The Economic Role of Physicians in Today’s Evolving Healthcare System

According to the CDC, physicians handle about 930 million office-based patient visits annually—a rate of three office visits per person per year generated by the 310 million residents of the United States. Physicians also handle approximately 126 million hospital outpatient visits a year and 136 million emergency department visits, for a total of close to 1.2 billion patient visits, or about four visits per person.(1)

Despite the proliferation of other types of clinical professionals, physicians remain the paramount providers of healthcare in America.

In addition, physicians perform over 51 million inpatient surgical procedures annually, including 1.6 million endoscopies, 720,000 knee replacements, and 500,000 hysterectomies.(2) These enormous numbers confirm that despite the proliferation and importance of other types of clinical professionals, physicians remain the paramount providers of healthcare in America.

Whether it is maintaining a patient’s well-being in an office-based setting, repairing a knee during an inpatient surgery, or resuscitating a heart attack victim in the emergency department, the value of the care physicians provide is inestimable. There is no calculus to determine the benefit of a life enhanced, prolonged, or saved.

The economic contribution physicians make to their communities and affiliated hospitals, however, can be measured. According to the Boston University School of Public Health, physicians receive or direct 87% of all personal healthcare spending in the United States, through consultations, hospital admissions, tests, treatments, procedures, prescriptions, and other revenue-generating activity.(3)

To determine the economic impact physicians have on hospitals, Merritt Hawkins conducts a periodic survey of hospital chief financial officers asking them to indicate the annual net inpatient and outpatient revenue physicians in 18 specialties generate annually through admissions, tests, procedures, and other activities. The average for these specialties is reported in Merritt Hawkins’ 2016 Physician Inpatient/Outpatient Revenue Survey(4) (Table 1).

The average for all 18 specialties is $1,560,688 a year, a significant sum that underscores the decades-old adage that without physicians to admit and treat patients, hospitals are simply empty hotels. What is notable, and counterintuitive, is that the average for all specialties increased by 7.7% relative to 2013, the last time Merritt Hawkins conducted the survey. Revenue generated by 15 of the 18 specialties included in the survey was either up or virtually unchanged compared with 2013, while only three specialties saw significant declines.

Physician-Driven Volume Remains the Paradigm

Given the proliferation of value-based and capitated payment models typical of Accountable Care Organizations (ACOs), hospital systems, large medical groups, and other integrated healthcare organizations, the amount of revenue physicians generate for hospitals should be declining. The purpose of these emerging models is to promote prevention and ensure patient compliance through aggressive patient education and intervention. More-effective healthcare management of large population groups, and particularly of those patients with chronic illnesses within a group, is intended to reduce volume of services, hospital admissions and readmissions, and utilization of high-cost procedures. The revenue generated by physicians for hospitals should decrease as a result, theoretically allowing hospitals or hospital systems to share in the resulting savings from fixed, global payments.

The survey suggests that this has yet to happen and that the volume-based, fee-for-service model remains the economic driver in healthcare, with physicians still at the wheel. In many cases, value-based, capitated payment models remain aspirational as hospitals, medical groups, and other facilities struggle to embrace payment systems that turn the old volume-based paradigm on its head. A paper published in Health Affairs in March 2016 indicates that 94.7% of physician office visits in 2013 resulted in fee-for-service payments, whereas only 5.3% were capitated payments.(5)

In the over 3300 physician recruiting assignments Merritt Hawkins conducted from April 1, 2015, to March 31, 2016, less than 25% featured a quality-based physician compensation component. The most commonly used method on which physician production bonuses are based remains relative value units (RVUs), a volume-based metric.

Nevertheless, change is coming. CMS announced in 2015 its goal of tying 50% of Medicare payments to quality and value through alternative payment models by 2018. CMS already has achieved its goal of tying 30% of Medicare payments to quality and value by the end of 2016. The Medicare Access and CHIP Reauthorization Act (MACRA) will further drive the movement toward quality- and value-based payments through mandated physician participation in the Merit-Based Incentive Payment Systems (MIPS) or through participation in an alternative payment model (APM).

As the population ages, the volume of services provided by physicians will inevitably increase.

Whether these models can, in fact, suppress volume of services and transform basic fee-for-service healthcare economics remains an open question. Even if a working value-based, capitated model can be developed, patient demographics may trump efforts to reduce volumes and manage our way to lower costs. Over 10,000 baby boomers turn 65 every day, and this demographic segment utilizes healthcare services at a comparatively much higher rate than other demographic groups(6) (Figure 1).

