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Cardiology: Magma on the Rise

I think there is going to be another shake up across cardiology practices around the country.  I’ll tell you why, but first, please indulge me with a metaphor. Volcanoes.  I recently saw one at the big island in Hawai’i, where you can see it doing its work in relieving the pressure, the urgent need of Magma (Magma is such a great word!  I’m going to see how many times I can work it in.  Try not to pronounce it in your head right now - Magma…) in that particular place in the world to come forth and create land, changing everything around it.  What’s driving it?  Pressure.

The pressure that comes to mind in our case is the differential in earnings and in RVU (relative value units) output between cardiologist practices employed by hospitals and those in private practices.  RVUs are the building blocks of how charge codes are valued.  In 2015, according to Medaxiom, hospital-employed cardiologists were paid, on average, $120,000 a year or approximately 20 percent more than their private practice peers and produced 12 to 15 percent fewer RVUs.  This gap appears to be declining somewhat but in a market as large as cardiology, you can bet the pressure is building as hospitals consider how to get as much from their cardiologists per RVU as private practice doctors produce and the private doctors forever consider the greater economics and better quality of life of hospital employment.

There are other pressures as well and one need look no further than the common cardiology ultrasound study called echocardiography (echo).  In 2008, a private practice cardiologist was paid about $356 for an echo by Medicare.  In 2017, the rate has fallen to $166.52.  Since 2010, again according to Medaxiom, cardiologists have ordered an echo on 24 to 25 percent of their patient visits, so it’s quite common and an important source of practice revenue.  Since the cost of the technology has changed little over that time period, private practice profitability has declined.  At the same time, the reimbursement for hospitals for the same outpatient service held steady and in 2017, the cost comes out to $449.68 per echo.  So a hospital can get paid almost $300 more for the exact same service.  Do you see what I see?  I see the ability to exploit price differences, or, what we like to call, arbitrage!

This same circumstance existed with nuclear studies and, together with echos, it meant hospitals could buy up community cardiologists, pay them a portion of the reimbursement increases as salary, and pocket the difference.  This has been a prime driver of the pay and productivity gap.  Free money from cardiac imaging pumped up salaries and lowered the imperative to see more patients to justify those salaries.  The market responded with cardiologists continuing to migrate from private practice employment to health system employment.  Currently, about 52% of cardiologists are employed by hospitals.

All good right?  Free money, new models with higher pay and lower work: no problem!  Well, the government began to take notice and eventually, the Bipartisan Budget Act of 2015 was created. This act stated that these hospital rates, called HOPPS (Hospital Outpatient Prospective Payment System), would be cut by 50% for anything not existing as of the date the law was signed on November 2, 2015, which effectively ended the ability of hospitals to grow this arbitrage (no more Magma for you!).  One can imagine that lobbying prevented the 50% cut to everything, though this would seem ripe for future cost savings.

Where does this leave us today?  I would be very uneasy if I were dependent on higher than justifiable reimbursement. The underpinnings, like the cone of a dormant volcano, are being animated by the gases of fading arbitrage.   

The solution?  Think about smarter ways in which work is turned into revenue. Build tighter clinical, financial, and operational links. Build muscle in how to collaborate across settings to do well in bundled payments.  Pick a wise, motivated, creative technology partner with the skills to get you there and with a shared dream of efficiency, simplicity and interoperability.


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