April 11, 2014

How to Interpret Physician Billing

Travis Good, MD

Co-founder & Chief Technology Officer

Medicare released billing and payment data this week on individual providers. The data shows the number of billing codes each provider hit in 2012 and how much each provider collected from Medicare. The media is running with stories, and the press is not good for doctors. A small subset of doctors account for a large percentage of overall Medicare payments, but I think the overall impression the public is getting is that doctors bill Medicare a lot for their services. While there are definitely some bad apples, overall most doctors are not abusing the system.

There are lots of variables that determine how physicians bill. One, relevant to this data, is the percent of patients in a practice that are on Medicare. It’s hard to compare a practice with 20% Medicare patients to a practice with 80% Medicare patients.

Another variable is the amount of expensive medications used in outpatient settings. Some specialties, like ophthalmology and oncology-related specialties, use a lot of these expensive medications. These specialties, not surprisingly, happen to be the top 4 specialties that bill Medicare over $3 million a year. Because of this, they bill a lot, but much of what they bill is a direct pass through to the drug companies that make the drugs they are using. The Wall Street Journal did a good job with this graphic that shows the percent of billing that is actually expenses.

Taking the above graphic, which clearly shows that lots of what is billed to Medicare by providers is actually pass through for expenses like drugs, and combining it with the fact that this new billing data, in aggregate (kept by doc and passed through), is only about 13% of total Medicare spending, shines a new light on how to look at this data.

Let’s look at a specific example specialty, ophthalmology, and a specific condition, wet age-related macular degeneration (AMD). Two commonly used drugs for AMD, both injected in an outpatient setting, are Lucentis and Avastin. I worked on a couple of studies, this one getting published, looking at Lucentis vs Avastin. The drugs are extremely similar, and made by the same company (currently Roche, formerly Genentech until Roche acquired it). Both drugs inhibit a growth factor of vascular tissue, preventing the proliferation of blood vessels at the back of the eye (blood is wet, that’s why it’s call wet AMD). Lucentis, I hope I’m remember this correctly from med school, was a reformulation of Avastin with smaller particle size (smaller particles have less risk of blocking the small drainage system in the eye) and is approved by the FDA for web AMD. Avastin is not approved by the FDA for wet AMD but is sometimes used for it because it is so much cheaper. The cost difference 6 years ago was $2300 for Lucentis vs $50 for Avastin. Ophthalmologist make more on Lucentis and frequently use it, with some patients injecting every 4-8 weeks. But the vast majority of that $2300 for Lucentis that is billed to Medicare is passed on directly to Roche. Roche sold $1.9 billion of Lucentis last year, which is revenue growth of 13%; Roche also sold $6.5 billion worth of Avastin, which is used for different kinds of cancer.

The point is only that healthcare is exceptionally expensive, and doctors are not collecting the majority of it, or even collecting the majority of what they bill sometimes. Medical billing is exceptionally complex, and varies a lot from setting to setting (inpatient, outpatient, private pay, public pay, concierge, etc). It’s hard to wrap your head around if you’ve never done it or been exposed to it first hand. I’ve done work in the past with private practices (including ophto), and most recently with my wife’s practice, on billing issues, so I have experience on the outpatient side of billing.

The system is setup to be complex. And it’s only getting worse with ICD-10. Today, providers will usually bill multiple codes per patient visit. It’s usually an office visit code (which can be a new or existing patient and can be at different levels depending on complexity - time spent, questions asked, etc) + some type of procedure (biopsy, for example) or order code (lab test, for example). That’s an easy example, they get a lot more complex. You can see if you look at the newly released provider data that Medicare only pays $3-5 for some of those add-on visit codes. Does it really seem like a good use of time to have docs, and billers, hitting all these extra codes to collect little bits here and there? It’s like a game, and it’s easily manipulated even while staying within the rules. It’s ripe for fraud, and error, and hopefully that’s more of the message with this data release than anything else. Aspects of billing and reimbursement are changing, but it’s slow and not widespread.

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