Physician participation in managed care increased sharply in the decade between the late 1980s and the late 1990s, but has decreased since then. The proportion of physicians with at least one managed care contract increased from 61% in 1988 to 91% in 1999, but then dropped to 88% in 2001. The average contribution of managed care to physician practice revenue followed a similar pattern, more than doubling from 23% in 1988 to nearly half (49%) of physician revenue in 1999, but then fell to 41% in 2001.

Notes: “Managed care contracts” include contracts with HMOs, PPOs, and IPAs. “Average share of total practice revenue” represents share of revenue among physicians with at least one managed care contract.

Source: Kaiser Family Foundation, Trends and Indicators in the Changing Health Care Marketplace, 2002, May 2002, Exhibit 6.1, p. 64, at http://www.kff.org/insurance/3161-index.cfm (1988 and 1999 data, from Physician Marketplace Statistics 1997/98, and Physician Socioeconomic Statistics, 2000-2002, American Medical Association); and data from the American Medical Association’s 2001 Patient Care Physician Survey (2001 data).

While most physicians hold managed care contracts (88% in 2001, as shown in Exhibit 6.1), a much smaller proportion, 32%, had capitated contracts in 2001 (contracts where the physician is paid a specific amount per patient). Primary care physicians are more likely than specialists to have capitated contracts: about half of primary care physicians had a capitated contract in 2001, compared to between 11% and 37% of specialists.

Source: American Medical Association, 2001 Patient Care Physician Survey.

HMOs are much more likely to use capitation to pay for physician services than for hospital services (see Exhibit 6.6). In 2001, 58% of HMOs paid primary care physicians and 42% paid specialists using capitation. Fee-for-service is the most common payment method, and its use increased from 1997 to 2001, from 33% to 80% for primary care physicians and from 49% to 85% for specialists.

Notes: Data show the percentage of HMOs using various methods for any portion of physician reimbursement.

Source: InterStudy Publications, The InterStudy Competitive Edge 12.1, Part II: HMO Industry Report, (reporting data as of July 1, 2001), April 2002, Table 22, p. 48 (2001 data). Kaiser Family Foundation, Trends and Indicators in the Changing Health Care Marketplace Chartbook, August 1998, Exhibit 6.5, p. 62 (1997 data).

Mean wage levels for all full-time workers increased 18% from 1996 to 2000 (from $20,384 to $37,492), while physician incomes increased just 3% over the same period. Still, physician income was about 5.5 times the income for all full-time workers in 2000.

Notes: Full-time Wage and Salary Worker Income reflects mean weekly earnings of full-time workers multiplied by 52.

Source: Physician Net Income from American Medical Association’s 1986, 1997 and 1999 Socioeconomic Monitoring System Surveys and their 2001 Patient Care Physician Survey. Full-Time Wage and Salary Worker Income from the U.S. Department of Labor, Bureau of Labor Statistics, Current Population Survey, Annual Average Earnings, Table 26, unpublished data.

Perhaps contrary to popular belief, physician visits have gotten longer, not shorter, in the past 13 years. Visits were on average about two and a half minutes longer in 2002 than in 1989 (18.4 minutes vs. 15.9 minutes). The upward trend has not been continuous: there have been periods of decline beginning in 1995 and 1999. The mean time spent with physicians varies by specialty: the 2002 average for all physicians was 18.4 minutes, but by physician specialty was, for example, 15.2 minutes for dermatology, 16.1 minutes for general and family practice, 27.9 minutes for neurology, and 35.2 minutes for psychiatry.

Notes: Includes ambulatory care visits made to nonfederally employed physicians’ offices in the United States (excluding physicians in the specialties of anesthesiology, radiology, and pathology). Visits to private, nonhospital-based clinics and HMOs are included if they are not federally operated facilities or hospital-based outpatient departments. Only visits where face-to-face contact with the physician occurred are included. Time spent with the physician excludes time spent waiting to see the physician, receiving care from someone other than the physician without the presence of the physician, or time spent by the physician in reviewing patient records and/or test results.

Source: Center for Disease Control and Prevention, National Center for Health Statistics, Division of Health Care Statistics (data from the 2002 National Ambulatory Medical Care Survey): personal communication (trend data); Advance Data from Vital and Health Statistics, Number 346, August 26, 2004, National Ambulatory Medical Care Survey: 2002 Summary, Table 27, p.34, at http://www.cdc.gov/nchs/data/ad/ad346.pdf (2002 mean minutes by physician specialty).

