BACKGROUND PAPER

Physician Extenders:

Their Current and Future Role

in Medical Care Delivery

April 1979

Congress of the United States

Congressional Budget Office
PHYSICIAN EXTENDERS: THEIR CURRENT AND

FUTURE ROLE IN MEDICAL CARE DELIVERY

The Congress of the United States

Congressional Budget Office

For sale by the Superintendent of Documents, U.S. Government Printing Office

Washington, D.C. 20402
PREFACE

The 96th Congress and its successor will review legislation authorizing federal aid to schools that train physician

extenders. This paper, requested by the Senate Budget Committee,

analyzes the current performance of physician extenders, their

economic impact on medical practice, and policy options regarding

their future role. In accordance with the Congressional Budget

Office's mandate to provide objective and impartial analyses of

budget issues, the report contains no recommendations.

This report was prepared by Cheryl L. Smith of CBO's Human

Resources and Community Development Division under the direction

of Robert D. Reischauer and David S. Mundel. Valuable suggestions on earlier drafts were provided by Steve Crane, Stephen

Morris, John Nelson, Gale Picker, Janet Rose, Richard Scheffler,

Mary Silverman, and Jerry Weston. In addition, Malcolm Curtis,

Jackie Wallen, and Marty Wilson contributed useful comments.

Marion F. Houstoun edited the manuscript. Toni Wright typed

the several drafts and prepared the final draft for publication.

Alice M. Rivlin

Director

April 1979

iii

CONTENTS

Page

PREFACE iii

SUMMARY ix

CHAPTER I. INTRODUCTION 1

CHAPTER II. THE CURRENT ROLE OF PHYSICIAN

EXTENDERS 4

The Role and Types of PEs 4

Current and Projected Number of PEs 6

The Geographic Distribution of PEs 7

CHAPTER III. THE RELATIVE EFFECTIVENESS AND COST OF

PHYSICIAN EXTENDERS AND PHYSICIANS 11

The Quality of Medical Care Provided by PEs ..... 11

The Cost-Effectiveness of Substituting

PEs for Physicians 12

CHAPTER IV. THE IMPACT OF PHYSICIAN EXTENDERS ON

MEDICAL CARE PRICES AND EXPENDITURES 22

The Impact of PEs on the Price and Amount

of Medical Care 22

Are Physician Extenders Less Expensive to

Train than Physicians? 26

CHAPTER V. CAN WIDESPREAD EMPLOYMENT OF PHYSICIAN

EXTENDERS BE EXPECTED IN THE FUTURE? .... 30

Legal Restrictions and Reimbursement Policies ... 30

Incentives in Different Medical Care Delivery

Organizations 32

Perceived Advantages and Disadvantages of

Hiring Physician Extenders 35

Consumer Acceptance 36

Conclusions 39

v
CHAPTER VI. COMMENTS ON THE FUTURE USE OF PEs AND

FEDERAL OPTIONS 40

Options Under a Continuation of Current

Policies 41

Major Changes in the Medical Care Delivany

System that Would Encourage the Effective

Use of PEs 44

APPENDIX A. RESEARCH ON THE FINANCIAL IMPACT OF

PHYSICIAN EXTENDERS ON MEDICAL PRACTICE . 50

vi
TABLES

TABLE 1. CURRENT AND PROJECTED SUPPLY OF ACTIVE

PHYSICIAN EXTENDERS (PHYSICIAN ASSISTANTS,

MEDEX, AND NURSE PRACTITIONERS), 1979

AND 1990 ,

TABLE 2 PRODUCTIVITY AND COST OF PHYSICIAN EXTENDERS

AND PHYSICIANS, 1975

TABLE 3. AVERAGE CHARGE PER PATIENT VISIT IN PRACTICES

WITH AND WITHOUT PHYSICIAN EXTENDERS, 1977 .

TABLE 4. TRAINING EXPENDITURES FOR PHYSICIANS AND

PHYSICIAN EXTENDERS, ACADEMIC YEAR 1978-

1979

TABLE 5. PERCEPTIONS OF MAJOR BARRIERS TO EMPLOYING

PHYSICIAN EXTENDERS

14

23

27

37

FIGURE

FIGURE 1. GEOGRAPHIC DISTRIBUTION OF PHYSICIAN

EXTENDERS, PHYSICIANS, AND THE POPULATION,

BY SIZE OF COUNTY, 1975 ,

vii

SUMMARY

The delivery of primary medical care by physician extenders

(PEs) is potentially a significant departure from the traditional

medical practice in this country, which has been dominated by

physicians. Potentially, PEs could improve access to primary

medical care of good quality, reduce medical care price increases, and lower total medical care spending. Greatly increased utilization of PEs may not occur, however, unless other

major changes in the medical care system take place first.

Three broad types of PEs—physician assistants, Medex,

and nurse practitioners—have been trained in the United States

in the last decade; they differ by type of training and previous

health care experience. All three types of PEs, however, can

perform many routine and basic medical care services usually

performed by physicians. Nevertheless, PEs are not recognized as

independent medical care providers, and they comprise only a

small segment of the medical care sector. Physicians engaged in

patient care outnumber PEs by 18 to 1. Currently, about 3,500

PEs are trained annually.

Although total federal support for PE training programs

is small, it has been growing and it accounts for a large share

of the training costs of federally assisted programs. Annual

federal expenditures for PE training programs have increased from

less than $1 million in fiscal year 1969 to more than $21 million

in fiscal year 1979. Approximately 50 to 70 percent of the costs

of training PEs in those programs that receive federal aid are

subsidized by the federal government. In fiscal year 1978,

about 40 percent of all nurse practitioner programs and nearly

90 percent of all physician assistant and Medex programs received

federal funds.

During the 96th Congress, the Congress will decide how much

federal assistance should be provided to PE training programs and

whether legislation authorizing federal aid to those programs

should be continued. But a decision to expand significantly the

supply of PEs and to support their practice depends on broader

choices about whether large-scale changes in the medical care

ix

43-364 O - 79 - 2
delivery system are desirable and how they should be achieved.

Once larger goals are established, a major issue is whether PEs

are an effective means of accomplishing those objectives upon

which federal support is predicated. A decade of experience

with PEs has provided considerable information about their performance, productivity, and acceptance by consumers and other

health care providers. Little attention, however, has been paid

to the impact of PEs on medical care costs, prices, and expenditures—a major focus of this paper.

THE PERFORMANCE OF PHYSICIAN EXTENDERS

The best information about PEs suggests that they provide

primary medical services of high quality and improve access to

medical care for residents in communities with relatively few

physicians. PEs successfully manage a high proportion of common,

uncomplicated illnesses without any specific physician intervention.

Do Physician Extenders Increase the

Cost-Effectiveness of Medical Practice?

PEs can do much to improve the cost-effectiveness of medical

practice. Considering both the salaries and supervisory costs

of PEs, they are about one-third to one-half as costly to employ

as physicians per hour of work. PEs, however, spend more time

with their patients: nurse practitioners see about 60 percent,

and physician assistants and Medex about 90 percent, as many

patients per hour as physicians. Hence, a patient visit appropriately managed by a nurse practitioner can be provided at about

two-thirds to four-fifths of the expense of a similar visit

provided by a physician; a physician assistant or Medex can

provide care at about one-third to one-half of the physician

expense.

Nevertheless, if a physician's own work effort decreases or

if a PE provides services that were not previously available,

such as nutrition counseling, the cost of the "average" treatment

episode may not decline after a PE is incorporated into a medical

practice. In fact, delivery costs per visit may increase.

x
Do Consumers Benefit from Lower Prices When Medical

Care is Delivered by Physician Extenders?

Although PEs may produce medical services at lower cost

levels, their presence in the medical sector may not lower

medical care prices. Available evidence suggests that charges

per patient visit in some practices with PEs average 20 percent

less than charges in similar practices without PEs. Some physicians, however, report that they charge the same fee regardless

of whether they or a PE provide the service. In addition, if

PEs are used to improve quality of care rather than to expand

patient volume, medical care fees may increase.

How Do Physician Extenders Affect

Medical Care Expenditures?

PEs may contribute to an increase in total expenditures

for medical care services because they tend to expand the total

volume of service proportionately more than they reduce the

price of care. This expenditure increase, however, may be

desirable if the improved access to care created by PEs prevents

more serious and costly problems. Reductions in expenditures to

train medical providers may be possible in the future because PEs

cost less to train than physicians—on average, about $10,000-

$12,000, as compared with more than $60,000 for a physician.

CAN WIDESPREAD EMPLOYMENT OF PHYSICIAN EXTENDERS

BE EXPECTED IN THE FUTURE?

Factors affecting future demand for PEs include legal

restrictions on their ability to provide and be reimbursed for

medical services, perceptions of the advantages and disadvantages

of hiring PEs, consumer acceptance of PEs, and PE employment

incentives in different types of medical care delivery organizations. State statutes and regulations often specify the

degree of physician supervision required for a PE, the number

of PEs that can be supervised by a physician, and the conditions

under which PEs may prescribe drugs. Virtually no health insurers reimburse PEs directly for their services. Thus, practice

opportunities for PEs depend heavily on physician willingness

to hire them.

xi
Acceptance of PEs among consumers and physicians is high,

but actual demand for PEs among physicians is not as high.

Moreover, the rapidly growing supply of physicians may reduce the

demand £or PEs. Increased physician availability suggests that

a major barrier to the hiring of PEs by physicians—insufficient

patient volume—could become more widespread. It should be

noted, however, that to the extent that other disadvantages

associated with PEs—legal and reimbursement ambiguities, lack

of acceptance and resistance from other health providers and

consumers—are resolved over time, some physicians may become

more receptive to hiring PEs. Thus, PE utilization could increase.

Ambulatory care clinics and prepaid group practices have

economic incentives to hire PEs; therefore, the level of demand

for PEs in these types of medical care delivery organizations

is high and is likely to remain so.

Options Under a Continuation of Current Policies

If the medical care delivery system continues essentially

unchanged, PEs are likely to have a beneficial but relatively

marginal influence on medical care delivery. The principal gains

realized from a greater availability of PEs would be improved

availability of primary care services in communities with poor

access to physicians. Consumers are not likely to benefit

systematically from lower prices for PE-delivered care primarily

because the price, amount, and type of service provided by PEs

are determined by physicians.

