Proposals to Control High-Cost Hospital Medical Staffs

Prologue: To address the rapid growth in physician spending, Medicare reformed its payment methods with a resource-based relative value scale and national volume performance standards (VPS). Volume performance standards provide some restraint in the growth of physician spending, but they define the entire nation as the risk pool and ignore the wide variations that exist in practice style. This paper by Pete Welch and Mark Miller outlines a refinement of the VPS approach that creates cost containment incentives for the medical staffs of hospitals with a high volume of physician services per admission. Incentives thus are targeted to small groups of physicians with an organizational structure to respond to these incentives. The Health Security Act, the Clinton administration s short-lived health care reform proposal, contained a provision to limit Medicare payments to medical staffs whose volume of physician services per admission exceeds a set target. This provision was based on the work of Welch and Miller; although the Health Security Act did not survive the summer of 1994, its legacy in this area remains in several of the bills under debate in Congress. Welch, who is a senior research associate at The Urban Institute, received his doctorate in economics from the University of Colorado. During his tenure at The Urban Institute he and his colleagues have developed a physician cost-of-practice index, from which the Medicare fee schedule has drawn heavily. He worked on the White House Health Reform Task Force in early 1993. Miller, who holds a doctorate in public policy from the State University of New York at Binghamton, is also a senior research associate in The Urban Institute s Health Policy Center. He primarily studies hospital and physician payment issues such as prospective payment methods for hospital outpatient departments, geographic variation in use of physician services, and comparisons of Medicare and private physician fees. Abstract: Several health care reform bills would limit Medicare payments to high-cost medical staffs, that is, physicians in hospitals with a high volume of physician services per admission. In a given year, Medicare's payment to the physicians on each hospital's medical staff could not collectively exceed a limit defined as a certain percentage above the national median. Limits of various forms are used in other parts of the Medicare program. This policy would combine cost containment incentives with a clear organizational structure. In addition, medical staffs could be provided with detailed information on their practice styles.