Consider your run-of-the-mill colonoscopy. According to paperwork generated by MVP Health Care, the insurer paid an independent physician roughly $550 to complete the procedure. The same insurer paid a doctor employed by Fletcher Allen Health Care nearly $1,800 for the same test.
Independent docs in Vermont complain that such rate discrepancies are putting the squeeze on small practices. Hospitals, they say, have significantly more negotiating power with insurance companies — and are able to command higher payments as a result. It’s one more burden on docs trying to go it alone in private practice — and it’s pushing some of those to sell out to hospitals.
“We’re just talking about people with the exact same training, the exact same degree, being paid differently,” said family medicine doctor Paul Reiss, a partner at Evergreen Family Health in Williston and the chairman of Healthfirst, Vermont’s 4-year-old association of independent physicians.
The state is taking notice: In an act passed last spring with amendments to Vermont’s health care laws, Sen. Tim Ashe (D/P-Chittenden) called for the secretary of administration to study disparate reimbursement rates and recommend whether or not the state should prohibit insurers from reimbursing independent physicians at lower rates. That report is due December 1.
In the meantime, independent physicians are making their case, and Healthfirst hired its first executive director. In a letter addressed to Secretary of the Administration Jeb Spaulding on September 10, South Burlington gynecologist Kym Boyman wrote that different reimbursement rates “jeopardize the survival of practices like ours,” and that
the status quo is “simply and obviously unfair.”
The Vermont Medical Society estimates that roughly a third of Vermont physicians are in private practice — a much lower percentage than the American Medical Association estimate of 60 percent nationwide.*
It’s difficult to find out how much insurance companies pay health care providers for medical procedures; Vermont’s two insurers — MVP and Blue Cross Blue Shield of Vermont — consider the negotiations to be proprietary. So Healthfirst relies on Vermonters to turn over their “explanations of benefits” paperwork that arrives post-procedure detailing how much the insurance company has agreed to pay.
Analyzing those EOBs, Healthfirst found that Blue Cross, the state’s largest private insurer, paid Fletcher Allen Health Care $195 in professional fees for basic consults with outpatient specialists. That’s compared to $119 for independent docs. Fletcher Allen pulled in $2,344 for gallbladder surgery; independent doctors received less than half — $1,020 — for the same procedure.
Hospitals are quick to point out that their doctors are on salary; the professional fee doesn’t go directly into the doctor’s pocket. Where it does go, presumably, is to the bottom line — and, hospital officials say, to subsidizing more expensive specialties that don’t see a lot of patients. Think neonatologists or trauma specialists.
“We provide the service for the area and the community, but there really isn’t the volume to completely support those programs,” said Rick Vincent, the interim vice president of finance at Fletcher Allen. “If we didn’t provide them, they wouldn’t be offered in the region.”
Independent physicians don’t buy the subsidization argument, because hospitals already charge “facility fees” to Medicare, Medicaid and private insurers. In theory, the extra income is supposed to finance the overhead required to run a larger medical operation: keeping the lights on, staffing the ER and so on.
In practice, the facility fees are problematic, according to Allan Ramsay, a former Fletcher Allen family medicine doctor who now sits on the Green Mountain Care Board.
“They’re an incentive for the hospitals to consolidate and buy up practices,” said Ramsay. When hospitals acquire formerly independent practices, he explained, they can start charging both professional and facility fees for the services provided there.
Ramsay’s board is crunching the data on price variation in Vermont, using a statewide database — the Vermont Health Care Uniform Reporting and Evaluation System — that compiled claims information from Medicaid and commercial insurers. That report is being presented at the board’s October 2 meeting. Data, and not anecdote, should guide Vermont’s decisions about health care reform, according to Ramsay.
Medicare and Medicaid reimburse independent practices and hospital facilities at the same professional rate for services — but they also don’t negotiate those rates with facilities. Vincent, at Fletcher Allen, said that’s what’s responsible for the so-called “cost shift” in health care. Because increases to Medicare and Medicaid payments haven’t kept up with inflation, hospitals and private practices alike rely on commercial insurers — like MVP and Blue Cross — to make up the difference.
