What’s Your Profile?

June 1, 2010
Bob Keaveney

Executive editor Bob Keaveney speaks out against the pervasive practice of cost-profiling physicians.


The increasingly pervasive system of “cost profiling” physicians by insurance companies must end. Conceived as a way of controlling costs by alienating “inefficient” doctors from patients, cost profiling is divorced entirely from any notion of providing quality care. And now comes news that it’s actually a pretty harebrained way of ranking physicians by cost.

Researchers at the RAND Corp. studied claims data for nearly 14,000 physicians in 28 specialties in Massachusetts, and concluded that about one in four doctors would be misclassified under the cost-profiling methodology commonly used by payers. “Our findings raise questions about the utility of cost profiling tools for high-stakes activities such as tiered health plans,” said John Adams, RAND’s chief researcher on the study.

This issue of Physicians Practice includes the annual ranking of payer performance that we’ve been publishing since 2005, called PayerView. It judges payers on how accurately and promptly they pay you, and how clearly the give their reasons when they don’t. It feels good to offer you a meaningful ranking of payers, especially when payers keep coming up with nuttier ways to rank you.

Cost profiling is perhaps the most odious and least effective of payers’ methods of judging you. Yet the concept is gaining in popularity because someone got the idea that this works. It doesn’t. The idea is to group physicians into high- and low-cost tiers, encouraging patients to use the doctors whom the plans say are more cost-effective. The incentives include reduced copays or preferred listings in provider directories. Sometimes the plans simply decline to include the “higher cost” doctors in their most popular plans.

It’s another healthcare financing theory that seems to make sense on paper but falls apart in practice. A physician’s cost to a health plan is based mainly on what tests and services he’s ordering, so a lower-cost doc is usually ordering fewer (or less pricey) services. But is a lower-cost physician Dr. Cheap, ignoring patients’ genuine needs, or Dr. Value, providing quality care without needless overuse of the system?

A cynic might say that payers have little reason to care about the answer, since Drs. Cheap and Value both represent a bigger bottom line.

But even if you believe that cost profiling is driven by a sincere need to reduce waste, the RAND study makes clear that payers’ flawed methodology renders the cost-effectiveness questions moot. Many of the supposedly high-cost docs are actually low-cost, and vice versa. In fact, RAND found that doctors in many specialties were more likely to be misclassified as lower-cost, defeating even the payers’ purpose. Two out of three vascular surgeons, for example, would be misclassified as lower cost, but only one in five would be unfairly labeled as high cost.

Adams said the findings cast doubt on “the likelihood that wide use of these strategies will reduce health care spending. Consumers, physicians and those who pay for health care are all at risk of being misled by the results from these tools.”

It’s time to end payer-based cost profiling, especially when it has contractual consequences. If payers won’t abandon this fruitless effort voluntarily, states should require them to.

Bob Keaveney is editorial director for Physicians Practice. He can be contacted via e-mail at bob.keaveney@cmpmedica.com.

This article originally appeared in the June 2010 issue of Physicians Practice.