Physician payment can vary widely for same procedures

Some doctors get twice the rates of others in the same area, a new study says. Researchers suggest lowering higher fees to cut health spending.

By Victoria Stagg Elliott — Posted July 12, 2010

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Physicians working in the same geographic area and performing the same tasks often are paid at different rates, according to a study presented at the AcademyHealth annual research meeting June 29 in Boston.

"Some physicians may be in locations that are particularly of interest to health plans. Or they may be in larger groups and more able to negotiate effectively," said Laurence Baker, PhD, lead study author and a professor of health research and policy at Stanford University School of Medicine in California. "But it does have an element of randomness to it."

Researchers analyzed 2006 data from Thomson Reuters MarketScan to confirm the existence and extent of payment variation. The database includes information on 12.2 million claims made through the health plans of large employers in 100 metropolitan areas.

The study's authors expected to find differences from town to town, but they were surprised to discover that pay to some physicians in the same geographic area was almost double that of others. This was true even after removing the outliers from the top and the bottom of the pay scale.

Also, the AcademyHealth study "is consistent with findings that price differences are not related to quality," said Eric Linzer, senior vice president of the Massachusetts Assn. of Health Plans. "It's the market climate that is the main factor. If we're going to do something to make health care affordable for employers, particularly for small businesses, we are going to have to do something about the rates that particular providers charge."

Researchers at the Boston meeting indicated that both the number of physicians and the structure of the health care market in a particular locale may play a role in some doctors earning more than others. They said cutting fees at the higher end may be one way to reduce escalating health care costs.

But some physicians said that just because some doctors receive more pay than others does not mean they are overpaid. Rather, those at the high end may be getting paid correctly while others are underpaid.

"There's nothing in this study that says what is the appropriate fee," said Steve Furr, MD, president of the Medical Assn. of the State of Alabama.

Physicians in many areas of the country say they have little negotiating power because of consolidation in the insurance industry. For example, Alabama has the most highly concentrated health insurance market in the country, according to "Competition in Health Insurance: A Comprehensive Study of U.S. Markets," published Feb. 23 by the American Medical Association.

"In our state, we don't have that much variation. We don't have as many different players," said Dr. Furr, a family physician in Jackson, Ala.

The 2010 AMA report, based on data from Jan. 1, 2007, and gathered by HealthLeaders-InterStudy, also found that in 24 of the 43 states studied, the two largest insurers had a combined market share of 70% or more. That was true for 18 of 42 states studied in the report issued in 2009.

AcademyHealth is a Washington, D.C.-based professional society for health services researchers and health policy analysts.

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Measuring market power's role

The idea that market leverage by hospitals and large groups of physicians drives health care costs has been suggested by other research -- but not without controversy.

A year-long investigation released in March by Massachusetts Attorney General Martha Coakley concluded that recent health care cost increases in the state were driven largely by hospitals' and physician groups' market share and not quality or other factors.

Although Partners HealthCare -- a Boston-based health network -- was not named in Coakley's 77-page report, it rebutted the conclusions with its own 14-page analysis released in mid-June. Coakley's report did not distinguish between teaching hospitals with large and small numbers of residents and did not adequately explain its central conclusion, among other flaws, wrote Partners' consultant Paul Dreyer, PhD. He is the former director of the Division of Health Care Quality in the Massachusetts Division of Public Health.

Dreyer also suggested that Coakley's office should further investigate the relationship between Massachusetts hospitals' quality gains and cost increases over time.

Coakley in turn responded that Dreyer's analysis did not unveil any new evidence. "Our review clearly demonstrated that the most significant driver of higher health care prices was the 'market leverage' of the providers -- and nothing in the Partners report calls that conclusion into question," Coakley said in a June 23 statement.

Nancy Turnbull, associate dean at the Harvard School of Public Health, agreed. She said the Dreyer report was designed to cast doubt on Coakley's report as the Legislature debates health care payment reform. Turnbull formerly worked at the Massachusetts Division of Insurance.

Although the Dreyer analysis seeks to link quality and cost, it fails to do so, Turnbull said. "In many ways, I think the Partners report affirms the findings of [Coakley's] report," she said.

The Dreyer study found the same thing that Coakley's office did: price variation in the Massachusetts health system is not explained by anything, said Nancy Kane, a professor of management at the Harvard School of Public Health.

The American Hospital Assn. on April 29 issued a letter questioning the methodology of Coakley's report and its conclusions.

Sidebar by Doug Trapp

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