Low payments may stick around unless physicians act aggressively

Providers can be their own worst enemy by putting their fate in the hands of others

If emergency physicians are displeased by the state of their current earnings under managed care, they need look no further than the factors driving pricing decisions in emergency departments (EDs). Emergency physicians are generally being paid between 45% and 55% of what they should be charging under commercial managed care contracts, according to estimates gleaned by The Managed Care Emergency Department based on discussions with consultants and emergency physicians.

Earnings here are defined as the amount ED physicians are paid for each patient visit according to each Current Procedure Terminology, or CPT, code on their claims compared with what they should be charging. Providers would be making more money if they took an informed, aggressive stance in setting their own contracted fees, say experts who advise medical groups on reimbursements.

Even physicians participating in small, single-hospital medical groups can work with their contracting facilities to design a more equitable fee structure, these sources say. "By all estimates, physician reimbursements in emergency medicine are quite low, says Wesley J. Burbank, a former health care actuary with Deloitte & Touche in Richmond, VA.

Marketplace getting inhospitable for providers

The issue is coming to the fore now with announcements by health plans that they are postponing expansion plans and either cutting back or dropping out of Medicare and Medicaid managed care contracts.

While health plans rarely if ever increase reimbursements, in the past they have created opportunities for higher overall revenue by increasing patient enrollments and offering more-generous coverage.

All that may be threatened in the future as health maintenance organizations (HMOs) face higher losses and administrative costs and begin to retrench financially. Meanwhile, "safety-net" providers such as emergency physicians could be saddled with more patients and fewer dollars from payers, experts say. Two factors are cited as being at fault: the payment mechanism and the physicians themselves.

• The prevailing payment mechanism

Part of the problem stems from the financial benchmarks used by commercial carriers to pay physicians, according to Burbank, who now works for a large health plan sponsored by George Washington University in Washington, DC.

The prevailing benchmark comes from the current Medicare physician payment formula and is based on the often-criticized Resource-Based Relative Value Scale (RBRVS). The system has been criticized for resulting in low payments and unrealistic assumptions of the true cost of rendering medical care.

"The RBRVS is the Medicare gold standard for physician payments," says Burbank. MCOs use the RBRVS as the floor for setting their own rates in the belief that the Medicare rates reflect a fair and comprehensive view of costs, which isn’t always the case, Burbank says.

• Emergency physicians themselves

If payment levels are low, emergency physicians are also to blame, according to veteran consultant Michael Williams, MPA, president of The Abaris Group in Walnut Creek, CA. They are at fault for receiving payments that are low compared with specialists, such as internists and family practitioners, because they have unwittingly left important decisions about their fees up to non-physicians and those outside their own specialty.

A growing number of these outsiders include non-physician administrators of independent practice associations (IPAs) and management services organizations (MSOs) who work for large multi-specialty groups. In a number of cases, these groups are negotiating important contracts with health plans without any input from emergency providers, says Burbank.

"Providers [including ED medical directors] are simply accepting whatever the managed care organization (MCO) offers without question," Williams asserts. (For a list of suggested ways physicians can become more proactive in setting fees, see the chart on.page 121.)

Professional fees in emergency medicine would rise if individual physicians took a stronger, more active role in determining their fee structure, Williams says. If they don’t, payments for emergency medicine are likely to remain flat or fall further behind charges that should account for actual costs.

Lack of data hampers physicians’ clout

Hampering the ability of providers to align fees more realistically with charges is the lack of dependable statistics. No one knows exactly what emergency physicians are or should be making per emergency visit. Income and salary surveys, while helpful, don’t get to the core of the problem, Williams says.

In fact, the RBRVS offers the closest data set on payments, Burbank says. "Nobody that I know is tracking this. But even without data, we can say that, at face value, emergency specialists are accepting payments that are quite low," Williams says. (To obtain the latest RBRVS data, see the Editor’s note on page 122.) The reasons aren’t hard to find:

• The nature of market-driven health care delivery

MCOs are well aware of physicians’ practice patterns, says Burbank. They know what services providers are rendering and their costs. Driven to keep costs to a minimum, when health plans increase membership they usually require providers to change their practice pattern.

The tactic isn’t only designed to accommodate a higher expected patient volume, it’s also intended to keep costs-per-patient to a minimum. Therefore, practice patterns are artificially modified to curb the number of lab tests, x-rays, and more expensive diagnostics.

The plan usually achieves this change through increased pre-authorization and clearance policies with payers but also with revised practice guidelines that they attempt to impose on medical groups. The net effect is that physicians are working harder, seeing more patients, and spending less time with them. At the same time, the reimbursement level doesn’t change or changes slightly, says Burbank.

The problem is exacerbated under capitation contracts, unless providers can carve out certain complex procedures or negotiate firm risk thresholds that guarantee a higher payment at a pre-determined patient volume or number of procedures, says Williams.

