 401k or 403b (current max $18,000/ yr ) IRA limits $5,500Can do pre-tax if not using employer option Can also do post-tax even if investing in employer option (means you won’t pay taxes when withdrawing funds in retirement because you already paid) Health Savings Accounts if you have a high-deductible health insurance planSave for future medical expenses with pre-tax $ However, not a good long-term investment because of low returns

Take advantage of tax-free growth Retirement plans mentioned in last slide grow tax-free, but you pay income taxes when you use the money in retirement, presumably at a lower overall rate (Not discussing Roth plans, as most physicians will make too much money to qualify once in practice) 529 plans for education savings for children Post-tax investment Pay no taxes on interest/growth so long as $ is used for qualified educational expenses Pay taxes plus a 10% penalty if used for non-qualified spending

Decide whether to pay off debt fast ALWAYS pay off credit card debt as fast as you can, since interest rates exceed what you can earn by investing the extra $ you have DON’T be tempted to take on credit card debt unless for short-term emergencies Try to pay off student debt in 10-15 years, faster if interest rates are higher than what you can earn through investments Options to consolidate at lower rate? Investigate debt forgiveness options for underserved areas, research careers, etc.