In an effort to decrease health care costs, there is growing interest in using physician cost profiles for policy applications such as tiered and selective networks, public reporting, and pay-for-performance incentives. There is an ongoing policy debate about whether cost measures should be applied at the individual physician or physician group level. Our results highlight some of the pros and cons of the two approaches. Profiling physician groups may be appealing because the cost profiles are more reliable—which means that we can confidently distinguish one group from another. On the other hand, if profiling were done only at the group level, a notable fraction of solo physicians would be excluded from profiling efforts. Further, there is considerable heterogeneity in what constitutes a group, and knowing the performance of a group does not predict the performance of individual physicians within the group.
Our results have different implications depending on the target of the different policies that use cost profiles. For provider-directed policies such as pay-for-performance incentives or provider feedback, our results support profiling groups instead of individual physicians. Compared to the cost profiles of individual physicians, group cost profiles have higher reliability. This is primarily driven by the larger number of patients assigned to a group and consistent with prior work that found practices with more than 50 physicians could effectively be profiled.[15
] The higher reliability among physician groups means that we are more confident in our ability to distinguish one group from another. In the context of pay-for-performance incentives, this greater reliability means that a physician group is more likely to correctly receive (or not receive) an incentive payment.
However, the ability to accurately classify groups into cost performance tiers does not provide an adequate signal for consumer-directed policies where patients select an individual physician within a group. In a tiered plan physician groups would be placed into tiers based on their cost and quality profiles and patients would be given an incentive to choose care from a low-cost physician group. Within low-cost groups there is substantial heterogeneity in the relative costs of individual physicians. It is therefore unlikely that the individual physician within the low-cost group that cares for the patient will also be low-cost.
Our results also highlight the difficulty of defining a group. For these analyses we used the existing definitions of a physician group as determined by MHQP. MHQP’s definition is logical and group leaders verified the roster of physicians within their groups. Nonetheless, there are concerns with face validity when comparing the relative costs of a 3 physician primary care group to a 910 physician multi-specialty group. This heterogeneity is the reality of how physicians are organized in Massachusetts and elsewhere in the United States. When debating the relative advantage of profiling physician groups or individual physicians, this heterogeneity must be kept in mind. Another logistical barrier to group profiling is that in Massachusetts, a quarter of the physicians are in solo-practice. When profiling at the group level, it is unclear how a health plan should treat these physicians. Within a tiered health plan, one option would be to assume that these physicians are low-cost, but this might be perceived as unfair by physicians in average cost groups because it would be easier for solo practice physicians to be included in high-performance networks. It would also decrease the potential cost savings from the health plan’s perspective. Another option would be to assume that the solo physicians are average cost, but this might also be criticized as unfair by solo physicians who would be excluded from high-performance networks under such a policy.
There are numerous limitations to our analyses. Of note, our data come from Massachusetts. In other states, a larger fraction of physicians may work independently and profiling at the group or practice level may not be feasible. Also, it is less likely that a validated categorization of physicians exists outside of Massachusetts. Our analyses do not address of which level of the heath care system actually drives the cost variation, individual physicians or the groups in which they practice.[22
] This is something we hope to address in future work.
Our research does not address other important aspects of cost profiling methodology. Other researchers have raised concerns about the validity of the claims data used to build the cost profiles[5
] as well as the validity of the episode groupers used for cost profiles.[23
] MedPAC found that in Miami overall patient costs are higher than average, but per episode costs are lower than average.[23
] This is because overall patient costs are a product of the number of episodes and costs per episode. In Miami patients triggered a higher number of episodes possibly due to differences in physician billing patterns. More research is needed to address these validity concerns.
There is an ongoing policy debate on whether individual physicians or physician groups should be the focus of cost profiling. In previous work, we and others have raised concerns about the reliability of individual physician cost profiles. Though physician group profiles have the advantage of being more reliable, our findings highlight that they cannot be effectively used for consumer-directed policy applications as physician group profiles provide little useful information for patients. Together our findings from this work and previous research highlight the need for better methods for profiling providers (either physician or physician group) on their relative costs.