Under a continuation of current health care policies and

other programs, the Congress might pursue either one of two

broad policy options. First, if improved access to primary

medical care is not of high priority, federal training support

for PEs could be reduced or eliminated. Alternatively, in order

to expand the availability of primary care in underserved communities, the Congress might desire to alter existing programs

incrementally in order to increase their effectiveness. If this

were a desirable goal, several options might be suggested,

including: maintaining current levels of support for PE training

programs while strengthening the placement of graduates in

underserved areas, expanding the number of PEs in the National

Health Service Corps, and extending the availability of federal

reimbursement for services provided by PEs.

xii
Major Changes in the Medical Care Delivery System

That Would Encourage The Effective Use of PEs

More extensive federal support for PE practice might be

desirable if fundamental changes in the financing or delivery

of the existing medical care system were sought. These major

changes include:

o Implementation of a comprehensive national health insurance plan that provided more extensive coverage of

primary medical care than exists today;

o Greater development of health maintenance organizations

(HMDs) and more independent practice of PEs; and

o A limitation on the future supply of physicians.

Under each of these major health system changes, PEs would

likely play a much greater role in medical care delivery than

they do today. Greater federal funding for new PE programs and,

in particular, more liberal reimbursement policies for PE services would be key factors in increasing utilization of PEs.

For example, if a comprehensive national health insurance

(NHI) plan extending current levels of insurance coverage for

primary medical care were to be implemented, consumer demand

for those services would greatly increase. As a result, physicians would be more willing to hire PEs and to use them to expand

the amount of patient care provided. Further, implementation

of a comprehensive NHI plan would provide an opportunity to

restructure current physician and PE reimbursement policies in a

way that would encourage physicians to delegate routine medical

care to PEs.

Similarly, if a policy goal were to make the medical sector

more competitive—and thus more cost-conscious—by promoting HMOs

and more independent practice of PEs, then the demand for PEs

would increase. The federal government has provided support

for the establishment of prepaid group systems for several years;

it might also take several steps to promote a more independent

role for PEs involving adequate access to a physician for consultation and referral. Model statutes governing the nature and

scope of independent practice by PEs could be developed as

xiii
ill..

examples for the necessary state legislation. Demonstration

projects in which PEs are reimbursed directly for their services

might also be funded.

Finally, policies to constrain future increases in the

supply of physicians would increase the need for PEs in order to

maintain access to primary care. Major benefits would be lower

spending levels for training medical providers, more effective

utilization of PEs, and a more efficient medical care delivery

system.

xiv
CHAPTER I. INTRODUCTION

Health workers have been used as a substitute for primary care physicians under a variety of circumstances by many

countries. _!/ In the mid-1960s, this concept of using health

care practitioners or "physician extenders" to provide basic

medical services traditionally provided by physicians was introduced into the United States as a way to expand the availability

of primary medical care.

Physician extenders (PEs) quickly attracted national attention as a promising partial solution to a perceived shortage

of physicians (particularly in rural and inner-city communities),

a decline in the availability of primary care physicians, and

rapidly rising health care costs. In principle, by performing

routine and basic medical care, PEs enable physicians to concentrate on more serious and complex tasks. As a result, their

lower costs should lead to a reduction in medical care prices.

If medical conditions were detected before becoming more serious

and costly, the increased availability of medical care resulting

from PEs would also lower expenditures for medical services.

Training expenditures might also be reduced if PEs cost less to

train than physicians. In practice, however, the availability of

PEs may or may not achieve any of these results.

The number of PE training programs and their graduates have

grown rapidly in the last decade, in part, because of increasing

federal assistance, which grew from less than $1 million in

\j General and family physicians, general internists, and

general pediatricians are usually considered to be primary

care physicians. Obstetricians/gynecologists are. sometimes

included in this category as well. Primary medical care

focuses on the provision of basic medical services and

includes continuing management and coordination of all

medical services with appropriate referral for specialized

care. Most notable among the substitutes in other countries

are the feldsher in the Soviet Union and the "barefoot

doctor" in the Peoples Republic of China.
fiscal year 1969 to more than $21 million in fiscal year 1979.

Despite this rapid growth, today there are only about 22,000

active PEs, as compared with about 400,000 practicing physicians

and more than 1 million practicing registered nurses. 2J

In 1979, the Congress will decide whether to support an

expansion of the supply of PEs. But major decisions concerning

the role of PEs in the delivery of medical care depend on the

resolution of broader issues and the identification of major

health policy goals. For example, if reducing medical care

expenditures were a major goal, then training more PEs might be

undesirable. Alternatively, if the Congress were to extend

insurance coverage for primary care services by enacting a

comprehensive national health insurance plan, then increased

support for PEs might be warranted.

Once major goals have been established for the medical

care system, the effectiveness of using PEs to achieve them can

be examined. A decade of experience with PEs has provided

considerable information about their performance, productivity,

and acceptability to consumers and other health care providers.

Little attention, however, has been paid to the impact of PEs

on medical care costs, prices, and expenditures. The major

questions addressed in this analysis of the role and economic

impact of PEs on the medical care delivery system include:

2] The estimate of the current supply of PEs was derived from

data supplied by the Department of Health, Education, and

Welfare, Health Resources Administration, Bureau of Health

Manpower, Division of Nursing and the American Academy of

Physician Assistants. The estimate of practicing physicians

(doctors of medicine and osteopathy) was derived from data

in HEW, Health Resources Administration, Bureau of Health

Manpower, A Report to the President and Congress on the

Status of Health Professions Personnel in the United States

(August 1978), and Louis Goodman, Physician Distribution and

Medical Licensure in the U.S., 1976 (Chicago: American

Medical Association, 1978). The nursing supply estimate was

derived from data in HEW, Health Resources Administration,

Bureau of Health Manpower, Division of Nursing, First Report

to Congress (February 1977).
o What is the current role of PEs—what kind of care do

they provide and where? (Chapter II)

o Do PEs provide cost-effective medical care? (Chapter III)

o What happens to total medical care prices and expenditures when PEs are introduced into the medical care

delivery system? (Chapter IV)

o Can widespread employment of PEs be expected in the

future? (Chapter V)

o What are the options for future federal support of PEs—

assuming either that little change in the existing

medical care delivery system takes place or that major

structural changes occur? (Chapter VI)

43-364 O - 79 - 3
CHAPTER II. THE CURRENT ROLE OF PHYSICIAN EXTENDERS

THE ROLE AND TYPES OF PEs

Although physician extenders are trained to provide much

of the basic medical care traditionally provided by physicians,

they are not recognized as independent medical care practitioners; hence, they practice under varying degrees of physician

supervision or consultation.

There are three types of PEs—physician assistants, Medex,

and nurse practitioners—who differ by type of training and

previous health care experience. I/ Physician assistants, some

of whom have prior health care experience as military corpsmen,

nurses, or allied health workers, receive about two years of

classroom and clinical training, and some on-the-job experience.

Medex have extensive prior medical experience, usually as military corpsmen, and obtain an additional year of training, generally under the preceptorship of a physician, who often resides

in a medically underserved area. 1J Nurse practitioners are

registered nurses who usually receive an additional year of

classroom and clinical training relating to primary care.

_!/ Nurse practitioners sometimes object to being classified

as PEs, which implies being dependent on a physician. They

prefer to be recognized as independent professionals who

collaborate with physicians. The term physician extender is

used here merely because it is a phrase widely used to

connote all the various types of nontraditional primary

health care practitioners.

2_l In practice, physician assistants and Medex have more common

characteristics than distinguishing ones. Both types practice under the same legislative authority, and their training

programs operate under the same guidelines for accreditation.

Moreover, some Medex programs are converting to physician

assistant programs. For the purposes of consistency, however, physician assistants and Medex are referred to separately throughout this paper.
All three types of PEs are trained to provide treatment

for most general medical conditions. PE skills include the

ability to take health histories, perform physical exams, initiate and utilize simple diagnostic procedures, and carry out

basic treatment procedures. PEs commonly manage acute conditions

of limited complexity, such as colds and skin infections, and

well-child and health maintenance care. They also frequently

manage stable chronic conditions, such as hypertension, arthritis, and diabetes. Although estimates vary, at least 60

percent and frequently a much higher proportion of all ambulatory

visits can be effectively and safely handled by PEs without

physician intervention. 3_/

Despite their common role, distinct patterns of practice

have emerged among the different types of PEs. Nurse practitioners tend to provide more preventive care, patient education,

and counseling, and to function more independently than either

Medex or physician assistants. In contrast, physician assistants and Medex tend to provide more acute and emergency care,

but with greater physician supervision. _4/ These role distinctions may be a direct result of differences in employment settings, the personal preferences of both PE employers and the

PEs themselves, as well as the divergent philosophies of the

nursing and medical professions. As former nurses, nurse practitioners have been trained to provide patient education and

counseling. Furthermore, nurse practitioner programs place a

slightly greater emphasis on those aspects of patient care than

do physician assistant and Medex programs. Physician assistant

and Medex programs place more emphasis on basic science training,

particularly in biology and physiology. _5/ Nurse practitioners

have already taken such courses in nursing programs.

3/ See Ouida Upchurch and Jeanne Holzgrefe, National Academy of

Sciences, Institute of Medicine, Data on the Roles of the

Physician Assistant and Nurse Practitioner, Staff Paper

(May 5, 1978).

kj University of Southern California, Division of Research in

Medical Education, Collection and Processing of Baseline

Data for the Physician Extender Reimbursement Study, Final

Report (August 31, 1978).

_5/ System Sciences, Inc., Nurse Practitioner and Physician

Assistant Training and Deployment Study, Final Report (Bethesda, Md: SSI, September 1976).
CURRENT AND PROJECTED NUMBER OF PEs

Before 1970, there were fewer than 2,000 formally trained

PEs. Today, approximately 22,000 formally trained PEs are

practicing and their numbers are predicted to increase to more

than 56,000 by 1990 (see Table 1). Nurse practitioners account

for more than half of all currently active PEs. If current

trends continue, they will probably continue to be the dominant

PE type in the future.

