Health Care Cost Discussion
Response to ADN series on Alaskan Healthcare and Proposed Reform Ideas
By Robert Hall, MD
January 16, 2017
Health care is one of the most highly regulated industries in the US, and its complexities can be difficult to summarize and understand. Many practices that make no sense to those outside the industry result from many of those governing regulations. Alaska health-care spending and financing are just as complex, and this has been a hot topic of discussion during the last few years in general, and especially during the last few months in the Alaska Dispatch News. The ADN, in particular, has focused on specialty care and its supposed outsized effects on health-care spending in Alaska. There is a fair amount of "common knowledge" in the public at large about specialty health care in Alaska, but examination of actual data presents a different picture. The purpose of this paper is to examine in a little more detail some of these issues and provide more accurate details and background information.
ADN Statement #1. Specialty care, specifically Orthopedics and Cardiology, is one of the main drivers of the high cost of medical care in Alaska.
Actually, only about 4 to 6 cents of each health-care dollar spent in Alaska goes to specialist take-home pay. According to 2015 data from the Centers for Medicare/Medicaid Services, 16% of all health-care spending nationwide went to physician fees. According to the 2011 UAA ISER study on Alaska health-care spending, about 28% of spending in Alaska was for the general category of physicians and clinical services. They didn't break out physician spending any further, but 20% would be a reasonable estimate for physician spending in Alaska. After subtracting overhead expenses such as wages, rent, supplies, malpractice insurance, etc., about half of that amount (or 8 to 10%) winds up as physician take-home pay. That amount is shared among primary-care providers, who are more numerous, and specialists. This drills down to somewhere around 4 to 6 cents of each health-care dollar spent in Alaska going to specialist take-home pay. Other authors who have looked at this topic have noted that physicians are the usual scapegoat in the public eye for high health-care costs, but the data does not support that.
ADN Statement #2. The main cause of the yearly increases in health-care costs in Alaska has been the increased fees charged by specialty physicians.
While we can't comment — for reasons noted below — on every specialist practice in Alaska, we can say that in the 15 years since Orthopedic Physicians Alaska opened its doors in 2002, it has increased fees only twice, and even then it was only by about 2% each time to adjust for cost of living. Multiple studies, including those by government finance officers, UAA's ISER, and other academics, have looked at the reasons for increasing health-care costs, and physician fees are not among the reasons listed. New technology is cited as the most important reason for increasing health-care costs. There are continual developments in new medical devices, new imaging modalities, etc., that are either entirely new and add expense or are more expensive than the technology they replace. Drug prices have followed this same trajectory with the constant development of ever-more expensive drugs that treat an ever-wider array of conditions. Increased utilization of medical services, which is another major cause of higher health-care costs, can be the result of multiple factors, including such things as unnecessary tests ordered for defensive purposes by physicians, or at the direct request of patients. Americans' lifestyle choices have led to higher rates of conditions such as obesity, diabetes, cardiac disease, etc., all of which lead to increased costs.
ADN Statement #3. Specialty-physician charges in Alaska are higher than in the rest of the US.
This is true on its face value but delving deeper into this topic reveals a different message. It is important to realize that given the federal rules governing medical billing practices, there is often no relationship between what the physician charges and what the physician is actually paid in the end. Providers who participate in government programs such as Medicare are required to initially charge all of their patients — not just Medicare patients — the same fee. This initial charge is required regardless of what the actual final payment is expected to be. After the provider receives the actual payment, the rest of the amount is written off in their books. This leads to situations where some practices remove more than half of their initial charges from their final accounting. For example, for a hip replacement, the payment we finally receive can vary by as much as 500% depending on insurance coverage but everyone is required by regulation to be initially charged the same amount. In my particular practice, most of my patients are joint-replacement patients, and most of them are covered by Medicare or Medicaid. Final payments for most of my patients average about 20 cents on the dollar.
The underlying assumption for this discussion is that the cheapest price for any given procedure is the correct fee. Hip and knee replacement charges in Alaska in particular have been singled out for scrutiny in the ADN. When patients who have had these procedures are surveyed as to what it was worth to them and what they think the surgeon should be paid they routinely come up with figures from 12K to 14K which is higher than Alaskan charges, let alone what we actually get paid. While patients see the value in these procedures society as a whole obviously can't afford to pay what these procedures are actually worth. However, the insinuation that Alaskans are being taken advantage of is not borne out by this data.
