A cautionary tale of employing doctors

For all of those out there anticipating the 2014 official roll out of Obamacare, officially known as Affordable Care Act (ACA), here is a cautionary tale.

Many years ago, as I was growing my cardiology practice, it became evident that diagnostic services for my specialty, like stress tests and echocardiograms, were done less efficiently and cost more at the local hospital, than in the office. This stimulated many groups in the 1980s and 90s to install their own ancillary diagnostic services. Patients loved not having to deal with the long waits and higher co-pay prices at the hospitals. And yes, the cardiologists did increase their revenues with these tests.

However, lower costs to patients, insurance companies, Medicare, and improved patient satisfaction were just as powerful a stimulus to the explosive growth of these diagnostic tests, and later even cardiac catheterization labs, when integrated into the physicians’ offices.

As the growth in testing spiraled upward, the hospital industry saw their slice of the outpatient revenue pie nosedive. Hospital lobbyists and policy makers cried foul and complained of greed and self-referral, which they said was spiking the rapid rise in healthcare costs. Studies laying blame on self-referrals being the major culprit for escalating healthcare costs have been inconclusive.

However, after years of lobbying and the passage of ACA, the hospital industry finally had the weight of the federal government on their side. It did not take long for Medicare to start dialing back the reimbursements for in-office ancillary tests and procedures, and outpatient cardiac catheterization labs were one of their main targets. Hospitals had lost millions of dollars to the burgeoning growth of these labs inside the cardiologist’s office.

Our twelve-man group had a safe and successful lab for about ten years. Then after ACA was passed, Medicare began to cut the reimbursements for global and technical fees in this area. The cuts were so draconian that it became impossible financially to continue the service. Never mind that we could provide the same service as the hospital more efficiently, with better patient satisfaction, and at a third of the cost.

Other diagnostic tests are being similarly placed under the reimbursement gun. Fiercely independent as a group, cardiologists have finally given up and began selling their practices to hospitals where they could be reimbursed based upon their work and not worry about reimbursement from insurance and Medicare. So powerful has been this incentive that at the end of 2012, it was estimated that more the half of US cardiologists had sold, or were in the process of selling, their practices to hospitals.

But now Medicare and Congress realize they may have made a mistake. A federal advisory panel just said that Congress should move immediately to cut payments to hospitals for many services that can be provided at much lower cost in doctors’ offices.

So after taking measures to increase the cost of care and testing, it has finally dawned on them that they have incentivized the wrong entity. Unfortunately the genie has left the bottle, and it is unlikely that the steady tide of cardiology groups selling their practices to hospitals will be stemmed. The end result will of course be higher costs to patients, insurers, and Medicare.

How bad is it? For example, Medicare pays $58 for a 15-minute visit to a doctor’s office and 70% more, $98.70, for the same visit in the outpatient department of a hospital. The patient also pays more: $24.68 rather than $14.50. When a patient receives an echocardiogram in a doctor’s office, the government and the patient together pay $188. They pay twice as much, $452, for the same test in the outpatient department. From 2010 to 2011, the number of echocardiograms provided to Medicare beneficiaries in doctors’ offices declined by 6% while those in hospital outpatient clinics increased by 18%. Perhaps ACA should be renamed the Unaffordable Care Act.

The federal advisory panel now realizes that the hospital buyouts of doctors, which have turned independent practitioners into hospital employees, has led to higher spending by private insurers and higher co-payments for their policyholders.

So where is the accountability here for the original poor judgment and decision to attack the cost-saving independent doctors’ offices and labs? No one has been named in this advisory panel’s report cited above, and I doubt anyone will ever be held responsible.

This is the kind of government snafu we have to look forward to with ACA — skewed incentives based solely upon lobbying and misinformation. Truly free market forces, which we have never had in medicine since the passage of Medicare, restrain costs. It is unlikely that the clock can be turned back, but I am betting that more increases in cost will result from ACA then savings.