TABLE 1. CURRENT AND PROJECTED SUPPLY OF ACTIVE PHYSICIAN

EXTENDERS (PHYSICIAN ASSISTANTS, MEDEX, AND NURSE

PRACTITIONERS), 1979 AND 1990

Type of Physician Extender 1979 1990 a/

Physician Assistants

and Medex 9,400 23,900

Nurse Practitioners 12,700 32,300

Total 22,100 56,200

SOURCES: The 1979 estimates were derived from 1978 data supplied by HEW, Health Resources Administration, Bureau

of Health Manpower, Division of Nursing and the National Academy of Physician Assistants. Projections to

1990 are CBO estimates.

a_/ Both the 1979 estimates and the 1990 projections were adjusted by the number of physician extenders (PEs) expected to

be inactive as a PE. Further, CBO projections assume that

approximately 1,500 physician assistants and Medex, and about

2,000 nurse practitioners will graduate annually through

1990; that losses due to retirement will be negligible; and

that losses due to death are similar to mortality rates for

the population as a whole. Current levels of federal assistance to PE programs are also assumed to continue.
Although the number of PEs has grown rapidly and may continue to do so, PEs still constitute one of the smaller groups of

health workers. In 1979, practicing physicians outnumbered PEs

by about 18 to 1. By 1990, physicians engaged in patient care

are projected to outnumber PEs by about 10 to 1 and practicing

registered nurses will outnumber them by about 26 to 1.

THE GEOGRAPHIC DISTRIBUTION OF PEs

The most striking feature of the geographic location of PEs

is that physician assistants and Medex tend to locate in nonmetropolitan areas more than physicians and the population in

general, while nurse practitioners work more frequently in

inner-city communities. j>/ In 1975, 42 percent of the population

resided in metropolitan counties with 1 million or more persons.

These large metropolitan counties also had 55 percent of all

practicing physicians, 51 percent of nurse practitioners, and

32 percent of physician assistants, but only 18 percent of

Medex. By comparison, only 17 percent of the total population

resided in nonmetropolitan counties with fewer than 50,000

residents and only 8 percent of all physicians practiced there.

These counties, however, had 37 percent of Medex, 18 percent

of physician assistants, and 15 percent of nurse practitioners

(see Figure 1).

As a result of their urban-rural distribution, PEs may be

making primary medical care more available to persons with

limited access to it. In general, PEs tend to serve more nonmetropolitan and poorer clients than do physicians. _7_/ For

example, nurse practitioners reported in 1975 that nearly 53

percent of their patients had incomes below $4,000. 8/ Nevertheless, because PE employment is conditioned upon physician

_6/ Harry A. Sultz, Maria Zielnezny, and Jane Mathews, "Highlights: Phase 2 of a Longitudinal Study of Nurse Practitioners," in Michael Millman, ed., Nursing Personnel and the

Changing Health Care System (Cambridge, Mass.: Ballinger,

1978).

]_/ Stephen B. Morris and David B. Smith, "The Distribution of

Physician Extenders," Medical Care (December 1977).

8/ Sultz and others, "Highlights: Phase 2."
Figure 1.

Geographic Distribution of Physician Extenders, Physicians, and

the Population, by Size of County, 1975

Percent

100

KEY: SMSA 1,000,000 or More

SMSA Less Than 1,000,000

Non-SMSA 50,000 or More

Non-SMSA Less Than 50,000

80

60

40

20

18

37

Physician

Assistant

Medex Nurse

Practitioner

Physiciana Population

SOURCES: System Sciences, Inc., Nurse Practitioner and Physician Assistant Training

and Deployment Study (Bethesda, Md: SSI, 1976),and Louis Goodman,

Physician Distribution and Medical Licensure in the U.S., 1976 (Chicago:

American Medical Association, 1978).

NOTE: Totals may not add to 100 percent because of rounding.

a

 1976 data.
availability, PEs may not be reaching many of the communities

most deficient in health care resources. Only 30 percent of all

PEs are practicing in an area designated by the Department of

Health, Education, and Welfare (HEW) as a physician-shortage

area.

Although the factors influencing the location of physicians

are well documented, those influencing the location patterns

of PEs are less clear. 9/ In addition to the availability of

employment opportunities, the urban-rural location pattern of

PEs may be influenced by their type of training and by program

recruiting and placement mechanisms. For example, the fact

that nurse practitioners are more likely to locate in urban

areas than other PEs may be because most nurses—the source

group for nurse practitioners—are employed in urban localities.

Moreover, many nurse practitioner programs have an inner-city

clinical training component, which increases the likelihood that

their graduates will enter inner-city practice. Medex programs,

on the other hand, explicitly try to place graduates in local

9/ According to recent studies, the major factors influencing

physicians' location patterns appear to be place of rearing,

location of education and training, and choice of specialty.

Because few physicians come from rural areas and most medical

schools and teaching hospitals are in metropolitan areas, few

physicians are exposed to rural practice. In addition,

most physicians today become specialists rather than generalists. Specialists require the larger population base of

urban areas to support referral practice, and they may value

more highly than generalists the opportunities for professional contact and the availability of clinical facilities

that urban areas offer. As with other professionals, the

cultural amenities of urban areas are also important considerations for many physicians. For comprehensive reviews

of relevant literature, see General Accounting Office,

Progress and Problems in Improving the Availability of

Primary Care Providers in Underserved Areas (August 1978);

Sinclair Coleman, Physician Distribution and Rural Access

to Medical Services (Santa Monica, Ca.: Rand Corporation,

April 1978); and National Academy of Sciences, Institute of

Medicine, Medicare-Medicaid Reimbursement Policies (March 1,

1976).
rural areas and to recruit applicants from those areas. In

addition, Medex graduates, who practice disproportionately in

rural settings, are frequently hired by the often rurally-based

physicians with whom they receive on-the-job training.

Like physicians, PEs are more heavily represented in states

along the Atlantic and Pacific coasts. The distribution of PEs

among states, however, may be influenced more strongly than that

of physicians by the location of PE training programs, which tend

to cluster in those areas. States with training programs are

more likely to have addressed the legal ramifications of PE

practice; hence, they may offer a more favorable climate for PE

practice and greater employment opportunities.

10
CHAPTER III. THE RELATIVE EFFECTIVENESS AND COST

OF PHYSICIAN EXTENDERS AND PHYSICIANS

The future role of PEs will, in part, be determined by their

cost-effectiveness. If PEs can provide high quality medical

care and reduce the costs of medical care delivery, the Congress

may wish to encourage greater utilization of PEs, especially if

these cost savings are passed on to consumers as lower medical

care prices. The evidence discussed in this chapter concerning

the current economic impact of PEs on medical care practice is

limited but suggestive; hence, the conclusions presented are

tentative. ^/ The impact of PEs on medical care prices is

analyzed in Chapter IV.

THE QUALITY OF MEDICAL CARE PROVIDED BY PEs

The medical care provided by PEs compares favorably with

that delivered by physicians for medical conditions for which

PE care is thought to be appropriate. Although only a few

studies have observed patient outcomes in controlled experiments

(one of the better, but more difficult ways to measure quality

of care), the conclusions reached in these and virtually all

other studies are similar: PEs have performed as well as physicians, with respect to patient outcomes, proper diagnoses,

management of "indicator" medical conditions, frequency of

patient hospitalization, manner of drug prescription, documentation of medical findings, and patient satisfaction. 2j

I/ The research on these topics is summarized in Appendix A.

2J An indicator condition is a distinct disease, symptom,

state, or injury occurring frequently in primary care with

an outcome that can be influenced favorably or negatively

by choice of treatment and for which diagnostic and therapeutic procedures are well established.

For studies that analyze the quality of care provided

by PEs, see Charles E. Lewis and others, "Nurse Clinics

(continued)

11

43-364 O - 79 - 4
_ _ J1L.

Practices utilizing PEs may even provide better care than

those without PEs. For example, in practices with both physicians and PEs, System Sciences, Inc. rated 55 percent of the

treatment episodes for three indicator conditions adequate or

better, as compared with 46 percent in practices with only

physicians. _3/

Quality of care, however, does appear to differ slightly

among types of PEs. Practices with nurse practitioners received

higher quality of care ratings than all other practices, perhaps

because nurse practitioners spent more time with their patients

than either Medex or physician assistants. 4/

THE COST-EFFECTIVENESS OF SUBSTITUTING PEs FOR PHYSICIANS

Given that PEs deliver medical services at least equivalent

in quality to those provided by physicians, do PEs decrease the

costs of providing medical care? In the following sections, the

relative cost of PEs and physicians is evaluated in two ways.

In the first section, the cost of PEs and physicians is compared

with respect to individual patient visits for complaints or

symptoms that are appropriate for a physician extender to manage.

2/ (continued)

and Progressive Ambulatory Patient Care," New Engand Journal

of Medicine, vol. 277 (December 7, 1967); Walter 0. Spitzer

and others, "The Burlington Randomized Trial of the Nurse

Practitioner," New England Journal of Medicine, vol. 290

(January 31, 1974); and Eva D. Cohen and others, An Evaluation of Policy Related Research on New and Expanded Roles

of Health Workers (Office of Regional Activities and Continuing Education, Yale University School of Medicine,

October 1974).

_3/ The quality of care provided to patients with one of the

indicator conditions was assessed according to nationally

approved medical care protocols for each of those diseases.

System Sciences, Inc., Survey and Evaluation of the Physician

Extender Reimbursement Experiment, Final Report (March 1978).

4/ Ibid.

12
In the second section, the cost (practice expense) of an "average" patient visit when medical care is provided by a PE-physician team is compared with the cost (practice expense) when

medical care is provided solely by a physician. _5/ A physician's

office visit fee may be based on this "average" patient visit

cost.

The Relative Cost of Individual Patient Visits

Differences in Patient Care Time. The cost-effectiveness

of PEs in treating appropriate medical conditions depends, in

part, on how PEs compare with physicians with respect to cost

per unit of time and amount of time spent with patients. Substitution of a PE for a physician for PE-appropriate medical

care will be cost-effective if the cost of the PE's management

of a treatment episode (cost per unit of time X units of time

required) is less than the cost of the physician's management of

a similar patient visit.

