Larry Casalino, MD, PhD
Associate Professor, Department of Health Studies
University of Chicago

How Much Does It Cost Physician Practices to Interact with Health Plans? Estimates by Type of Interaction, Specialty, and Practice Size

November 9, 2007
12:00-1:30 PM
Colonial Penn Center Auditorium


Lawrence Casalino, M.D., Ph.D. has a unique background as someone who spent 20 years working full-time as a family physician in private practice but also has academic training as a social scientist. He collects primary data - through surveys, interviews, and medical record reviews - to address questions related to the equation: Quality (or cost) is a function of the incentives faced by an organization and of the organization's capabilities. His research objectives have been to understand: (1) What are the ways in which physician practice is organized in the United States? (2) Why is it organized in these ways? (3) What are the effects of different forms of organization of physician practice on the quality and cost of medical care? Different forms of organization of physician practice are likely to have very different effects on costs and quality, but almost nothing is known about the forms and their effects. In over 40 peer-reviewed papers, Dr. Casalino has explored questions related to the use of organized processes to improve quality, to physician-hospital and physician-health plan relationships, and to pay-for-performance and public reporting. Dr. Casalino is an Associate Professor in the Department of Health Studies at the University of Chicago and is the recipient of an Investigator Award in Health Policy Research from the Robert Wood Johnson Foundation.

Administrative costs are high in the U.S. health care system, though there is disagreement over their causes, their absolute level, their magnitude compared to other countries, and the benefits that the activities that generate administrative costs may provide. We present results from a national survey of physicians and medical group administrators that asked about the time spent by physician practices in interacting with health plans, including such activities as dealing with prior authorization requirements, pharmaceutical formularies, contract negotiations, billing and claims, credentialing, and submitting and reviewing quality data.

We present data on the time spent by physicians and by several categories of non-physician staff on these activities in total and on each of the activities individually. We convert time to dollars to estimate the dollar value of the time spent by physician practices in interacting with health plans. We also present time and dollar estimates by categories of physician practice size and specialty. In addition, we address the common view that health plans have moved away from aggressive use of managed care techniques by presenting data showing physician and practice administrators' responses to a survey question about whether the time spent by their practice in interacting with health plans is increasing, decreasing, or staying about the same.

In addition to providing the best estimate to date of the time/dollars spent by physician practices in dealing with health plans, the data from this survey make it possible to address questions not included in previous studies, such as: Do some types of interaction - e.g. dealing with prior authorization requirements - generate more administrative costs than others - e.g. dealing with formularies? Do primary care physicians have higher costs of interacting with health plans than specialists? Do physicians in small practices have higher costs than those in large practices?

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Leonard Davis Institute of Health Economics
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