• The prevalence of large medical groups and systems

IPAs and other managed care vehicles such as physician hospital organizations (PHO) are intent on designing contracts with low payment rates for one reason: To hold down their costs, says Burbank. Therefore, they are likely to negotiate low rates, especially to cover high-volume users of health care services. Emergency medicine is one such area.

Small medical groups are feeling intense pressures to align with large systems and practice management to survive. But the price they pay in gaining access to hospital contracts is by making large concessions on reimbursements, says Bruce Gipe, MD, an emergency physician and president of Southwest Critical Care Associates, a Los Angeles, CA, group that staffs hospitals with intensivists.

When viewed from the physicians’ talent and skill perspective, "nothing in the payment rate reflects the reality of saving a 19-year-old car accident victim compared with a simple sore throat case,"

• Over-reliance on the Medicare RBRVS

Similarly, the current system of determining physician payment rates based on the RBRVS has enabled MCOs to keep payments artificially low by using the RBRVS as the basis on which to negotiate discounts, Gipe says. This is especially so in markets with high managed care penetration.

In a less HMO-driven market, payers usually apply other methods of keeping down costs and payments to the ED. One prominent method has been to curb utilization for non-emergencies by applying heavy co-payments and coverage restriction (e.g., as high as $25 for an ED visit compared with $10 for a physician office visit).

But, in markets such as California, the RBRVS has resulted in payment rates that are relatively fair and closer to rates for office visits and inpatient stays. It isn’t easy to generalize, Gipe says. Furthermore, physicians of all stripes have taken issue with the RBRVS, particularly with the practice expense component of the formula, as being unreflective of actual physician working conditions.

(The RBRVS is composed of three unevenly weighted factors: the physician’s work value [54%], a physician’s malpractice costs [5%], and practice expenses [41%])

Hospitals fast becoming uneasy allies in the payment mix

• The prevailing view of hospitals as cost centers

In addition to the above-cited factors, hospitals are under keen pressure to minimize use. At the same time, they depend on physicians to generate patient business and make appropriate, cost-effective clinical decisions.

MCOs are resorting to imposing shared-risk arrangements with hospitals and physicians that result in situations that require the hospital dividing one global fee with the physicians. In many cases, hospitals are leading the way in developing global fees and case rates, which have the effect of ratcheting down physician reimbursements.

Sometimes the fee is negotiated before a medical group’s arrival on the scene, Williams says, and to land the business, the group isn’t likely to demand renegotiating the contract. For this reason, some emergency physicians advocate for separately capitating emergency physicians as a means of bringing more equity to physician reimbursements.1

• Competition among physician groups

Contracting with medical groups, especially in emergency medicine, remains extremely brisk and highly competitive, says Gipe. It’s the primary reason a group or practice management firm isn’t likely to balk at the existing rates.

However, in some cases a medical group will have to draw the line, says Burbank. A physician group known to Burbank recently terminated its contract with a PHO after the PHO recorded losses of $5.6 million in its first year. The HMO had originally offered the PHO 80% of the premiums collected from enrollees, which is a common practice in many PHO contracts.

At first the offer seemed attractive, Burbank recalls. But soon the PHO realized that its own costs of maintaining the contract drove down rates to below 65 cents on the dollar, which the PHO in turn had to divide between the hospital and the physicians.

• The HMO business cycle

Hospitals will sometimes try to persuade physician groups to go along with low rates. The carrot held out to them is that the contract in question will lead to related business for both the hospital and the medical group, Gipe observes. "In those cases, physicians don’t have a lot of leverage. They either walk away from the ED or swallow the terms and move on," Gipe adds.

The problem is that HMOs are extremely business-cycle driven. When business is good, they tend to be more flexible and less stringent with their underwriting standards, including their willingness to negotiate flexible fees. When business takes a downturn, they’re likely lower payments and get quite inflexible with providers, Gipe says. Yet, physicians don’t have the same luxury in either case.

"If the MCO lowers its premium dollars to attract more enrollment business, your percentage of each dollar may remain at 80%, but the portion in real dollars is a different story," Burbank says, "That’s why physicians face an uphill battle on payments."


1. Stapczynski JS. Capitation for emergency physicians. Ann Emerg Med 1998;27:501-505.

Editor’s note: To look up the latest Medicare RBRVS data, log on to the Federal Register’s Web site at: http:\\www.access.gpo.gov\su_docs. Click on the Oct. 31, 1997 link under the health care physician fee heading, or contact the National Archives and Records Administration. Telephone: (888) 293-6498. Fax: (202) 512-1262. E-mail: www.gpoaccess@gpo.gov. According to the Health Care Financing Administration in Baltimore, the new RBRVS figures were due out in late October or November.