Vincent said that Fletcher Allen sits down to negotiate payment rates with commercial insurers on a yearly basis; by contrast, Reiss, the independent family doc in Williston, said that standalone practices have to practically beg insurers to even come to the table. Only after private practices threaten to drop patients covered by a particular insurance plan, or to refuse new patients, will insurers participate in the rate conversation, Reiss said. Even then, the negotiations are “pretty one-sided,” he said. “They say, ‘Well, we respect you, we know you’re a good practice, but we can’t afford to pay you more.'”
Reiss said that with just two major private insurers in the state, independent physicians can’t afford to walk away from the rates being offered.
“For smaller practices, it’s ‘Take it or leave it,'” said Reiss. “They know we can’t say no.”
“It isn’t about trying to squeeze independent physicians,” countered Cory Gustafson, the director of government and public relations at Blue Cross. He said insurance companies have to work with hospitals, which provide services patients in the region need, to make sure the institutions can cover their costs.
Gustafson said the company is “in with both feet” when it comes to pursuing health care reform. “We’re working on ways to change how physicians are reimbursed so that it’s fair and adequate,” said Gustafson.
The kind of major health care reform efforts Vermont is exploring could potentially make moot the issue of unequal professional fee payments. Robin Lunge, the state’s director of health care reform, says Vermont is exploring ways to move away from the “fee-for-service” model — which is at the root of independent physicians’ complaints.
Reiss supports the state’s push for single-payer health care. But he doesn’t want to see the state pursue so-called “single-provider” health care; he argued that private practices and hospital-employed physicians alike are crucial for Vermont’s health care ecosystem.
Ramsay, with the Green Mountain Care Board, agreed that diversity is important. Some doctors, like Reiss, prefer to work for themselves rather than for a bigger organization. Patients, meanwhile, like to have choices.
For now, though, Reiss said his practice is running on “razor thin” margins due to the lower reimbursement rates. He pointed to recent improvements and acquisitions at Fletcher Allen: a $51 million land deal to expand on Tilley Drive in South Burlington; a $15.8 million renovation to the hospital’s maternity unit; and a new inpatient building with 128 private rooms. By contrast, he said, “We have our own kids painting our rooms, doing the landscaping, mowing the lawn.”
Doctors aren’t the only ones with a stake in reimbursement rates. Reiss pointed out that patients rarely realize that the same procedure could cost less or more depending on the doctor who performs it. “With these large deductibles and copays they have now, those costs come right out of their pocket,” said Reiss. “They have to pay the rates those insurance companies negotiate.”
Reiss experienced this firsthand when he found himself in the patient’s shoes: He needed an MRI of his shoulder, and his doctor in Chittenden County ordered the test at Fletcher Allen.
Reiss called his insurance company. He had to push hard to get the insurer to reveal different provider rates. He learned that if he had the MRI done at Copley Hospital in Morrisville, it would cost $1,100 — $1,700 less than the same procedure at Fletcher Allen.
“I saved a lot of money, just by driving out there one beautiful winter morning,” said Reiss. “I don’t mind doing that, and lots of people don’t mind doing that, but most people don’t even know to ask.”
Disclosure: Tim Ashe is the domestic partner of Seven Days publisher and coeditor Paula Routly.
*Correction 10/03/14: An earlier version of this story cited a study that found 39 percent of doctors are employed in private practices. A more recent study by the American Medical Association puts that number at 60 percent.
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This article appears in Oct 1-7, 2014.
