There are a few specialists in medicine who, like primary care physicians, have long-term relationships with their patients. Dermatologists who care for seniors are one example. In the older population, there is rarely a "one and done" episode of care as often encountered in a specialty such as orthopedics. These long-term relationships lend themselves to capitated payment models.
Most dermatology care for seniors is for skin cancer and actinic keratoses. In South Florida, these treatments represent about 80% of the Medicare dermatology spend.
There are significant cost differences between the most common treatment options for skin cancer. Electro-desiccation and curettage (ED&Cs) and excisions are less expensive than Mohs, and radiation therapy is the costliest. The option that is best for the patient should always be selected. However, over time we have seen "Mohs creep." From 2012 to 2017, the use of Mohs micrographic surgery increased 23%, while use for ED&Cs and excisions decreased. There is a financial incentive for the physician to choose the treatment options that reimburses the most. For example, if you are a general dermatologist and a Mohs surgeon, you'll likely self-refer and perform more Mohs surgeries. Data have also shown that radiation therapy use has increased dramatically since being introduced into dermatology offices.
Unfortunately, what has happened is that a volume-driven model of medicine creates perverse incentives for physicians to do more and to choose the most highly reimbursed options. This is clear in the data. Analyzing the most recent publicly available Medicare data (2018), we examined common procedures where the variation in utilization among similar patient demographics should be very low. For example, the median number of biopsies per patient per year in Palm Beach County was less than one -- about 0.80. However, about 10% of the dermatologists did more than two biopsies per patient per year, with the highest number being about 10. It is unlikely these physicians who do a large number of biopsies treat more cancers.
Even more striking is that the median Medicare payment for general dermatologists in Palm Beach County is about $280 per patient per year (PPPY). However, several outlier dermatologists collect more than $500 PPPY and even up to more than $1,200 PPPY. We removed Mohs surgeons from this calculation, which has a PPPY average of about $1,000.
In Medicare Advantage and Medicaid managed care, physicians will either accept a discounted percentage of Medicare rates, or a capitated rate, such as a per member per month rate. Payers often capitate payments to a third-party network for all services within a particular specialty or specialties. That third-party network will then contract with dermatologists to offer a lower fee-for-service (FFS) rate. For judicious (i.e., around the median) dermatologists with narrow profit margins, the discount on FFS is painful. For the outliers with high volume, the FFS discount is acceptable as volume can counterbalance the discounted rates. Direct capitation arrangements with dermatologists are rare. Discounted care is not value-based care. Only the outliers will survive. For the benefit of the patient and the profession, this needs to change.
With true value-based dermatology, patients receive the highest quality care, and dermatologists don't have to worry about doing more or doing less. The outliers shouldn't be the ones earning the most as dermatologists. They should earn the least. The dermatologists who offer the most value to the patients and the system should earn the most. This is achievable.
How Can We Address the Issue?
Here is our initial proposal. This is just the beginning of the right way to reimburse for value-based dermatology. This plan will surely require significant modification -- consider it a starting point. Our hope is that we can all participate in designing the future of dermatology.
For Medicare seniors, CMS can offer the dermatologists two options:
Option 1: Reduce FFS reimbursement to 70% of Medicare rates. It's likely that only the outlier dermatologists will select this option. The outliers represent about 20% of Medicare's dermatology spend in Palm Beach County. Assuming these doctors do not change their practice patterns, Medicare would save 30% of about $10 million or $3 million per year in Palm Beach County alone.
Option 2: Have Medicare or any other payer that wants to participate come up with a flat payment per patient per year. CMS currently uses a risk score to determine overall payment to managed care and benchmarks for accountable care organizations (ACOs). CMS should create a skin score to predict dermatology costs based on age, skin color, and history of skin cancer. Higher score, higher annual capitation; lower score, lower annual capitation. Keep it simple.
What Will Happen Under This Plan?
We predict:
- Biopsy numbers will drop but the number of skin cancer diagnoses will stay the same
- Cryosurgery will decrease
- Field treatment will increase
- Teledermatology will increase and skin problems will be addressed sooner
- ED&C numbers will increase but skin cancers will not recur at a statistically significant greater rate
- Mohs volume will decrease but skin cancers will not recur at a greater rate
- Radiation therapy will markedly decrease but skin cancers will not recur at a greater rate
- More palliative care options will be used in patients with limited life expectancy
- The outliers will earn far less; the judicious dermatologists could earn more
We get lower cost and better care -- real value-based care!
Under a value-based model, some dermatologists' capitation could exceed what they earned the previous year, and the dermatologist only needs to document what's done -- no superfluous documentation, prior authorizations, and no merit-based incentive payment system. The dermatologist receives a monthly check -- no reduction for a pandemic, a hurricane, or any other reason for a slowdown. Billing costs will also plummet. Mohs and path become a cost center as opposed to a profit center. The dermatologist is now controlling utilization! A tiny minority of dermatologists will be dishonest and refuse to provide the right care. Most will do the right thing just like they did before. Those patients who feel they are being denied care will just switch dermatologists.
This is what the government, Medicare Advantage, private insurers, self-insured companies, and ACOs want. Yes, primary care doctors are taking on more risk, including specialty outpatient care. Of course they will favor high-value capitated specialists.
Outcomes and costs really matter. Instead of complaining about Medicare's annual reimbursement cuts, let's promote a solution where Medicare, the rest of the healthcare system, and dermatologists all win.
Robert Colton, MD, is board certified in Internal Medicine and Nephrology. In 2000, he co-founded Boca Raton, Florida-based concierge medicine company MDVIP. In 2012, with his wife, Andrea Colton, MD, board certified dermatologist, he started Clearlyderm, a multilocational dermatology practice, where he serves as Chairman of the Board. He is also co-founder of VBC ventures, a value-based care consulting firm.
Seth Harlem, MBA, is the cofounder of VBC Ventures, a data analytics and consulting company focused on identifying and reducing over-utilization in healthcare. Seth also provides strategic development consulting to medical practices.