Although data based on comparable patient mixes are not

widely available, PEs in general—and nurse practitioners in

particular—appear to spend more time with their patients than

physicians. Recent research suggests that a nurse practitioner

spends 65 percent more time per patient visit, while a physician

assistant or Medex spends only 13 percent more time than a

physician (Table 2). _6/

_5/ A physician-PE team is construed loosely here; a physician's

only involvement with a PE may be periodic checks, signing

patient records and prescription orders, and being available

for consultation.

6/ University of Southern California, Collection and Processing

of Baseline Data. The extent to which productivity differentials between physician assistants and Medex on the one

hand and nurse practitioners on the other are the result of

differences in case mix cannot be ascertained with available

data. The results of the USC and other studies, however,

suggest that differences in case mix may not significantly

affect PE and physician patient care time differentials. See

also, Sheldon Greenfield and others, "Efficiency and Cost

of Primary Care by Nurses and Physician Assistants," New

(continued)

13
TABLE 2. PATIENT CARE TIME AND COST OF PHYSICIAN EXTENDERS AND PHYSICIANS a/, 1975

Physician Extender

Physician

Nurse Assistant

Practitioner and Medex Physician

Nurse

Practitioner/

Physician

Ratio

Cost per Patient

Visit (in

dollars) 3.04-3.94 1.84-2.36 4.66 0.65-0.85

Physician

Assistant

and Medex/

Physician Ratio

Minutes per Patient

Visit

Cost per Hour

(in dollars)

Direct

compensation

Supervision

19.4

9.43-12.22

6.63 b/

2.80-5.60 d./

13.2

8.36-10.73

5.98 b/

2.38-4.75 d/

11.7

23.90

23.90 c/

N.A. e/

1.65

0.39-0.51

0.28

N.A. e/

1.13

0.35-0.45

0.25

N.A. e/

0.39-0.51

SOURCES: Data for minutes per patient visit are from University of Southern California,

The Collection and Processing of Baseline Data for the Physician Extender Reimbursement Study (August 1978). The data are not necessarily representative of

all PEs and office-based primary care physicians.

Data for PE compensation and weekly hours of work are from System Sciences,

Inc. , Nurse Practitioner and Physician Assistant Training and Deployment Study

(Bethesda, Md. : SSI, September 1976). Data on physician earnings are from

(continued )
TABLE 2. (Continued)

•I

SOURCES: (continued)

Zachary Y. Dyckman, A Study of Physicians' Fees, staff report prepared by the

Council on Wage and Price Stability (March 1978). Data on physician weekly hours

of work and annual weeks of work are from American Medical Association, Profile

of Medical Practice, 1977 (Chicago: AMA, 1978). Data on physician supervisory

requirements are from Jane Record and Joan O'Bannon, Cost Effectiveness of

Physician Assistants, Final Report (1976), and System Sciences, Inc., Survey and

Evaluation of the Physician Extender Reimbursement Experiment, Final Report

(March 1978).

a/ Productivity and cost figures refer to each type of provider working alone. Physician

data are for office-based, primary care physicians.

b/ Annual median salary for each PE type was divided by the annual hours of work for each

PE type. An average hourly compensation cost for nurse practitioners, and for physician assistants and Medex, was arrived at by weighting the divided hourly salary

figures for each specific type of PE by its share of the PE population.

c/ Median net income. Because this includes profit to the physician, the relative costs

of PEs and physicians are understated. Primary care physicians who are salaried,

such as those in HMOs, tend to earn less than those in the fee-for-service sector.

d_/ Supervisory costs were calculated by multiplying physician median net income by an

estimated proportion of time (10 to 20 percent of annual practice time) spent on

PE-related activities. Total supervisory costs were then distributed over the average

annual practice hours of each PE type to arrive at a supervisory cost per PE hour. An

average hourly supervisory cost for nurse practitioners, and for physician assistants

and Medex, was derived by weighting cost figures for each specific type of PE by its

share of the PE population.

e/ Not applicable.
In addition to spending more time with their patients, PEs

tend to see fewer patients than physicians because PEs often work

fewer hours than physicians, provide indirect patient care by

telephone, or perform administrative activities. Nurse practitioners in particular tend to spend proportionately more time

than other types of PEs or physicians in administrative activities, staff interaction, and other professional activities.

Most nurse practitioners report seeing from 5 to 14 patients

daily, as compared with most physician assistants and Medex,

who report seeing more than 20 patients a day. Tj

Differences in Employment Costs. A second factor determining the relative cost of PEs is the cost of PE employment in

medical practice as compared with that of physicians. This

comparison is complicated by the fact that most physicians in

the United States are self-employed persons whose compensation

is established on a fee-for-service basis. Virtually all PEs,

however, are salaried employees. 8/ Moreover, PE-related employment costs include not only PE salaries but also the costs of

physician supervision and consultation. In 1975, the median

hourly earnings of physician extenders were about one-fourth the

net hourly earnings of an office-based physician: about $6, as

compared with $24. Estimates of physician time devoted to PE

activities vary considerably, but a PE appears to require from

j>/ (continued)

England Journal of Medicine, vol. 298 (February 9, 1978); and

E. Charney and H. Kitzman, "The Child-Health Nurse (Pediatric

Nurse Practitioner) in Private Practice," New England Journal

of Medicine, vol. 285 (December 9, 1971).

]_/ Systems Sciences, Inc., Training and Deployment.

_8/ The earnings of salaried physicians, such as in HMOs, would

have provided a better comparison with the earnings of

salaried PEs. The primary reason is that, if most officebased salaried physicians earn less than their counterparts

in the fee-for-service sector, the earnings differential

between physicians and PEs is overstated by using physician

net income data. National data on the earnings of salaried

physicians, however, were unavailable.

16
10 to 20 percent of a physician's time for supervision and consultation. _9/ This adds about $3 to $5 to the hourly salary

cost of physician extenders. The amount of physician supervision

required may, however, depend on the type of PE, the type of

practice arrangement, and the manner in which the PE is utilized.

In general, however, about 54 to 72 percent of the total cost of

a PE is attributable to direct compensation; supervisory costs

make up the remainder.

When both salaries and supervisory costs are considered,

the hourly costs of PEs appear to be about one-third to one-half

those of physicians. In 1975, for example, physician extenders

cost $8 to $12 per hour, as compared with about $24 for physicians (see Table 2).

Differences in Use of Support Services and Resources. A

third factor that may affect the cost differential between PEs

and physicians is their relative use of medical practice support

services and resources. If a physician must buy new equipment,

add new examining rooms, or hire additional nursing and clerical

staff to accommodate a PE, the relative cost of a PE will clearly

rise. Similarly, if PEs use diagnostic tests and laboratory

equipment more intensively than physicians, PEs may provide care

less economically. Evidence on PE use of diagnostic aides is

inconclusive. Recent research shows that nurse practitioners

performed 53 percent more diagnostic tests per 100 patients than

the physicians with whom they worked and 46 percent more than

physicians in practices with no PEs. The proportions for physician assistants and Medex were much lower—21 percent and 16

percent, respectively, for physician assistants; 1 percent and

3 percent, respectively, for Medex. 10/ Whether these findings

are representative of all PEs and differ from the practice of

new, inexperienced physicians is unknown. Similarly, it is not

known whether PE patterns of practice will change over time.

_9_/ See Jane Record and Joan O'Bannon, Cost Effectiveness of

Physician's Assistants, Final Report (1976), and System

Sciences, Inc., Survey and Evaluation.

10/ Stephen B. Morris and David B. Smith, "An Evaluation of the

Potential Impact of Physician Extenders on Primary Care

Practices in the United States," unpublished paper presented

at the 2nd International Congress of the World Federation

of Public Health Associations (May 24, 1978).

17
Other Potential Factors Affecting Relative Costs. The cost

differential between PEs and physicians could change in the

future. The compensation of PEs and physicians is determined

by the supply of health care providers, the demand for their

services, and the structure of the medical care market. Changes

in these factors may alter the earnings of providers. For

instance, if the demand for PEs were to increase more rapidly

than the supply of PEs (all other things equal), their salaries

would probably shift upward. Such a shift would, in turn,

increase the cost of PEs relative to that of physicians. Sizable increases in the supply of both PEs and physicians by 1990

are projected, but the effects of these changes on the relative

level of physician and PE compensation are far from clear.

Increases in the demand for medical care—for example, those

resulting from implementation of comprehensive national health

insurance—might also change the relative level of health provider compensation and thus change demand for both physicians

and PEs. Changes in the structure of the medical care market,

brought about by regulatory or other actions, could also affect

absolute and perhaps relative levels of provider compensation.

Summary. In summary, available evidence suggests that PEs

can improve the cost-effectiveness of medical practice. PEs

compare favorably with physicians with respect to the quality

of PE-appropriate services. At present, nurse practitioners

see about 60 percent, and physician assistants and Medex about

90 percent, as many patients per hour as physicians. But PEs

cost about one-third to one-half as much as physicians per hour,

including supervisory costs. Hence, for PE-appropriate care,

medical services can be provided by nurse practitioners at about

two-thirds to four-fifths of the cost of medical care delivered

by a physician; and by physician assistants and Medex at about

one-third to one-half of physician costs, ll/

_!!/ For reasons mentioned earlier in the text, these rough

calculations may make PEs appear somewhat less costly than

they actually are.

18
The Impact of PEs on Average Practice

Expenses per Patient Visit

Although a PE may manage treatment episodes less expensively

than a physician, the cost of the "average" treatment episode

or patient visit may or may not decline after a physician extender is incorporated into a medical practice. Average per

visit expenses depend on both total practice expenses and total

patient volume. The degree to which these components change

with the addition of a PE(s) to a medical practice appears to

depend on the way in which physicians utilize PEs when their

services become available. 12/

If the number of patients seen alone by physicians remains

constant, the addition of a PE in a medical practice may reduce

average per visit practice expenses, because the additional

patients seen by the PEs would offset the incremental practice

expenses related to them. For example, the SSI study showed that

practice expenses in solo physician practices that employed PEs

were 74 percent higher than those in comparable solo practices

without PEs. 13/ Total patient volume, however, was 146 percent

higher. Thus, the average per patient visit practice expense of

solo practices that employed PEs was 29 percent lower than

those that did not employ PEs. 14/ Apparently, then, the solo

12/ For a more detailed discussion of the determinants of

physician practice expenses, see Barry S. Eisenberg, "Medical Practice Expenses: Trends, Determinants, and Impact,"

in National Commission on the Cost of Medical Care, 1976-

1977, vol. 2 (Chicago: American Medical Association,

October 1978).

