Peer-reviewed literature, blogs, the popular media, and professional medical meetings are replete with pleas, complaints, laments, and even some good ideas about primary care medicine. How to deliver it, where to deliver it, and what to deliver as primary care are commonly explored areas by both physicians and the media. In the thousands of primary care-related articles that I have read since the IOM defined “primary care” in 1977, I have never seen mention or discussion of the possible effects of academic medical financial structures on primary care training or the subsequent practice of primary care in the community (or academic) setting. In my opinion, their importance cannot be overestimated.
Defining Medical Financial Structures
Who generates the revenue? How do funds flow? Who controls them? And where does any excess of practice revenues over costs of practice end up? Those are the key points in a financial structure. How do they play out in reality?
When primary care first became part of the health care lexicon, the concept involved “first contact” care in a “whole” practice, in which basic diagnostic laboratory testing and radiography were performed onsite under the direction and supervision of the primary care physician (PCP). Not only was this convenient and medically useful for the patient and the PCP, it strengthened the proposition that the purpose of a patient/physician encounter is to reduce the uncertainty of each party. Furthermore, the revenue from these services paid about half of the costs of practice.
Enter over the next two decades or so: Medicare and Medicaid, serious faculty practice plans, family medicine, a perceived physician shortage followed by a perceived physician glut, increased and intensified medical specialization and sub-specialization, emergency rooms that became “urgent care centers,” clinical laboratory improvements amendments (CLIA), a continuing flood of advances in all forms of medical technology, and growing numbers of patients who just wanted help from their doctors. With those factors in play, PCPs became less “whole” doctors and more “referrers” and “coordinators.”
Those faculty practice plans (FPP) had unintended side effects on training in primary care and perhaps other medical specialties and subspecialties. In the slow and painful 80-year evolution of faculty practice plans from small medical groups to, in some instances, 800-pound-gorilla–like institutional power bases, they held true to their specialty origins and fought to fortify and defend their departmental silos. CLIA, in another unintended side effect, helped the pathologists further their claim to all of the diagnostic laboratory revenue in the institution. Radiologists sometimes refused to teach basic radiographic techniques to residents in other specialties. Institutional (non-academic) biomedical engineers refused, or were not allowed, to calibrate and maintain imaging equipment in ambulatory care settings that were seen as being outside the hospital purview. Before these income streams were diverted from the primary care setting, they both helped support primary care training in family medicine, internal medicine, and pediatrics, and helped PCP trainees begin to understand the economics of primary care practice while they were learning to be “whole” doctors.
The political compromises reached in order for Medicare and Medicaid to be enacted had financial effects. In direct contradiction of Section 1801 of Title XVIII, Medicare fundamentally changed medicine. For example, “payment” for services became “reimbursement” for money already spent by the Medicare-certified caregiver or institution. Reimbursements for professional services of “physicians and other health professionals” (as they are usually lumped together) were about 12 percent of Medicare expenditures in 2010.
In that year, physicians made up less than 60 percent of health professionals. The rest were podiatrists, chiropractors, nurse practitioners, physician assistants, and physical therapists. Professional, lay, and media discussions of Medicare costs rarely make this distinction. Consequently, the public and many analysts are left with the erroneous impression that physicians receive all of the Medicare Part B expenditures. Reimbursements for “professional services” of “hospital-based physicians” (radiologists, anesthesiologists, and pathologists) became combined with hospital reimbursements for “technical services” and “facility charges.”
This pattern grew to include other patient services, such as cardiographics. More recently with the aggressive hospital and health care system takeover of physician practices, “facility charges” formerly covered by the physician’s fee are increasingly added overtly to the patient’s bill even when the service is offered in the same location and facility as it was when there was no facility charge to the payer.
The relevant academic medicine financial structure in 2013 looks like this:
- Primary care providers (PCPs) generate revenue by delivering or overseeing the delivery of first contact care to patients.
- The funds flow for primary care is fractionated: Some comes to the PCP practice, but most goes to diagnostic laboratories and imaging centers that provide information to the PCP. Other downstream revenues flow to specialty and subspecialty physicians via patient referrals and other ancillary services.