Figure 1. Utilization of inpatient procedures and diagnostic treatments and tests, by age. Sources: Centers for Disease Control and Prevention, National Center for Health Statistics, www.cdc.gov/nchs/data/nhds/4procedures/2010pro_numberpercentage.pdf ; and Centers for Disease Control and Prevention, National Center for Health Statistics, www.cdc.gov/nchs/data/nhds/4procedures/2010pro4_numberprocedureage.pdf .

No amount of prevention or patient management forestalls disease and physical obsolescence indefinitely, and as the population ages, the volume of services provided by physicians will inevitably increase. Under MIPS, APMs, and other foreseeable payment models, physicians will retain a fee-for-service compensation component. Financial rewards based on volume of work completed or patients seen will be necessary to keep physicians productive, particularly in an era of physician shortages. It therefore will be surprising if the amount of revenue physicians generate for hospitals declines significantly—or at all—in coming years.

It is impossible to separate physicians from the economic equation in healthcare.

However, even in value-based, capitated models where fee-for-service and utilization are significantly curtailed, physicians will be the key economic drivers based on their ability to effectively control the patient experience and ensure that quality care is provided within a global budget. The physician as head of a coordinated delivery team connected to all stakeholders will largely determine the success of the value-based, capitated model—hence the need for the hospital–physician integration that has been such a pressing strategic priority for both healthcare facility administrators and physicians over the last decade. One way or another, it is impossible to separate physicians from the economic equation in healthcare.

A Community Asset

Physicians not only create an economic benefit within the healthcare system, they provide economic benefits in the communities in which they practice.

In 2007, the Robert Graham Center conducted a study showing the economic impact one family physician generates in his or her community, by state, through employment creation and the purchasing of goods and services(7) (Table 2). These numbers do not include revenue generated for hospitals or nursing homes by the physician.

In March 2014, IMS Health released a report prepared for the American Medical Association that estimated the total economic impact of patient care physicians in each of the 50 states, the District of Columbia, and the nation as a whole, using as barometers physician output, jobs, wages and benefits, and state and local tax revenue.(8) Highlights of physician economic contributions include:

• Total economic output: The combined economic output of patient care physicians in the United States is $1.6 trillion.

• Per capita economic output: Each physician supports a per capita economic output of $2.2 million.

• Jobs: On average, each physician supports about 14 jobs.

• Wages and benefits: On average, each physician supports a total of $1.1 million in wages and benefits.

• Tax revenues: On average, each physician supports $90,449 in local and state tax revenues.

Table 3 indicates the average economic output of physicians by selected states. (Numbers do not include the economic output physicians contribute to the national economy, only the output in their states.)

Virtually every person in the United States requires and seeks the consultation and skills of a physician at some point, and no objective dollar value can be placed on the care that physicians provide. What is more objectively demonstrable is the economic impact physicians have on the healthcare system and on the communities in which they practice, which is extremely significant and is likely to remain so even as the healthcare system evolves.

References

1. Ambulatory care use and physician office visits. Centers for Disease Control and Prevention. National Center for Health Statistics. www.cdc.gov/nchs/fastats/physician-visits.htm . Accessed April 28, 2016.

2. Inpatient surgery fast stats. Centers for Disease Control and Prevention. https://www.cdc.gov/nchs/fastats/inpatient-surgery.htm . Accessed April 28, 2016. National Center for Health Statistics.

3. Sager A, Socolar D. Health costs absorb one-quarter of economic growth. Boston University School of Public Health. www.bu.edu/sph/files/2015/05/Health-Costs-Absorb-One-quarter-of-GDP-growth-Release-ch%E2%80%A6.pdf . Accessed April 28, 2016.

4. Merritt Hawkins. 2016 Physician Inpatient/Outpatient Revenue Survey. www.merritthawkins.com/uploadedFiles/MerrittHawkins/Surveys/Merritt_Hawkins-2016_RevSurvey.pdf .

5. Zuvekas SH, Cohen JW. Fee-for-service, while much maligned, remains the dominant payment method for physician visits. Health Affairs. 2016;35:411-414.

6. Baby boomers retire. Pew Research Center. December 29, 2010: http://pewresearch.org/dailynumber/baby-boomers-retire .

7. Economic impact of family physicians. Robert Graham Center. http://s.graham-center.org/?q=economic+impact+&first_search=0&search=Entire+Site . Accessed August 6, 2016.

8. IMS Health. The National Economic Impact of Physicians. Prepared for the American Medical Association. March 2014. https://download.ama-assn.org/resources/doc/economic-impact/us-study.pdf .