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People should know that Fletcher Allen is nothing but a large blood sucking corporation that only cares about making money, not people’s health. I have to travel outside of Chittenden County for healthcare to get away from Fletcher Allen. They have developed a virtual monopoly on health care in Chittenden County so they can get away with overcharging for poor care. The last time I went to Fletcher Allen the doctor ordered an MRI on a painful growth I had. They billed my insurance $5000. I can get MRIs other placed for under $1000. Then to top it off the MRI didn’t show anything, so the doctor refused to operate and remove the growth. That is the way Fletcher Allen likes to operate : charge people’s insurance thousands for tests and then refuse to treat. It’s great for profits. Why doesn’t the government should do something about this monopoly? It is supposed to be illegal.
I agree with Sen. Ashe’s plan to analyze fully the reasons for differential reimbursement rates, as I think this article doesn’t adequately account for all possible reasons a hospital organization may require much higher reimbursement than a small private practice. First, I would refer everyone to Don George’s op-ed on vtdigger as to how our broken system works: Medicare and Medicaid do not cover costs adequately, and cost-shifting occurs on the back of the private insurers to correct the balance. The consequences then lead to differential rates for hospital versus private practice for many of the reasons in the article plus several more.
In some locations, some private practice offices “cherry pick” patients (I am not accusing anyone in this story of such, just mentioning that this phenomenon occurs) who are well-insured without offering services to patients who cannot pay, or who have plans (Medicare/Medicaid) that do not adequately cover the cost of services. The most extreme example would be concierge practices, of which there are two in Chittenden County. In order to be a patient in such a practice, you have to pay a retainer to the physician of over $1200 a year. Hospitals cannot refuse treatment to anyone based on their ability to pay in urgent situations, and charity care still occurs frequently. Also, NY State Medicaid reimburses very poorly — according to the Kaiser Family Foundation, NY Medicaid only reimburses at 55% of already-low Medicare reimbursement rates (Vermont Medicaid is at 80%). A substantial number of NY Medicaid patients are treated at Fletcher Allen as the region’s tertiary referral center.
Additionally, the article does not mention two other factors that are part of FAHC’s mission as an academic medical center: training the next generation of physicians and conducting medical research. These additional roles are important to Vermont for several reasons. Most importantly, numerous studies have demonstrated that clinical outcomes are significantly better at institutions that have residents and conduct medical research. Secondly, physicians tend to practice where they completed their last year of training, and this makes FAHC a pipeline to recruit physicians for Vermont (ask your doctor where they completed their training). Finally, the conduction of medical research gives Vermonters access to potentially life-saving or complication-reducing therapies and devices before they are available commercially in the United States.
All of this is expensive, and much of it is behind the elevated demands on private insurers by FAHC. Senator Ashe’s plan will hopefully more fully expose these factors and weigh them appropriately.
Dr. Reiss’ comment about the benefits of shopping for certain services reinforces our findings in a report on VHCURES (the data base noted earlier in the article). The legislature has asked that VHCURES be used to provide information to consumers so they can make better informed decisions about health care services. Dr. Reiss (a physician) said he had difficulty getting the price information from his insurer. It shouldn’t be that hard. Here is a link to the report.
http://auditor.vermont.gov/sites/auditor/files/Final%20VHCURES%20Report%206.25.2014.pdf
Doug Hoffer, Vermont State Auditor
To respond to LetsBeReasonable, a few things you may not know….
There are 150+ independent physicians in Healthfirst, and at least double that number of stand alone private practices outside Healthfirst in Vermont, who take all forms of insurance – Medicaid, Medicare, and uninsured patients. “Cherry picking” may be a problem in “some locations”, but not so much in Vermont. Furthermore, many of Vermont’s independent physicians serve on teaching boards at Fletcher Allen and regularly teach residents inside their own practices so they also share the burden for medical education.
In addition to facility fees charged by the hospitals, which the author points out are meant to cover the extra costs of subsidizing ERs and other services, hospitals also receive separate DSH (disproportionate share) payments for taking care of uninsured patients and those with Medicare/Medicaid, and separate GME payments to support graduate medical education.
The truth is that hospitals have access to many different payment streams that can offset lower rates from public insurers, and subsidize education and research.