- Control of the revenues for these PCP-ordered services is in the hands of those who receive them, with little or no financial recognition of those who ordered the services.
- If there is an excess of PCP practice revenues over the costs of practice, it may be used to support faculty salaries, teaching residents, or faculty and resident research. If there is no surplus, more affluent specialties and subspecialties will chafe while using words like “subsidized,” “lazy,” or “poorly managed” in reference to PCPs, while they enjoy the “downstream revenue” provided by PCP referrals.
“Bundled payment” for patient services appears to be around the corner. The name is new, but not the concept. “Lump sum,” “negotiated payment,” “contracted price,” and even “spot price” have been used to describe this approach to payment over the past 30-odd years. Primary care has traditionally not done well under this system of payment.
That situation has resulted primarily from the fact that the payer’s interaction with the academic medical center usually began with either the hospital or the surgical subspecialty most closely associated with the service under discussion, such as cardiovascular surgery for cardiac care. Primary care’s critically important contributions to the care of patients covered by the contracts — i.e. bundled payments — were routinely left out of the negotiating processes. For academic medicine, surviving bundled payments (and possibly even thriving) will require true teamwork among highly sophisticated medical and business negotiators who understand the complexities of inter-specialty/subspecialty involvement in patient care, the implications of bundled payment schemes for graduate medical education, and the need for demolition of all professional fee and hospital financial silos.
Downstream Financial Contributions
What is too rarely considered in discussions of the role of PCPs in supporting the medical/hospital enterprise, in or out of the academic world, is the large base of the primary through quaternary care triangle. In other words, how many people, patients, or patient encounters does it take to support secondary, tertiary, and quaternary care, wherever and however they are delivered? I have been studying this question for years, but the evidence is still anecdotal and ever-changing. For example, for an institution to perform 60 liver transplants or to support one gynecologic-oncologist, anecdotal evidence suggests that 4 million people have to be cared for by someone. Regardless of the actual number, that means that primary care generates tremendous downstream revenues for other physicians and aboratory, imaging, and testing facilities.
How big is “tremendous”? Big enough that when we tracked this information for an edge-of-campus primary care office 30 years ago, the originally contentious cost “subsidy” provided by the faculty practice plan soon ceased to be an item of discussion. More recently and more definitively, an Ohio State group found the net downstream revenue to be 6.1 times the net revenue of the primary care network they studied; and the direct contribution margin to the entire system 6.3 times the operating “loss” attributed to the primary care network. Those amounts were big enough to change the local dialogue from “subsidy” to “investment” and put the “loss leader” in proper perspective as the foundation of a system of care.
Why do otherwise knowledgeable people fail to recognize the interlocking structure of a system of primary, secondary, tertiary, and quaternary care from a financial standpoint? In my judgment, the single most important factor is widespread ignorance of “managerial accounting” and the consequent false belief that “public accounting” (as in a certified public accountant) has real value for managers of ongoing operations and businesses. It doesn’t—unless the business is up for sale.
There is virtually no other way to understand why academic medical center leaders, in particular, seem to think it makes sense to sell, close, or otherwise abandon not only the foundation of their clinical enterprise, but also of the clinical education and clinical/translational research that distinguish them in the eyes of the public.
It is past the time to “think different.” Can we? Will we?
—James E. Lewis, Ph.D., is an independent consultant to departments and schools of medicine, teaching hospitals, cardiovascular and cancer research and clinical programs, medical professional associations, disease oriented foundations, consulting firms, pharmaceutical companies, components of the National Institutes of Health, the Centers for Communicable Diseases, and the predecessors of the Center for Medicare and Medicaid Services. Previously he served as Deputy Dean for Operations and Vice President for Academic Administration, The Mount Sinai School of Medicine and Medical Center, New York City, where his academic title was Professor of Medicine and Health Policy; and Senior Executive Officer, Department of Medicine, University of Alabama at Birmingham, where his academic titles were Professor of Medicine and Adjunct Professor of Sociology. He can be reached at email@example.com.