Urologists Encouraged to Embrace Risk-Based Budgeting

Catherine Hanson

As fee-for-service models dwindle under healthcare reform, new reimbursement models based on risk are emerging.

Under budget-based payment systems, physicians’ pay is tied to their ability to successfully predict how much a particular population will use their services in the future, as well as how much it will cost to deliver those services. Success under these models depends on making sure the actual healthcare expenses of patient populations don’t surpass the budgeted amount.

The trend has been evolving in recent years, said healthcare attorney Catherine Hanson of law firm Whatley Kallas, in San Francisco, during a November 8 presentation to LUGPA annual meeting attendees. From 2005 to 2012, significantly more Medicare claims were filed, but the number of allowed charges dropped. Instead, she said, income has become dependent on management of the healthcare pie, a total $3 trillion in annual expenditures of which physician payment constitutes about 20%.

Budget-based reimbursement systems include models ranging from capitation—where physicians get a set fee and assume all the risk—to shared savings and bundled payments. All are designed to give incentives for value rather than volume.

Hanson noted that single-specialty and multi-specialty group practices are the highest-paying places for urologists in the United States. However, because the money is no longer in fee-for-service models, physicians must make several changes to maintain and grow salary levels, she said.

Physicians must:

• Be better coaches for patients: Getting patients more engaged in their own health care means helping them with weight issues, lifestyle choices, and medication management.
• Become better medical neighbors: Physicians should get more involved with those who refer patients to them, helping to determine when this is appropriate. Upon receiving referrals, they must determine how to manage communications back to their teams to eliminate duplication of services and unnecessary hospitalization.
• Shop carefully for services: Differences in health care costs are sometimes arbitrary. Because reimbursement is based on total costs, comparing the prices of laboratory and other services used by physician practices becomes more important.
• Become better diagnosis coders: Moving into the new ICD system will require careful attention and preparation. “You have to make sure things are coded and paid for, or you will go bankrupt,” Hanson said.

In taking care of a patient population, it’s important to know that the top 1% in the healthcare system spend 20% of the healthcare dollars, or more than $44,000 per patient per year, she said, citing Kaiser Family Foundation calculations based on data from the Health Care Research and Quality Medical Expenditure Panel Survey of 2008. The bottom 50% spend only 3% of healthcare dollars, or less than $1,000 per patient per year.

Hanson used an example from endocrinology, in which the average cost of treating a diabetic patient was $556 per episode, according to DxCG Risk Solutions data. That cost ranged from $354 (stage 1 or least sick) to $1,604 (stage 3 or most sick). So a practice that had a large percentage of the sickest diabetics would be quickly out of business if its utilization budget was based on the average $556.

That doesn’t mean that physicians should limit their treatment of sicker patients, Hanson said, but that they should project accurate budgets based on the health status of the patients they are most likely to see.

“We don’t want a system that benefits cherry-picking patients. We want a system that rewards those physicians who take in people who need care and manage that care well,” she said. “If all you see is prostate cancer, the odds are high that the risk of your population is higher. You have to understand what your patient population looks like. You then have to understand what the likely utilization of that population is going to be.”

Urologists must not just know what they are charging, but what it actually costs to deliver services and make referrals. And they will need expertise in mitigating insurance risk, Hanson said.

“There’s always going to be a train wreck, but the train wreck is really not your problem,” she said. “The train wreck is something you insure against. The place you make money is by managing that total population well.”

The need to reach that goal places a new level of responsibility on all physicians to use new technology and patterns from the past to predict the future. As daunting as the task may seem, physicians are uniquely positioned to make those changes, and many practices “do phenomenally well” under budget-based systems, Hanson said.

“Physicians are in absolutely the best place to reengineer health care and to succeed under these new payment models,” she said. “Let’s face it—you know what patients need, you know where the waste is, and you’re more nimble [than a hospital system].”