Reform Update: Narrow insurance networks under ACA depressing physician pay

The physician pay landscape has flattened out, and healthcare reform may be a primary cause.

Of the 23 specialties tracked in Modern Healthcare's 21st Annual Physician Compensation Survey, average compensation went up for 12 and down for 11. But with a few exceptions, most could be seen as statistically insignificant. For example, hospitalists and orthopedic surgeons saw increases in average compensation, but those increases were 0.09% and 0.02%, respectively.

Insurance company policies are offsetting what one would expect with a limited supply of physicians and the reform law creating new demand for their services, said Gerard Anderson, a health policy expert with the Johns Hopkins Bloomberg School of Public Health.

In this environment, however, insurance companies have sought to save money by narrowing their provider network, and doctors are lowering compensation demands to keep from being dropped.

“Physicians are swallowing hard to stay in the network and to stay busy,” Anderson said.

Dr. Tom Barber, an orthopedic surgeon from Oakland, Calif., agreed that narrow networks played a role in flattening compensation in his specialty. But Barber, chairman of the American Academy of Orthopedic Surgeons' Council on Advocacy, also blamed Medicare payment cuts for hip and knee replacement operations. Still, with average compensation at $522,659, orthos remain at the top of the physician pay scale, and Barber was hesitant to say whether the stagnation seen in the 2014 survey was the start of a downward trend.

Anderson, meanwhile, predicted that the narrow network trend won't last. He said similar cost-control tactics failed in the mid-1990s, and he expects them to fail again—though it may take a few years for the process to play out.

“Narrow networks are not desired by patients,” Anderson said. “Patients want the physicians and hospitals they want. They don't like to be told 'No.' Americans like freedom. So, if you're restricting my freedom, it's almost un-American.”

Already, state and federal regulators are working on ways to respond to complaints from providers who say they've been unfairly shut out of important networks and from consumers who complain the plans unexpectedly exclude their preferred physicians and hospitals.

By the time that plays out, however, physicians' prices may be dampened by the level of competition in more mature insurance exchanges, he said.

Hospitals and drug companies, he added, are in the same non-moving boat.

A frequent argument for why U.S. healthcare costs are so high is the current fee-for-service system, which encourages providers to do more so they can make more—even if the procedures and tests have little positive impact on patient outcomes.

Eliminating fee-for-service is seen by some as vital to rewarding value in healthcare rather than volume. But Uwe Reinhardt, a Princeton University health economist who has written frequently about physician pay, warned that merely eliminating fee-for-service won't cause some magical transformation to occur.

Reinhardt noted that people get confused by the word “value,” and said patients can get superb care from a doctor paid under a fee-for-service contract and poor care from a physician getting bundled or capitated reimbursement.

“We have no clue what 'value' is,” he said. “You shouldn't confuse payment method with paying for value.”

Follow Andis Robeznieks on Twitter: @MHARobeznieks