IV Physicians who practice by themselves (solo) or with one

other physician are the predominant mode of medical practice today. Physicians in group practices (three or more

physicians) constitute only about one-fourth of all practicing physicians.

1.4_/ System Sciences, Inc., Survey and Evaluation. The higher

level of practice expense and patient volume in solo practices with PEs may not be attributable solely to the presence of PEs, however, because solo physicians who hired PEs

saw more patients by themselves (63 percent more) than the

physicians who did not employ PEs.

19

.43-364 O - 79 - 5
physicians who hired PEs used them to expand total patient

volume rather than to lessen their own patient load.

If the number of patients seen by physicians decreases

when PEs are incorporated into their practice, PEs may not lower

per visit practice expenses. Significantly lower per patient

visit practice expenses did not occur among group practices

employing PEs. 15/ Those practices with PEs had an average

practice expense per patient visit only 1 percent less than that

in traditional group practices. 16/ This result is somewhat

surprising because the potential for efficient use of PEs is

generally believed to be the greatest in group practices. One

source of the lack of a reduction in average practice expenses

per visit is that physicians in group practices with PEs saw 27

percent fewer patients per week than physicians in comparable

practices without PEs. 17/ There are two possible explanations

for this result. Physicians in group practices may spend more

time with the patients they do see when a PE is available.

Alternatively, physicians may devote the same amount of time per

patient seen but reduce the total amount of time spent in officebased patient care. The physician time freed by having a PE may

be spent in leisure activities, administrative duties, or with

hospitalized patients. 18/

15/ Group practices, as used hereafter, include practices with

two or more physicians.

16/ System Sciences, Inc., Survey and Evaluation.

17 / PEs in group practices also saw slightly fewer patients

than their counterparts in solo practices.

_18/ Disaggregated data that might have distinguished differences

between solo- and group-practice physicians with PEs with

respect to hours worked or length of patient encounter were

not available. In the aggregate, minutes per patient

encounter did not differ significantly between physicians

with PEs and those without PEs. Total time devoted to

direct patient care was 11 percent less for physicians with

PEs as compared with those without PEs, but physicians with

PEs spent more time in consultation and supervision.

20
Per visit practice expenses can also increase as a result

of PE utilization if PEs serve as complements to rather than as

substitutes for physicians. 19/ This occurs because patient

volume changes attributable to the addition of a PE would be

insignificant. 20/

In summary, although PEs can lower per visit practice

expenses, physician behavior and the distribution of patient

care among physicians and PEs determine whether those reductions

actually occur. The available evidence suggests that the use

of PEs in some solo medical practices may have reduced the

"average" practice expense of patient care by almost one-third;

however, similar cost reductions have generally not occurred in

group practices that use PEs. The differential impact of PEs in

solo and group practices may be influenced more by the type of

physician in the two kinds of practice arrangements than the

organizational arrangement itself. If physicians who join group

practices value leisure time more highly than do solo practitioners, they may be more likely to use PEs in order to reduce

their workloads. Physicians in group practices may also use

their freed time to spend with patients in the hospital. Empirical evidence on this point, however, is generally weak.

19/ An example of a PE performing in a complementary role would

be in a medical practice in which the PE sees patients only

after they are seen by a physician.

20_/ See Robert L. Kane, Donna M. Olsen, and C. Hilman Castle,

"Effects of Adding a Medex on Practice Costs and Productivity," Journal of Community Health, vol. 3 (Spring 1978).

21
CHAPTER IV. THE IMPACT OF PHYSICIAN EXTENDERS ON MEDICAL

CARE PRICES AND EXPENDITURES

Although PEs may produce medical services at lower cost

levels than physicians, their presence in the medical sector may

not lower medical care prices or expenditures. The first part

of this chapter examines how PEs affect medical care expenditures by influencing the price and amount of care provided.

The second part of this chapter compares the costs of training

PEs and physicians. I/

THE IMPACT OF PEs ON THE PRICE AND AMOUNT OF MEDICAL CARE

PE Impact on Medical Care Prices

If the utilization of PEs in medical care practices reduces

per visit medical care expenses, their (widespread) utilization

in a competitive market would ultimately reduce medical care

prices. In the current less competitive situation, however,

these savings may or may not be passed along to consumers in the

form of lower medical care prices. If prices remain the same,

the extra practice income may be absorbed by physicians in the

form of greater financial profits, or physicians may earn the

same amount of income working fewer hours.

In fact, the available evidence suggests that modest price

reductions do occur in some medical practices that utilize PEs.

Thus, patients in practices employing PEs sometimes benefit from

lower medical care fees. For example, in 1977, the average

charge per patient visit was $13 in 70 practices with a PE, as

compared with $16.48 in 50 similar practices without PEs (see

Table 3).

Medical care expenditures, as used hereafter, refer to

total spending rather than simply federal spending for

medical care services or for training medical care providers.

22
TABLE 3. AVERAGE CHARGE PER PATIENT VISIT IN PRACTICES WITH

AND WITHOUT PHYSICIAN EXTENDERS, 1977: IN DOLLARS

Average Charge

Type of Practice a/ and Provider per Patient Visit b/

Physician with PE 13.00

Nurse practitioner 8.13

Physician assistant or Medex 12.02

Physician 15.06

Physician without PE 16.48

SOURCE: System Sciences, Inc., Survey and Evaluation of the

Physician Extender Reimbursement Experiment, Final

Report (March 1978).

aj Includes both solo and group practices.

b/ It should be noted that one source of the lower charges in

physician-PE practices could be that these practices were

located to a greater extent in lower income areas with fewer

health resources than the comparison physician-only practices.

Nevertheless, many physicians report that they do not charge

less for services provided by PEs. 2J This issue has generated

considerable controversy. On the one hand, some observers argue

that PE-delivered services should not cost less than physiciandelivered services because of their comparable quality. Other

observers, however, believe that consumers, rather than physicians, should receive the economic benefits (as well as other

_2/ See General Accounting Office, Progress and Problems in

~ Training and Use of Assistants to Primary Care Physicians

(1975).

23
benefits such as improved access to quality medical care) from

the availability of PEs. 3/

PE Impact on Amount of Medical Care Delivered

The annual number of patient visits in practices employing

PEs is on average 50 to 60 percent higher than that in comparable

practices without PEs. 4/ Moreover, a significant proportion

of these additional visits appear to steiji from new patients. _5/

Hence, the major benefit to consumers from the use of PEs appears

to be improved access to medical care rather than reduced prices.

PE Impact on Medical Care Expenditures

Although the impact of physician extenders on total medical

care expenditures has been negligible because their total number

is so small, it is clear that increased utilization of PEs

may result in further increases in medical care expenditures.

3/ Several studies have suggested that hiring PEs may be profitable for physicians. See Robert L. Kane and others, "Effects

of Adding a Medex on Practice Costs and Productivity." See

also Eugene Nelson, Arthur Jacobs, Karyn Cordner, and Kenneth

Johnson, "Financial Impact of Physician Assistants on Medical

Practice," New England Journal of Medicine, vol. 293 (1975);

Mary O'Hara-Devereaux, John Dervin, Len Hughes Andrus, and

Leona Judson, "Economic Effectiveness of Family Nurse Practitioner Practice in Primary Care in California," in Ann

Bliss and Eva Cohen, eds., The New Health Professionals

(Aspen Systems Corp, 1977); Donald Shiff, Charles Fraser, and

Heather Walters, "The Pediatric Nurse Practitioner in the

Office of Pediatricians in Private Practice," Pediatrics,

vol. 44 (July 1969).

_4/ University of Southern California, Collection and Processing

of Baseline Data.

5f Ibid. Of the patients seen in practices with PEs, 20 percent

were new patients as compared with 11 percent in practices

with no PEs.

24
Estimated roughly, in 1977, medical care expenditures in practices employing PEs were 19 to 24 percent higher than they might

have been without PEs. _6/ «

Increasing total medical care expenditures may or may not

be desired. For example, they may be desired if they are the

result of medical services provided to persons previously unable

to obtain care. Further, the increases in primary medical care

expenditures resulting from improved access may be offset by

savings gained from the early detection of illness and a possible

decrease in the utilization of more expensive specialized providers and hospitals. TJ ^n tne

 other hand, if PEs are used to

provide more service-intensive medical care rather than to

improve access to medical care, expenditures will grow, but

improvements in health status may be marginal.

6/ The impact of physician extenders on prices, patient volume,

and expenditures in practices where they were employed in

1977 can be summarized as follows:

Average Total Average Total

per Visit Annual Patient Expenditure

Price Index X Volume Index = Index

Before PE 1.00 1.00 1.00

After PE 0.79 a/ 1.50-1.57 b/ 1.19-1.24

aj Derived from data in System Sciences, Inc., Survey and

Evaluation. See Table 3.

b/ University of Southern California, Collection and Processing of Baseline Data.

l_l Today, many physicians trained in nonprimary care fields

provide substantial amounts of primary medical care. This

is particularly true for internal medicine subspecialists

and general surgeons. For example, about half of all cardiologists spend half of their time providing basic medical

care. See Charlotte L. Rosenberg, "How Much General Practice

by Specialists?" Medical Economics (September 15, 1975).

25
ARE PHYSICIAN EXTENDERS LESS EXPENSIVE

TO TRAIN THAN PHYSICIANS?

On average, physicians are at least five to seven times more

costly to train than PEs, primarily because of their longer

training period. Training expenditures for a medical student are

greater than $60,000, as compared with $11,900 and $10,300 for

a physician assistant or Medex, and a nurse practitioner, respectively (see Table 4). 8/

The federal government provides a greater share of the total

training costs of PEs than it does of physicians, but federal

support for training physicians accounts for more dollars. In

fiscal year 1978, the federal government provided about $190

million to medical schools for basic medical education and

training. These funds amounted to slightly more than $3,000 per

medical student, or about 20 percent of their average annual

training costs. Equivalently, $4,000 to $5,000 in federal aid

was spent for each student enrolled in a PE program. Total

federal payments to PE programs in fiscal year 1978 were about

$22 million, but they accounted for approximately 50 to 70

percent of the average annual PE training costs in federally

supported institutions. 9/

%J Expenditures vary widely among both physician and PE training

programs. Annual training costs for some physician extenders

are thus sometimes quite similar to or more than those for

physicians. Overlapping training costs for the two provider

types are probably a consequence of the fact that PE and

physician training programs (particularly physician assistant

and Medex programs) have similar faculty, equipment, and

clinical training needs.

