Study Shows Need for Payment Reform, According to California Physicians Group

The costs per patient for hospital-owned physician groups are higher than in groups owned by physicians themselves, according to a new UC-Berkeley study.

The groups owned by hospitals were 10.3% higher and those owned by multiple hospitals 19.8% higher than groups owned by physicians themselves, according to the study, which was published in the Oct. 22 edition of the Journal of the American Medical Association.

Hospital-owned and multi-hospital-owned groups are increasing in number, encouraged with incentives that are provided by the Affordable Care Act.

The study’s results point to the need for payment reform, which would replace a strictly fee-for-service model with one that includes non-volume payments, said Leah Newkirk, Vice President of Health Policy for the California Academy of Family Physicians.

“Health care reform incentivized consolidation early and payment reform later,” Newkirk said. “The two things should be together. We need payment that rewards outcome.”

The study was conducted by James Robinson, chair of the UC-Berkeley Center for Health Technology, and Kelly Miller, a program analyst for the Integrated Healthcare Association in Oakland.

It looked at data for 4.5 million patients treated by integrated medical groups and independent practice associations in California between 2009 and 2012. The patients were covered by commercial health maintenance organization insurance. It did not include data on patients covered by commercial preferred provider organization insurance, Medicare or Medicaid.

The annual expenditures per patient measures what insurers paid to the physicians’  organizations for professional services, to hospitals for inpatient and outpatient procedures, to clinical laboratories for diagnostic tests and to pharmaceutical manufacturers for drugs and biologics.

The study acknowledged that organizational consolidation may increase some forms of care coordination, although at higher total expenditures, possibly because of higher use of hospital-based ambulatory services and through greater hospital pricing leverage against health insurers, the report said.

For 118 physician-owned organizations, serving 3,065,551 patients, the mean expenditure was $3,066. For 19 organizations owned by local hospitals, serving 728,608 patients, the mean expenditure was $4,312. For organizations owned by multi-hospital systems, the mean expenditure was $4,776.

“These findings are in contrast to the hope and expectation that organizational consolidation of physicians with hospitals would result in greater coordination, and hence lower expenditures,” the report said.

It concludes there should be reform of payment methods that focus on total expenditures that promote coordination but also create incentives for efficiency and price reductions.

Don Crane, president and chief executive officer of the California Association of Physician Groups, called the study “solid science” that will be part of the debate over payments, although he is unsure where it will lead.

“It is probably generally good for society to know where its money is going,” Crane said. “We have an old-fashioned model in health care. For there to be illumination and light will help policy makers.”

Modesto physician Del Morris, president of CAFP, said CAFP favors a mix of payments for face-to-face provider visits plus a per member fixed fee.

“This would provide the necessary payment structure to support transformation of primary care practices away from fee-for-service to team care and support the practice infrastructure needed for better and more efficient care coordination,” Morris said.

Newkirk said the reform payment structure should include fees for service, monthly per member payments made by insurers or self-insured employers and bonus payments for shared savings.

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