Remember When We Could Just Do More?

Monday, April 9, 2012 | Joel Sauer

Downward pressures on volumes The downward pressure on reimbursement is nothing new – it’s been around for years.  Just look at the graph below from a real Midwestern cardiology group.  You can see that all the way back to 1997 the slope of the receipt line is less than that of the charge line, the widening delta being declining reimbursement.  In light of this negative revenue trend, physicians that wanted to make more money had a simple strategy:  run faster.

For a long time, this strategy actually worked.  There seemed to be a never-ending supply of patients and volumes for the taking.  If there weren’t the charge line in my Midwestern example wouldn’t slope up; it would be flat.  Unfortunately, the strategy was unsustainable and not just because of human (yes, doctors are actually human) capacity.  Myriad pressures emerged to push down volumes with a devastating compound effect.

First of those is practice expense.  According to MedAxiom data, over the last 10 years the average cardiology practice has seen its cost of doing business increase by over 3% per year.  With revenue flat, a physician will need to work 3% harder just to break even.  Giddyup!   As everyone keeps fishing harder in the same water hole, you can predict the results.  A big part of this expense inflation can be attributed to the increasing complexity of running a practice.  The advent of Stark, HIPAA, RAC and Red Flag are just a few examples of Federal rules that have added burden and expense to physician groups, and muted volume growth. Another complexity with impact on volumes has been the increasing pre-authorization barriers placed on ordering diagnostic tests.  According to a 2010 study by the American Medical Association, nearly 40 percent of physicians had one out of five (20%) of their initial test or procedure requests denied by insurance.  While it’s true that most of the denials are ultimately overturned with persistence, it’s also logical to assume that many appropriate tests never get completed simply due to bureaucracy. Let’s face it, the economy the last 3-plus years hasn’t helped anything, particularly for expensive tests that might seem to be elective.  At the same time that American’s wages are flat or sliding backwards, they’ve absorbed a dramatic increase in out-of-pocket health costs.  A study of data by Peter J. Cunningham published in his 2010 article found that in 2001 less than 15% of Americans spent more than 10% of their pre-tax income on healthcare.  By 2006 this percentage had grown to nearly 20%.  Mr. Cunningham notes that this took place in a time period when the economy was expanding, suggesting that it’s only gotten worse during the recent recession. On top of all this are some raw declines in historically lucrative procedures.  In its 2009 survey, MedAxiom reported that catheterizations per new patient dropped from 43% (nearly one cath for every two new patients seen) to just 25% in the time period 2004 – 2009.  During this same time period interventional volumes also saw declines.  A review of Medicare data shows precipitous declines in Coronary Artery Bypass Graft (CABG) procedures as well, while at the same time the number of facilities performing these surgeries has ballooned, straining individual physician volumes.  The graph below published by the Journal of the American Medical Association (JAMA) showing trends per million adults sums it up nicely. The reasons behind these trends are many, including the effectiveness of statins, drug eluding stents, new technologies, etc.  However, the impact on volumes is singular:  down! In summary, physician’s historical strategy for combating declining or stagnant reimbursement has been simply to do more of everything.  Although this has been effective for quite some time, it may have run its course.  The rate at which reimbursement is falling, particularly on the most lucrative tests and procedures, is accelerating.  At the same time, volumes are falling.  With all these pressures, it’s little wonder we’re seeing the trend toward hospital integration.   When one door closes you find a new one to open.    

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