_9/ In fiscal year 1978, about 40 percent of all nurse practitioner programs and nearly 90 percent of all physician

assistant and Medex programs received federal funds. Nearly

all medical schools, however, received federal aid.

It is difficult to compare federal subsidies to medical

schools and PE programs. Subsidies to nurse practitioner

programs include aid for start-up assistance as well as

(continued)

26
TABLE 4. TRAINING EXPENDITURES a/ FOR PHYSICIANS AND

PHYSICIAN EXTENDERS, ACADEMIC YEAR 1978-1979:

IN DOLLARS PER STUDENT

Annual Cost b/ Total Cost c/

Physician

Mean 14,200 60,700

Median N.A. d/ N.A. d/

Range 7,600-20,800 30,200-83,100

Physician Extender e/

Physician assistant and Medex

Mean 6,800 11,900

Median 7,400 9,900

Range 4,400-9,900 7,100-17,200

Nurse practitioner

Mean 12,900 10,300

Median 10,100 8,000

Range 5,300-31,000 3,000-32,000

SOURCES: Physician training expenditure data are from National

Academy of Sciences, Institute of Medicine, Costs of

Education in the Health Professions, Summary (January

1974). Figures are updated to 1978, assuming an annual

7 percent inflation rate for costs experienced by

medical schools. PE expenditure data are from System

Sciences, Inc., Nurse Practitioner and Physician

Assistant Training and Deployment Study, Final Report

(September 1976). Figures are updated to 1978, assuming that PE programs experienced an inflation rate

similar to that for medical schools.

a/ Net institutional expenditures—that is, gross expenditures

for resources required for educational purposes less income

from research and patient care attributable to training

activities. Net rather than gross expenditures are compared

here because of the lack of gross expenditure data for PE

(continued)

27
TABLE 4. (Continued)

a] (continued)

programs. Gross expenditures to train a physician are 35

percent higher than net expenditures. If PE programs receive

negligible income from patient care or research, the expenditure differentials between physicians and PEs cited in the

table are significantly understated.

_b/ For comparative purposes only. Some PE programs are less

than one year long.

c/ Total cost for physicians assume 4 years of basic medical

education. Total cost for PE programs are based on programs

that vary in length. These cost calculations exclude the

cost of education and training required for entry into

physician and PE training programs.

d/ Not available.

e/ PE data are based on a sample of PE programs that are not

necessarily representative of all programs.

In general, federal subsidies providing training support

in order to increase the number of physicians and PEs have been

successful but expensive ways of producing additional health

providers. The public cost of producing new physicians has been

particularly high. From 1969 to 1978, roughly $40,000 to $60,000

in federal operating subsidies and construction support were

required to produce one additional graduate from medical school

9J (continued)

operational support. Since start-up assistance could not

be disaggregated for nurse practitioner programs, operational

and start-up assistance for medical schools were aggregated

for purposes of comparability.

28
(that is, a graduate who would not have been trained in the

absence of federal support). Federal support of PE programs

has probably been more cost-effective in producing new PE graduates because much of that support has been used to establish

new programs rather than to subsidize the operation of existing

programs. The cost to the federal government for each new PE

was about $10,000 to $20,000. 10/

10 / The public cost of producing new physicians was calculated

by a method presented in George E. Wright, The Efficiency

of Federal Subsidies to Medical Education, a health manpower

policy discussion paper from the School of Public Health,

University of Michigan, April 1974. Annual federal operating subsidies and construction support to medical schools

from 1969 to 1978 less pre-1969 levels of support were

summed and divided by an estimated gain in the number of

physicians due to the net increase in support. A similar

methodology was followed for PE programs, though increases

in PE graduates resulting from federal support had to be

somewhat arbitrarily estimated because of a lack of data.

It was conservatively estimated that the training of onefourth to one-half of all PE graduates during this period

was the result of federal support.

29

"TFT
CHAPTER V. CAN WIDESPREAD EMPLOYMENT OF PHYSICIAN

EXTENDERS BE EXPECTED IN THE FUTURE?

Although PEs can increase access to medical care and decrease medical care prices, if large numbers of consumers are

to enjoy either or both of those benefits, physician extenders

must be incorporated into the health care delivery system in

larger numbers. Assuming that the supply of PEs continues to

increase rapidly, one important issue is whether employment of

this new type of health provider is likely to be widespread.

There are many interrelated determinants of future demand

for PEs; the most important, however, are legal restrictions

on PE practice and reimbursement policies, incentives to employ

PEs in different medical care delivery organizations, perceptions

of the advantages and disadvantages of hiring PEs, and consumer

acceptance.

LEGAL RESTRICTIONS AND REIMBURSEMENT POLICIES

State laws and regulations currently link the medical

practice of PEs directly to that of physicians. Nearly all

states require that medical tasks performed by PEs be delegated

by physicians. In particular, direct physician supervision for

physician assistants and Medex is explicitly required in 43

states. \J Further, some states limit the number of physician

assistants or Medex that a physician can supervise—usually to

one or two. Direct physician supervision is, however, usually

not required for nurse practitioners. Only 11 states mention

the issue of physician supervision of nurse practitioners in

their statutes or regulations. Three states—Alaska, Nevada, and

New Hampshire—recognize self-employed nurse practitioners, who

work in collaboration with or upon referral from physicians.

\J In some of these states, the physical presence of the physician is not required. Telephone contact may constitute

adequate supervision.

30
The independence of PEs is also limited by state policies

on drug prescription. Although many states are now reviewing

current prohibitions regarding PE prescription writing, most

states that have drug prescription policies specify certain

conditions under which various types of PEs may prescribe drugs;

for example, if there is a countersignature by a supervising

physician. At least eight states, however, prohibit PEs from

writing any prescriptions. 2J

Third-party reimbursement policies also closely link PEs to

supervising physicians. Few public or private health insurers

recognize PEs as bona fide providers of medical care. Thirdparty payments, when provided for PE services, are almost always

provided to employing physicians and institutions rather than

directly to PEs.

Federal PE reimbursement policies have recently changed

to provide reimbursement for PE services under less restrictive

requirements for physician supervision. When a PE is employed in

a health care institution, the inclusion of PE compensation as

part of an institution's "reasonable cost" basis has always been

allowed for reimbursement purposes. Before 1977, however,

federal payments for primary medical care services provided by

PEs were generally not available. _3/

 Tne

 Rural Health Clinic

Services Act of 1977, authorized federal payment to certified

rural health clinics for primary medical care provided by PEs

when a physician may only be available for indirect supervision

and consultation. 4/

2^1 For a more detailed discussion of state statutes and regulations governing physician extender medical practice, see

Miller and Byrne, Inc., Review and Analysis of State Legislation and Reimbursement Practices of Physician's Assistants

and Nurse Practitioners, Final Report (January 1978).

_3/ Medicare payment for services provided by PEs was available

if those services were not traditionally provided by physicians and were performed in the presence of a physician.

Thus, this condition precluded reimbursement for the very

services PEs were trained to provide.

4/ Public Law 95-210.

31
As a result of these legal and reimbursement restrictions,

most PEs in private practice must practice under the general

supervision of a physician.

If state policies regarding PE practice became less restrictive and if PEs could be reimbursed directly for their services,

the establishment of independent PE practices might expand. A

development of this kind would make future demand for PEs directly sensitive to consumer demand for medical care, rather than

to physician demand for an extra pair of hands. At present,

the American Nurses' Association estimates that only about 300

such practices exist. 5_/

Changes in state policies governing the practice of PEs and

reimbursement mechanisms are likely to occur slowly. Although

there has been a trend toward relaxing the requirements of physician on-site supervision, especially in predominantly rural

states, medical practice legislation is generally developed in

consultation with the medical profession, which may have a vested

interest in restricting the independent practice of physician

extenders. In addition, public and private insurers fear the

fiscal consequences of funding a new type of health provider,

especially when some of the services they provide (such as health

education and nutrition counseling) are also provided by other

types of health workers, who may also wish to receive thirdparty payments. The recent change in federal policy concerning

the reimbursement of PEs may, however, mean that other insurers

may also be willing to relax their reimbursement policies.

INCENTIVES IN DIFFERENT MEDICAL CARE DELIVERY ORGANIZATIONS

Incentives to employ PEs differ among different types of

medical care delivery organizations, depending on their budget

constraints and physician payment mechanisms.

Health care organizations operating under fixed budgets—

for example, nursing homes and neighborhood health clinics as

opposed to physician offices, which are usually fee-for-service—

_5/ Most of these practices may be providing traditional nursing

services rather than primary medical care.

32
have clear incentives to substitute PEs for physicians wherever

possible, if physicians are salaried rather than paid on a

fee-for-service basis. About half of all physician assistants

and Medex, and about 80 percent of all nurse practitioners, are

employed in such organized health care delivery settings. 6J If

a large share of total revenues come from third-party payers on

the basis of costs, the incentives are somewhat lessened, because

the costs of more expensive physicians may be passed on as

easily as the costs of less expensive PEs. Prepaid group practices, in which total revenues equal the product of a fixed

payment for each person enrolled and the number of enrollees,

are particularly likely to hire physician extenders in order

to maximize the difference between total payments and total

expenses. For instance, in 1977, one type of prepaid group

practice—(federally qualified) health maintenance organizations

(HMOs)—provided medical services to their members with a fulltime equivalent of 0.44 PEs for each physician, as compared with

0.07 PEs for each office-based physician in the nation. TJ

Although the results of several surveys of physicians suggest that many physicians believe the PE concept to be a good

one, a recent survey (1976) found that, of those physicians who

did not employ a physician assistant or Medex, only about 15

percent reported that they would be willing to hire one. That

survey response translates into a demand for about 20,000 physician assistants or Medex. 8/ Moreover, physicians who practice

by themselves—the majority of all physicians—seem less receptive toward hiring a physician assistant or Medex than physicians

in group practices.