ADN Statement #4. OrthoAlaska is a longstanding monopoly that has contributed significantly to higher health care costs in Alaska.
OrthoAlaska (OA) was created only one year ago. It has also been repeatedly stated in the ADN series that all orthopedic surgeons in Anchorage belong to OrthoAlaska, which even a cursory examination would show is not true. There are multiple other smaller private practices in Anchorage as well as orthopedic surgeons working in the native health and military systems. OrthoAlaska's service market is the entire state of Alaska as we receive patients from all over the state either on their own accord or by referral from primary providers and other orthopedic surgeons throughout the state. According to the American Academy of Orthopedic Surgery's 2014 census there are 84 practicing orthopedic surgeons in Alaska of whom 20 belong to OrthoAlaska in both Anchorage and the Mat-Su Valley, which is not a majority. As far as other competitors, there are other specialties that provide some of the same services that we do in our market such as neurosurgeons, podiatrists, physiatrists, plastic surgeons and general surgeons. Additionally, the population we serve routinely travels out of state and even out of the country to receive the same services that we provide. The market we are participating in is much larger than just the state of Alaska.
Furthermore, under antitrust law the mere existence of a monopoly in a market is not forbidden. Appropriate examples would be Google, Apple, or Amazon. For a monopoly to come under federal scrutiny there has to be evidence of harm to the consumer. In the one year of OA's existence we have lowered our work comp fees by approximately 20%. We have negotiated a contract with a major insurer to accept significantly less than we have in the past and are negotiating with other insurers currently. OrthoAlaska was formed in order to save costs through economies of scale and that is what we have been doing and will continue to do.
ADN Statement #5. Medical spending in Alaska is higher than the rest of the US.
This is also true but there is no consensus by how much. One widely reported statistic from the Kaiser Family Foundation is that state spending per capita in Alaska is three times higher than the US average. In this context, however, state spending means state government spending and not all healthcare spending in the state. This encompasses Medicaid which is by far the biggest expense and state employee health care. According to the 2011 ISER study 17% of healthcare spending in Alaska is through Medicaid so this statistic does not apply to the vast majority of healthcare spending in Alaska. Kaiser Family Foundation also gives 2009 figures of entire state spending of 9,128$ per capita in Alaska versus 6,815$ per capita US average. This gives a difference of 33% not 300%. Healthcare costs have obviously risen significantly since then but the rates of increase in Alaska are only marginally higher than the rest of the US.
It is also useful to see what Alaskans are actually paying out of pocket for that healthcare. According to the 2011 ISER study the majority of Alaskans with private health insurance get it through their employer. Again using Kaiser Foundation data for 2015, for employer based insurance the average employee contribution for single person coverage in Alaska was 1,351$ versus the US average of 1,255$. The average employer contribution for single person coverage was 6,456$ versus the national average of 4,708$. Alaska employees paid 17% of the cost of their insurance versus the national average of 21%. According to data from the Commonwealth Fund for 2015 the average employee contribution for full family coverage was 4,409$ in Alaska versus the US average of 4,710$. Commonwealth also reports that for 2015 the employee contribution as a percentage of that states median income was 5.0% for Alaska versus the US average of 5.8%. If both employee contribution and deductible costs are considered then figures as percentage of state's median income are 8.7% for Alaska and 10.1% for the US average. Alaskans pay a large amount for health insurance but so do all Americans.
Prices for private health insurance policies under the affordable care act have been rising rapidly in Alaska as it is a new market and the insurers are having to adjust their initial predictions to actual costs. In 2015 ACA policies in Alaska ranked as the 11th most expensive state. Since then the Alaska market is down to one insurer and ACA policies in Alaska are now the most expensive in the country.
ADN Statement #6. OrthoAlaska is a "parasite" on the community
The recent ADN series characterized both orthopedics and cardiology in this way. OrthoAlaska accepts almost all payors including Medicare, Medicaid, VA, Tricare, Dept of Corrections and self-pay. Private insurance makes up only about half of our business. Since its inception, we have been participants in Anchorage Project Access which is a local program to provide free care for Alaskans without health insurance. OA provides 80% of the coverage for local ERs for orthopedics, where we treat all patients regardless of their ability to pay. We have been doing so for more than 17 years. OA members volunteer their time at local hospitals to serve in positions such as department chairs, chief of medical staff, medical committee members etc. OA members also volunteer for other unpaid positions on committees for the American Academy of Orthopedic surgery and the State of Alaska. OA members give their time as officers in state and local orthopedic societies.