A small proportion of HMOs (19%) paid for hospital services using capitated contracts in 2001. Per diem rates (used by 89% of plans) and fee-for-service (used by 71% of plans) were the most common payment methods. There has been a substantial increase in the use of these latter reimbursement approaches since 1997, when only 53% of HMOs used per diem rates and 16% used fee-for service payments. Since 1997, use of diagnosis-related groups has increased (from 55% to 62%), and use of capitation has remained the same (19%).

Notes: Data show percentage of HMOs using various methods for any portion of hospital reimbursement. Source: InterStudy Publications, The InterStudy Competitive Edge 12.1, Part II: HMO Industry Report, (reporting data as of July 1, 2001), April 2002, Table 22, p. 48 (2001 data). Kaiser Family Foundation, Trends and Indicators in the Changing Health Care Marketplace Chartbook, August 1998, Exhibit 6.4, p. 62 (1997 data).

Overall, the proportion of hospitals reporting revenue from capitated contracts increased from 30% to 40% from 1998 to 2002, with a projected increase to 41% by 2004. Hospitals in inner city/urban areas are more likely to report capitation revenues than are rural hospitals.

Source: Deloitte & Touche LLP, The Future of Health Care: An Outlook from the Perspective of Hospitals CEOs, Biennial Survey, Ninth Edition, 2002.

Total hospital margins for community hospitals have fluctuated over the past 20 years. They increased from the early to the mid-1980s (from 3.6% in 1980 to 6.0% in 1985), dropped to 3.9% in 1990, then rose to 6.7% in 1996 and 1997, dropped to 4.2% in 2001, and rose to 4.4% in 2002.

Notes: Total Community Hospital Margin calculated as the difference between total net revenue and total expenses, divided by total net revenue.

Source: The Lewin Group analysis of American Hospital Association Annual Survey data, 1980-2002, for community hospitals, from American Hospital Association/The Lewin Group, TrendWatch Chartbook 2003, Table 4.1, p. 96 at http://www.hospitalconnect.com/ahapolicyforum/trendwatch/chartbook2004.html.

In 2002, neither Medicare nor Medicaid paid all of hospitals’ costs for treating their patients, though Medicare’s payment-to-cost ratio (97.9%) was slightly higher than Medicaid’s (96.1%). Medicaid’s performance as a payer, like Medicare’s, has improved since 1990, when Medicaid payments covered only 80% of hospital costs.  While still more profitable to hospitals than Medicaid or Medicare, private payers ratios have declined since the early 1990s.

Notes: Payment-to-cost ratios show the degree to which payments from each payer cover the costs of treating its patients. They cannot be used to compare payment levels across payers, however, because the service mix and intensity vary. Data are for community hospitals.

Source: American Hospital Association/The Lewin Group, TrendWatch Chartbook 2004: Trends Affecting Hospitals and Health Systems, May 2004, Table 4.4, p. 99, at http://www.ahapolicyforum.org/ahapolicyforum/trendwatch/chartbook2004.html.

Medical expense ratios reflect the percentage of premium revenue that is spent on health care expenses; the remainder is spent on administrative expenses and profit. HMO medical expense ratios have remained fairly constant since 1996, with the median medical expense ratio dropping slightly from 89.2% in 1997 to 86.2% in 2002.

Notes: Medical expense ratio calculated as Total Medical Expenses/(Total Revenue - Investment Revenue).

Source: InterStudy Publications, The InterStudy Competitive Edge 13.2, Part II: HMO Industry Report, (reporting data as of January 1, 2003), October 2003, Figure 9, p. 60.

The cost per enrollee for private health insurance expenses not related to direct care services (such as administrative costs and profits) continued to rise, from $85 in 1986 to $421 in 2003. The most rapid growth occurred in the 4-year period from 1987 to 1990, when these administrative costs rose 125%. For the six-year period from 1998 to 2003, administrative costs per enrollee nearly doubled (+95%).

Notes: These data show the net cost of private health insurance per private enrollee (including Blue Cross/Blue Shield, commercial insurance, HMOs, and self-insured plans), as calculated by the Centers for Medicare and Medicaid Services. Net cost of insurance is the difference between premiums earned and benefits incurred, and includes insurers’ costs of paying bills, advertising, sales commissions, and other administrative costs; net additions/subtractions from reserves; rate credits and dividends; premium taxes; and profits or losses. Private enrollment is estimated by CMS using the National Health Insurance Survey and the Current Population Survey.

Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group: 2003 National Health Care Expenditures Data Files for Downloading, file nhe03.zip, Administration and Net Cost of Private Health Insurance, at http://www.cms.hhs.gov/statistics/nhe/default.asp, and unpublished CMS data on private health insurance enrollment.