6_/ About half of physician assistants and Medex, and about

20 percent of nurse practitioners work in physicians' offices. See Richard Scheffler, The Supply and Demand for New

Health Professionals: Physician's Assistants and Medex,

Final Report (November 1977); and Sultz and others, "Highlights: Phase 2."

TJ Unpublished data from the HEW, Office of the Assistant

Secretary for Health, Office of Health Maintenance Organizations.

8/ Scheffler, Supply and Demand. No comparable data were

available for nurse practitioners.

33
The overall low level of demand for PEs among physicians

in private practice may result in part from the fact that they

have few economic incentives to hire PEs. Even though PEs may

increase physician earnings, physicians already earn relatively

high incomes. Hence, the value solo practitioners place on

additional income may not outweigh the perceived disadvantages

of having a PE—for example, relinquishing patient care responsibility. Further, the noncompetitive nature of the market for

medical care provides physicians with little reason to produce

care at a lower cost.

The anticipated growth in the supply of physicians may

reduce demand for PEs, particularly for physician assistants

and Medex. Many health planners fear that the United States

will face an aggregate oversupply of physicians. By 1990, some

594,000 physicians are expected to be active—about 38 percent

more than today. Approximately 42,000 new PEs are also expected

to become available. The effective supply of physician equivalents will therefore grow from about 200 to approximately 253 per

100,000 persons. At the same time, the demand for physicians'

services will range from 221 to 232 physicians per 100,000

persons. _9_/ If more physicians become available than are necessary to meet demand, average patient load may decline. 10/

Overall demand for a physician assistant or Medex could then

decline since a physician's willingness to hire these types of

_9/ U.S. Department of Health, Education, and Welfare, Health

Resources Administration, Bureau of Health Manpower, Report

to the President and Congress.

10/ Some analysts believe that physicians can control the level

of demand for their services by varying the quantity of

services provided per patient. If doctors can "induce

demand" for their services, the current propensity of physicians to hire PEs would probably be less affected by a

growing supply of physicians. It is much more likely that

physicians can vary services only within certain limits and

that the growth in the physician supply may be large enough

to result in a decline in the average patient demand per

physician.

34
PEs appears to be related to the level of demand for the physician's services. 11 / An increase in the supply of physicians

might therefore shift the role of PEs from providing medical care

to providing support services to physicians. If this occurs, the

likelihood of physicians employing PEs (nurse practitioners, in

particular, because of the nature of services they provide) may

remain the same or increase.

Because ambulatory care clinics and HMOs have economic

incentives to hire PEs, recent efforts to encourage the growth of

HMOs deserve special mention. As these systems grow, so will

the demand for physician extenders. Moreover, if the savings

generated by physician extenders take the form of investment in

more comprehensive services or reduced payment rates to HMO

members, the competitive position of HMOs may be enhanced. This

would further stimulate growth and the demand for PEs. The

growing popularity of group practice in general may also increase

demand for PEs, although, as noted earlier, patient volume may

not substantially increase.

PERCEIVED ADVANTAGES AND DISADVANTAGES

OF HIRING PHYSICIAN EXTENDERS

Physicians' perceptions of the benefits and disadvantages

of hiring a PE provide additional insight into the future employment prospects of PEs. The reasons most frequently cited

by physicians for hiring PEs are to improve the quality of care

by enabling them to spend more time on complex cases, expand

the amount of patient education, and increase the attention

given to secondary problems or symptoms. Increasing the number

of patients in the practice and providing care for persons

previously uncared for have also been cited as reasons for

ll/ In addition, there is some evidence that physician demand

for physician assistants and Medex may decrease if they

become more expensive relative to nurses. Hence, projected

large increases in the future availability of nurses may

tend to depress nursing salaries and, correspondingly,

physician demand for PEs. See Scheffler, Supply and Demand.

35
II:

using PEs. Few physicians cite a desire to earn more income,

though increased income has been a major result. 12/

In two national surveys, physicians and other persons who

hire PEs cited a number of barriers to hiring PEs. In order of

importance, major obstacles in hiring physician assistants and

Medex were a lack of need for any additional personnel and budget

constraints, legal restrictions and reimbursement constraints,

and a lack of acceptance by patients and physicians themselves

(see Table 5). Major perceived barriers to hiring nurse practitioners were legal restrictions, space limitations, and resistance from other health providers. Other perceived obstacles to

employing PEs were a diminished physician-patient relationship,

low quality of care, and legal and reimbursement ambiguities.

Over time, many of these perceived problems may disappear,

as physicians and consumers gain more knowledge about the performance of PEs. If this occurs, demand for PEs might grow.

CONSUMER ACCEPTANCE

Consumer acceptance is another determinant of demand for

PEs. Not surprisingly, unfavorable attitudes toward PEs are

more prevalent among consumers who have not received care from

a PE than among those who have received PE care. Once consumers

have received care from a PE, acceptance of and satisfaction

with the care is generally high. 13/ For example, patient

attitudes were measured in one study of Medex in 10 medical

practices. Before the Medex were introduced, only 48 percent

12/ The performance of PEs in various settings has fulfilled

one or more of these desired results. See System Sciences,

Inc., Survey and Evaluation, and Sultz and others, "Highlights: Phase 2." One exception is that physicians with

PEs do not appear to see proportionately more complex

cases than those without PEs, nor do they spend more time

with their patients. See University of Southern California,

Collection and Processing of Baseline Data.

1.3/ Gloria Ruby, National Academy of Sciences, Institute of

Medicine, "Consumer Acceptance of Nurse Practitioners and

Physicians Assistants," Staff Paper (January 31, 1977).

36
TABLE 5. PERCEPTIONS OF MAJOR BARRIERS TO EMPLOYING

PHYSICIAN EXTENDERS

Barriers to Employing Percent of Physicians

Physician Assistants and Medex Citing Barrier a/

Lack of need for any additional

personnel, budget constraints 41

Legal constraints, malpractice

insurance, and third-party payment

problems 24

Lack of acceptance by

patients and physicians 18

Barriers to Employing Percent of Employers

Nurse Practitioners Citing Barriers _b/

Legal restrictions 31

Space limitations 25

Resistance from other health

providers in practice 23

Resistance from other health

providers outside the practice 20

SOURCES: Richard Scheffler, The Supply and Demand for New Health

Professionals; Physician's Assistants and Medex,

Final Report (November 1977); and Harry Sultz, Maria

Zielezny, and Jane Mathews, "Highlights: Phase 2 of a

Longitudinal Study of Nurse Practitioners," in Michael

Millman, ed. , Nursing Personnel and the Changing Health

Care System (Cambridge, Mass.: Ballinger, 1978).

a/ According to 2,590 physicians who responded that they would

not hire a physician assistant or Medex in a 1976 nationally

representative survey of 3,076 physicians.

_b/ According to a 1976 survey of all employers of nurse practitioners who graduated between May 1974 and June 1975.

These employers included physicians as well as persons in

hospitals, community health clinics, nursing homes, and

other health care delivery settings.

37

7HT
of the patients favored the concept; after the Medex had been

practicing for about 10 months, patient acceptance increased

to 76 percent. 14/

Actual consumer behavior may provide the best clue to

consumer willingness to obtain services from PEs. In most

research on patient behavior, consumer acceptance is usually

measured by participation in the study, switching from the

assigned provider, or missed or broken appointments with the

assigned provider. 15/ In one such study, acceptance of nurse

practitioners among mothers of infants who received pediatric

care from either a pediatrician or pediatric nurse practitioner

was high. Mothers were free to change providers at any time.

Seventy-five percent oJ: the mothers invited to participate in the

study accepted, most of the participants stayed with the assigned

provider, and no statistically significant differences between

broken or missed appointments were found between patients assigned to the two types of providers. 16/

As the number of PEs increases and information about their

performance become more widely available, more consumers may

accept and support the medical practice of PEs. Consumer acceptance may, however, be affected by a number of unpredictable

14/ See General Accounting Office, Progress and Problems.

15/ Attitudinal surveys of patient satisfaction with care provided by physician extenders also provide information about

patient acceptance. This information, however, is less

reliable than behavioral research.

16/ Burnip and others, "Well-Child Care by Pediatric Nurse

Practitioners in a Large Group Practice: A Controlled

Study of 1,152 Preschool Children," American Journal of

Diseases of Children (January 1976). Similar findings for

different types of physician extenders were obtained in

Spitzer and others, "The Burlington Randomized Trial of

the Nurse Practitioner," and Anthony Komaroff, "Protocols

for Physician Assistants: Management of Diabetes and

Hypertension," New England Journal of Medicine, vol. 290

(February 7, 1974).

38
factors, such as the personal qualities and characteristics of

PEs, and the manner in which their qualifications and r-bilities

are explained to the patient. Physicians' reassurances about the

appropriateness of PEs delivering some types of care may also

be necessary, which could imply some consumer resistance to

PEs practicing more independently of a physician. Finally,

the degree to which other factors, such as the availability

of physicians' services and changes in fee structures, affect

consumer acceptance of PEs is unknown. For example, an expanded

National Health Service Corps (NHSC) could substantially increase

the supply of physicians in currently underserved areas. 17/

Such an expansion could reduce consumer acceptance of PEs, even

if they provided care at a lower cost.

CONCLUSIONS

As consumers and physicians gain more information about PEs,

they are likely to become recognized as bona fide medical providers. Ambulatory care clinics and prepaid group systems have

economic incentives to hire PEs; thus, the demand for PEs will

probably grow as these types of delivery systems grow. But

future demand for PEs among physicians in private practice—who

constitute the bulk of all practicing physicians today—is very

uncertain. On the one hand, if legal and reimbursement policies

governing PE practice become less restrictive, demand for PEs

among physicians might increase. On the other hand, the anticipated increase in the supply of physicians could reduce the

demand for PEs. On balance, under current policy, extensive

demand for PEs in private medical practices is likely to be

limited to those areas where physicians are scarce and patient

demand is high.

111 The National Health Service Corps is a major federal program for alleviating shortages of medical providers in

underserved communities. In return for scholarships,

medical students agree to at least two years of service in a

designated community. Practice start-up grants are also

available if NHSC physicians decide to practice in their

placement area after their service obligation is fulfilled.