OA provides employment for over 200 Alaskans and provides them with benefits including health insurance. OA pays taxes locally. OA buys large amounts of services in the local economy. OA members spend their income in the local economy as well. When patients go outside the state for medical care the economy of that state benefits, not Alaska.
We can't help noticing that 2 days after Mr Wohlforth from the ADN labeled us as parasites he wrote another column bemoaning the lack of mutual respect in public discourse these days. For Alaska to meet its healthcare challenges this will require a respectful dialogue on everyone's part.
ADN Statement #7. The ADN series proposed a managed care organization such as Southcentral Foundation as a solution to rising healthcare costs in Alaska and predicted that Alaskan doctors will try and block any attempt at reform in Juneau.
Managed care is not a new idea and has already been tried in Alaska in the private sector. In the late 80's or early 90's Providence Alaska tried to start up a managed care organization in Anchorage. This effort was widely resisted by the local medical community and never got off the ground.
Southcentral Foundation was held up as a less expensive model of healthcare. The ADN reported that the cost for Southcentral's model is 500 dollars per person monthly or 6 thousand dollars per year. Southcentral, however, only provides primary care. The Alaska Native Tribal Health Consortium (ANTHC) provides hospital and specialty care for Southcentral Foundation's members, among other tribal organizations. According to ANTHC's 2015 annual report they had expenses of about 524 million of which about 450 million had to do with administering and delivering healthcare. Only about one third of ANTHC's revenues come from the Indian Health Service. The majority comes from billing Medicaid, Medicare and private insurance. They have a service population of 150 thousand which translates to about 3 thousand per person per year for tertiary care. Added to the 6 thousand per year for primary care this gives a total of 9 thousand per year for comprehensive coverage for an individual for the year 2015 under the native health system. That 9 thousand comes almost exclusively from government funding, almost no beneficiaries are required to make any copayments. It is no wonder that the majority of the beneficiaries are pleased with this system. Compared to the Kaiser Family Foundation figure for Alaska of 7800$ per year for single person private insurance for 2015 this hardly represents a cost saving suggestion.
In his zeal to pursue his vendetta on the Alaskan medical community Mr. Wohlforth has missed the real story here which is that there is already a revolution going on in healthcare financing. Whatever is done in Juneau by legislators, doctors or lobbyists will have no effect on this process already unfolding at the federal level. In 2015 congress passed the Medicare Access and Chip Reauthorization Act or MACRA. This replaced the old Medicare funding mechanism known as SGR. Forbes magazine called it a "tsunami "of changes in how doctors are paid and predicted that a large percentage of older physicians may retire early as a result. MACRA requires CMS to implement two payment tracks by 2019. 25% of payments could still continue under the fee for service model but with new merit based incentives or penalties that require doctors to provide data on the quality of the care they are providing. The other 75% is to be provided under alternate payment models. Some of these models are currently undergoing demonstration projects and development of other models are being encouraged. Some of these models include such things as accountable care organizations, bundled payments for common procedures etc. Private insurers such as Blue Cross and Aetna have followed suit and have stated that they also plan on "shifting the bulk of payments from fee for service to value based models". Instead of wasting time and money reforming a system that is on its way out Alaska should participate in this revolution.
Other issues raised by this ADN series...
Why hasn't OA responded to the ADN series to date?
As Mark Twain said, never pick a fight with someone who buys ink by the barrel. The ADN has an obvious bias against the local medical community as evidenced by such statements as "unconscionable transfer of wealth", calling OA "parasites" etc. They also commonly state that we don't respond to requests for comment. They will call us a day or two prior to publication of a column and ask for "comment". The article has already been written and conclusions already reached, any comment from us would be just an answer to charges that may or may not have any validity. Getting fair treatment in that environment is very unlikely. Prior to now we have focused on proving our value to the community by keeping our heads down and doing our work on the behalf of Alaskans.
The state should break up OA's "monopoly"
Regardless of the fact that OA is not a monopoly Alaska state law on antitrust, AS 45.50.562-596, specifically exempts physicians from antitrust regulation by the state. On the federal level, physician antitrust matters are managed by the Federal Trade Commission and the Department of Justice. Calls for the state to "do something" is an example of how thinly researched the ADN series has been.
Physicians should be more transparent with pricing information.