To allow them also to use their market power to drive-up professional service fees from private payers seems not only unfair to independent physicians, but more importantly to consumers who ultimately foot the bill for inflated prices by way of increased premiums and co-pays.
Mr. Hoffer. You’re right it shouldn’t be that hard to get prices for procedures. Folks will be shocked! Unfortunately the link you provided is a link to your offices report on VHCURES and does not provide any prices about any procedures either. Yes. It shouldn’t be that hard.
In response to Vermonter 2014:
Both DSH payments and the Medicare supplement to teaching hospitals mitigate some, but of course not all of the costs of these programs, and I did not want to make an already long post even longer. There has been no significant increase in the teaching program supplement nor any increase in the toal number of training positions since 1997. But we can differ. This is precisely the reason why I opened my comment with support for Tim Ashe’s program to investigate the causes of the differential costs between hospitals and private practice.
A good story. As a former FAHC/UVM physician who has recently started a community practice, I am particularly sensitive to these issues. It needs to be pointed out that FAHC is compensated for being a tertiary care center not only with extra facility fees and higher renumeration from the major private health care plans, but it also receives considerable supplementary funding from CMS for resident education. I am sensitive to the argument these higher revenues are used to cross subsidize important services to the region that would otherwise not be available, but unfortunately in many cases the reason these services are not solvent in the first place is they are too large for the catchment area and frankly, need to be right-sized and made more efficient. The sad truth is that much of the extra revenue FAHC generates goes not to providing patient care, cross subsidized or otherwise, but to support a bloated and self serving administration. What FAHC needs to remain an excellent health care system is healthy competition. I’m not sure they see it that way right now.
fletcher Allan are crooks. I used to go to a private practice to get my skin cancer removed when I was a self pay. He used to charge me around 240.00 to remove 2 tumors (cut and burn) and freeze around 18-20 pre-cancers all at one appointment. Then labs would cost me about 300.00 after words Now I have BCBS and they make me go to fletcher Allan. First I have to go for a checkup and they freeze a few and take a couple of biopsies from tumors I know and they know are cancer. send them off for labs. Make another appointment to consult with a surgeon on the removal then go back and get them removed. Send them off for more labs. The insurance company now pays a them over 3500.00 (visits and labs). my co pay is around 1200.00. This is where we need healthcare reform. Don’t let them fool you that they have more expenses then others. Have you seen how inefficient hospitals are run. If they were private a business they would not last a year.
I, too,was a former FAHC/UVM physician who is now in private practice. For more than 14 years I taught medical students,residents and fellows while maintaining a busy medical and surgical practice. Over the years I watched in frustration as Executive Officers,Vice Presidents,CEO’s, CFO’s,COO’s, Marketing Directors, Chief Nursing Officers, Administrators, HR directors, Chief Medical Officers etc. grew in numbers and salaries-many bringing home high 6 figure and low 7 figure salaries. Silly expensive marketing strategies telling us to “become one” and changing the name of the medical group were somehow supposed to make us forget that our salaries were stagnant,our patients were paying more, our staff was doing without continuing medical education and the bloated administration was going on retreats to learn how to buy up private practices and charge more facility fees. I continue to be surprised that we do not hear more about this.
Thanks to Ms. Flagg for a balanced and readable approach to this important issue. Pay inequity must be addressed on the road to health care reform. I don’t think we want unregulated monopolies to control health care delivery, or to unilaterally decide willy-nilly how much to pay practitioners on your behalf. patients need to know that if they choose hospital employed physicians for their care they will be subject to much higher fees when paying their deductibles.
A few clarifications are needed:
1) MVP has been supportive of independent physicians, recognizing their value to patients and to the healthcare system, and we have a strong positive working relationship with that healthcare insurer.
2) “Single payer” concepts have merit, but a de-facto single (commercial) payer system such as that developing in Vermont, where that payer dictates and defends unfair and unjustified pay inequities, and unnecessarily inflated health insurance rates, portends trouble.