Bob Herman of Axios was paying attention to the other important healthcare related CBO report yesterday:
There was another CBO health care release today. Similarly important/riveting. It's all about physician prices: https://t.co/ffUFwdQNt2
— Bob Herman (@bobjherman) June 27, 2017
This is an important report as it illustrates the spread between Medicare and Commercial rates. Unfortunately it does not have Medicaid managed care rates. With that limitation, this still provides a very good heuristic of thinking through the mechanics of how we pay for health care services.
There are a few things to notice here. The first is that there is a wide variation of variance by type of procedure. The second is that of the five procedures that have the smallest median bump over Medicare rates, four of them are overwhelmingly procedure codes used by primary care physicians. We should want to use more primary care which means we probably should want to pay more for primary care.
The third point is that the heuristic that commercial payers pay about 50% more per service than Medicare is loosely supported by this chart. The details aren’t quite fine enough for that statement to be 100% certain, but it is a solid heuristic.
Finally, the most interesting thing to me are the trimmed ranges. The gray dots are the 10th percentile commercial payments and 90% percentile commercial payments. The 90th percentile for every procedure is very expensive. That is known knowledge and not particularly interesting to me.
More importantly, take a look at the 10th percentile. I am eyeballing the spread across 21 categories as being from about 70% Medicare rates for some PCP services to maybe 110% Medicare rates for imaging and orthopedic procedures. This is the business case for tiered networks, it is the business case for narrow networks, it is the business case for reference pricing. There are providers who are willing to take Medicare-like rates for common services. Engaging in any of the restrictive network or payment practices looks to exclude as many providers in the 90th percentile as possible while steering as much work as possible to providers who are willing to take near Medicare rates.
This is where money can be squeezed from commercial insurance where we currently pay way too much per unit of service. The downside of that squeezing is this means hospitals and doctors with local market power will be excluded from networks and services unless they drop their rates.