As noted previously this is much more complicated than it seems since even if we reported our fees it would not help the consumer much since final payments and therefore patient copays vary so widely by payor. There are also restrictions on physicians sharing fee information that is discoverable by other competing physicians as that is an area where federal antitrust law applies. Fees can obviously be disclosed to patients but there are guidelines on how physicians can disclose fee information to non-consumers. These guidelines as to what constitute a "safety zone" are contained in a Department of Justice Statement of Antitrust Enforcement in Healthcare. Unless you are an antitrust attorney it can be dense reading. If your interpretation is not approved by the DOJ you could be fined and have your practice upended by a federal agency. That being said, there is an exception for collection of fee information by government agencies. If it enacted compulsory legislation or regulation the State of Alaska could collect that data. For it to be actually useful for the consumer, however, it would need to include fee schedules from the payors such as Medicare, Medicaid, VA , private insurance etc. Unfortunately, to make it more complicated, more and more physicians in Alaska are contracting with insurers to be in network providers. These contracts usually prohibit the disclosure of agreed upon fee schedules by either the physician or the insurer. We are not sure which area of law would prevail here.
Why should medical care in Alaska cost more than Seattle?
Anchorage is also continually being compared to Seattle without taking into account some of the major differences between the two markets. Seattle has a state subsidized medical school with its own hospitals and employed physicians. Seattle has a large state subsidized hospital with employed physicians to provide trauma care, Harborview. Individual Alaskans don't have to pay any state taxes to support such institutions but this differential is never mentioned when comparing costs between the two markets. In Seattle, indigent care is provided for the most part by those state subsidized institutions. In Alaska, the costs of providing care for the uninsured and underinsured are borne entirely by Alaskan hospitals and by Alaskan physicians in private practice and not by the general population. Seattle has a very large population in a very small geographic area. They can take advantage of economies of scale that we cannot and they don't have our transportation challenges.
The state should repeal the 80% rule that requires insurers to pay 80% of the usual and customary fee.
This is touted as a big cost saving measure by both private insurers and the ADN. However, this rule does not apply to self-insured health plans nor to contracted physicians. Currently in Alaska the majority of employer provided health insurance is provided through self-insured plans. This is confirmed both by the insurance companies themselves and by the 2011 ISER report. Premera Alaska states that they have 1700 providers contracted as in network in Alaska. The Association of American Medical Colleges 2015 Physician Manpower report estimates that there are 1800 active physicians in Alaska. Not all providers are physicians but obviously the majority of physicians are already contracted with insurers. As they have increased their networks the insurers have become much more aggressive at steering patients to in network providers. The 80% rule only comes into play with the intersection of two minorities i.e. when a patient with a group or individual policy purchased directly from the insurer sees an out of network physician. Repeal of this rule will not have any significant impact on healthcare costs but will make it easier for the insurers to entice the remaining physicians to sign up as in network. It also makes it harder for those physicians already signed up to leave the network if they feel they are not being treated fairly.
The state should repeal the law that allows competing physicians to bargain collectively with insurers.
I think most providers have never heard of this law. Even if they had, as noted above antitrust issues are handled on the federal level and federal regulations forbid this. I don't think many physicians would risk having to use a defense in federal court that the state said it was OK. Repeal of this law would be of little or no real consequence.
OrthoAlaska has been criticized for not providing follow-up care in Alaska for patients that have been sent out of state by their insurer for surgical procedures.
The surgical fee for these procedures includes all office visits for 90 days postoperatively, the so called global period. If OA tries to bill for providing follow up care during this period the insurer sees that they have already paid a surgeon for this service and then routinely denies payment to OA. The insurers are effectively asking OA to subsidize their medical tourism programs. They don't want us to do the procedure and then want us to see the patient for free while still accepting legal liability for someone else's work.
Finally, we are very aware that overall healthcare costs in Alaska are a major issue and at some point will not be sustainable if they continue to increase. Healthcare costs are an important issue all over this country and Alaska is not an exception. We do think it is important to see what the true drivers of rising healthcare costs are. Even given all the above data OA realizes the need for reduced physician reimbursement to help address costs but this needs to be put in context of the very small effect this will have. 20 years ago, or so Alaskan medical fees were much more aligned with the rest of the country. All of the other states have been undergoing a gradual process of reduction. Alaska will have to do this reduction more quickly but it cannot be done all at once if the system is to withstand the process.
Robert Hall, MD is an orthopedic surgeon who has been practicing in Anchorage Alaska for more than 20 years.
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