As I get ready for @HIMSS 2016, I’ve been thinking a lot about value-based healthcare. The New England Journal of Medicine defines as value-based healthcare as the ability to improve outcomes per dollar spent. In theory, this idea means that physicians should be able to devote more time to patients as the doctor’s financial performance is linked to the patient’s outcome (not the number of times the doctor sees the patient).
My hypothesis is that the implementation of value-based healthcare will be tough because providers are used to a system that rewards them on the number of transactions they conduct. I also believe that the investment into cutting edge health care technology is a function of how much revenue (e.g., transactions) a provider can generate.
To see if I could validate my hypothesis I chose simple X-rays provided Medicare and Medicaid physicians. I selected a simple x-ray machine
(show below). According to the author this machine new retails for about $200,000. Given that a provider must invest $200, 000 for the machine and probably another 25% annually for maintenance, the machine has an upfront cost of $250,000 and a yearly cost of $50.000. The average cost of a radiologist (according to Glassdoor) is another $290,000. Now I would agree that not all providers would have a radiologist, but for our purposes let’s assume that they do. If one adds the staff to support the radiology activity, let’s suppose that staff adds another $100.000. So all in, in the first year the radiology investment is $250k for equipment +$390 for staff.
Now the next step to understanding the impact or possibility of value-based health care is to look at the number of x-rays conducted by CMS practitioners. I chose the states of TX, FL, SC, and CT as representative states to analyze. According to my analysis more than 912 x-rays only were conducted in these jurisdictions (see graphic). What this graphic depicts is the total number of x-rays claimed in these four states and the many locations where they were given.
So the next question I asked was how many beneficiaries were provided x-rays, how much the providers submitted claims for those x-rays, and how much CMS paid on those claims.
So in these four states alone in the calendar year of 2012 CMS paid more than $1.8m in reimbursements. Now the tricky question is how many of the facilities within these states have actual x-ray equipment and to what degree of technical status the equipment is. Based CMS data it is not easy to determine if providers provide enough x-rays to pay for the equipment and staff. It is possible, however, to determine if a provider were to use simple equipment and read the x-rays them selves then it is possible that most providers requesting more than $10,000 in CMS x-ray reimbursements may have enough transactions to support the use of an x-ray machine.
What is evident from the CMS data (certainly having private insurance data available would help) is that most providers who invest in x-ray machines need to generate volume to pay for the equipment and supporting staff. If value-based care impacts the number of x-rays, they take how do they support the use and implementation of such conventional diagnostic equipment?
I invite anyone reading this blog to comment and provide alternative ideas.