By 1985, about 3,000 to 4,000 physicians are expected to be

placed in shortage areas.

39
CHAPTER VI. COMMENTS ON THE FUTURE USE OF PEs

AND FEDERAL OPTIONS

During the 96th Congress, the Congress will decide how much

federal assistance should be provided to PE training programs

and whether legislation authorizing federal aid to some of those

programs should be continued. _!/

Decisions about whether the federal government should

encourage and support the large-scale use of PEs depend, however,

on the resolution of broad policy issues involving large-scale

changes in the delivery of health care in the United States.

Thus, this chapter assesses the impact of alternative options

for federal support of PEs under two scenarios. The first

assumes little change in the existing medical care delivery

systems—that is, a continuation of current health care policies

and other programs. The second assumes that major structural

changes in the delivery and financing of health care occur. It

is important to remember, however, that assessments of the impact

of PEs under these scenarios are constrained by the limited

amount of available data. 2/

37 The Nurse Training Act of 1975, which expired in 1978,

authorized federal assistance to nurse practitioner programs.

Nurse practitioner programs are now being funded under a

continuing resolution. The Health Professions Educational

Assistance Act of 1976, which authorizes federal assistance

to physician assistant and Medex programs, expires in 1980.

2_l Some questions that are not yet resolved with existing data

include:

o How do different medical care practice arrangements affect

the utilization of PEs?

o How is physician behavior (with respect to hours of work

and fee setting) influenced by the presence of PEs?

and

(continued)

40
OPTIONS UNDER A CONTINUATION OF CURRENT POLICIES

The available information on the impact of PEs suggests

that, if the medical care system continues essentially unchanged,

the most significant effects on an increased availability of

PEs are likely to be improved access to and quality of primary

medical care. But lower medical care prices for consumers who

receive services from PEs are not likely to be systematically

realized for two reasons. First, the price and amount of services provided by PEs are determined by physicians. Second, the

supply of physicians is growing and this trend may cause physicians to use PEs to provide support services rather than medical

care.

Within this context, the Congress might wish to pursue

either one of two broad policy alternatives to current federal

programs that support PEs: current federal aid to PE programs

could either be eliminated or substantially reduced, or existing

programs could be continued or incrementally changed in order

to improve their effectiveness.

Reduce or Eliminate PE Training Support

The first option—to reduce or eliminate PE training program support—might be desired if the Congress believes that

short-term reductions in total medical care expenditures are of

higher priority than improving access to medical care. Medical

expenditures might be lowered below otherwise expected levels

by the decrease in expenditures to train PEs and by the fact

that fewer PEs would be providing medical care. A policy that

reduces PE-related expenditures may, however, be short-sighted

if PEs prevent greater medical care expenditures in the long

run. This option would probably have the greatest impact on

physician assistant and Medex programs, which appear less successful in generating private sources of support than nurse

practitioner programs. It is likely that many programs that

rely heavily on federal support would close.

2J (continued)

o How does the availability of third-party payments to

physicians for services delivered by PEs affect the price

and amount of service delivered by the physicians and

PEs?

41

1UT
.ML

Incremental Changes to Current Programs

On the other hand, if the Congress is concerned with improved access to medical care, one broad policy alternative that

might address this concern within the context of the current

medical care delivery system involves incremental changes in

existing programs that support PE practice. Options for these

incremental changes include strengthening federal grant eligibility requirements for PE training programs, expanding the

number of PEs in the NHSC, and modifying federal PE reimbursement

policies. (Other options could also improve access to medical

care—for example, expanding the number of physicians in the

NHSC, but greater use of PEs rather than physicians would be

less costly.)

The increasing supply of physicians implies that PEs would

be most needed and be most effectively used in rural and innercity areas that have difficulty attracting physicians. Physicians in these areas are likely to face heavy patient loads and,

thus, use PEs to expand the amount of medical care provided.

Nonetheless, a continuation of current PE practice restrictions

would prevent some communities with no physicians from utilizing

PEs. One simple action that might increase the number of practicing PEs in underserved areas would be to require that PE

training programs actively develop inner-city or rural training

components and mechanisms to place graduates in those areas.

Some PE training programs now take this approach, which has been

effective. _3/ This requirement could, however, increase the

costs of some PE programs, resulting in more appeals for federal

aid.

A second option would be to provide NHSC scholarships to

more students in PE programs than currently receive them. The

NHSC has been successful in identifying nurses from underserved

areas who are interested in obtaining PE training and providing

them with scholarship support. Only a small number of such

scholarships can be provided for PE training, however, because

90 percent of all NHSC scholarships, by law, must be provided to

medical and dental students. In fiscal year 1979, $60 million

was provided for NHSC scholarships. Nearly 5,000 scholarships

_3/ See General Accounting Office, Progress and Problems.

42
were received by medical and dental students, but fewer than

600 were for all other health care students, including PEs. At

no additional federal cost, a more flexible policy in which

a greater percentage of NHSC scholarships were granted to persons

from underserved areas interested in obtaining PE training could

help alleviate shortages of medical providers in underserved communities more quickly than providing NHSC scholarships only to

medical students. For example, the federal cost of providing

a NHSC scholarship annually for four years of training for a

student at Georgetown University School of Medicine and two

years of practice at a NHSC site could support the training and

two years of NHSC practice of approximately three PEs. kj The

NHSC could continue its current practice of placing NHSC teams

rather than a sole NHSC worker in designated communities. Instead of placing two physicians, however, a physician and a PE

might serve equally as well.

A third alternative would be to extend medicare and medicaid

reimbursement to physicians in rural and inner-city areas for

services provided by PEs with only limited physician supervision.

This option would increase the availability of primary medical

care services or, at least, would reduce financial disincentives

for physicians in these areas to hire PEs. Migration of PEs

into these areas would thus be facilitated.

A more liberal reimbursement policy would slightly increase

federal medicare and medicaid expenditures, but these increases

might be offset by reductions in medical care spending in the

long run. If such reimbursement had been provided in fiscal year

1979 and if PEs had been reimbursed at the same rate as physicians, federal medicaid and medicare expenditures would have

increased by roughly $40 million or less than 0.1 percent. These

expenditures would continue to increase as more PEs located in

reimbursable areas. Spending increases would be lower, however,

if PE services were reimbursed at lower rates than physician

services.

_4/ Currently, Georgetown University Medical School has the

highest tuition charges of all U.S. medical schools and a

disproportionate number of NHSC scholarship recipients.

43
MAJOR CHANGES IN THE MEDICAL CARE DELIVERY SYSTEM

THAT WOULD ENCOURAGE THE EFFECTIVE USE OF PEs

If certain fundamental changes in the financing or delivery

of medical care that encouraged the effective use of PEs were

sought, more extensive federal training support for PEs and less

restrictive federal reimbursement policies might be desired.

Examples of such major changes in the medical care delivery

system include:

o Implementation of a comprehensive national health insurance plan that provided more extensive coverage of

primary medical care than exists today;

o Greater development of HMOs and more independent medical

practice by PEs; and

o A limitation on the future supply of physicians.

Comprehensive National Health Insurance

If the Congress decided that comprehensive health insurance

coverage for those persons not now covered were a desirable

policy goal, greater federal support for the development and

expansion of existing PE training programs might also be desired.

A comprehensive national health insurance plan, extending

current levels of insurance coverage for primary medical care

services, would substantially increase consumer demand for primary medical care. _5/ A large increase in demand would probably

be more than the present or expected supply of primary care

_5/ Some analysts estimate that a national health insurance plan

with a 25 percent coinsurance rate would increase the demand

for ambulatory care by 30 percent, and that a comprehensive

national health insurance plan with no coinsurance would

increase demand by 75 percent. See Joseph Newhouse, Charles

Phelps, and William Schwartz, "Policy Options and the Impact

of National Health Insurance," New England Journal of Medicine, vol. 290 (June 1974).

44
physicians could accommodate. _6/ A cost-effective way to satisfy

the increase in patient demand would be to train more PEs rather

than physicians because of lower PE training costs. Physicians

—facing heavier workloads—would probably be more receptive to

hiring PEs than they are today and more willing to use them to

expand the amount of patient care provided.

Providing reimbursement to physicians for services delivered

by PEs would further encourage them to hire PEs. Implementation

of a comprehensive national health insurance scheme would provide

an opportunity to restructure current physician and PE reimbursement policies in order to provide incentives for physicians

to utilize PEs more effectively. Medical care prices that more

closely reflected the cost of providing medical care services

might result. Reimbursement for medical services might be based

on the type of service and the most efficient and appropriate

provider of the service. 7J Hence, reimbursement for medical

tasks appropriately performed by physician extenders would

reflect their lower costs. For example, reimbursement for a

physical exam might be $10 regardless of whether a physician

or a PE provided it. More complex services would be reimbursed

at higher levels. As a result, physicians would be encouraged

to delegate low-cost services appropriately performed by PEs

in order to concentrate on more complex and higher priced services. 8/

j6/ According to the Institute of Medicine of the National

Academy of Sciences, the current and projected supply of

primary care physicians is and will be inadequate to meet

the primary care needs of the nation, even if no NHI plan

is enacted. See A Manpower Policy for Primary Health Care

(May 1978).

T_l Stuart Schweitzer and others, "Third-Party Payments for New

Health Professionals: An Alternative to Fractional Reimbursement in Outpatient Care," Public Health Reports (December 1977).

8/ This system could apply to types of physicians as well. A

specialist and a general practitioner would be reimbursed

at the same rate for a service appropriate for a general

practitioner to provide. In fact, the Institute of Medicine

of the National Academy of Sciences has proposed such a

(continued)

45
HMO Development and Independent PE Practice

Greater federal support for PEs would also be consistent

with a policy goal of making the medical sector more competitive—and thus, more cost-conscious—by promoting nontraditional

medical care delivery organizations, such as HMOs and the independent practice of PEs.

As discussed earlier, because HMOs tend to make more intensive use of PEs than other types of medical care delivery

organizations, the need for more PEs would grow if more HMOs

develop. Fewer PEs would be needed if a comprehensive national

health insurance plan were enacted since HMOs are not likely to

become a predominant form of medical care delivery even with

rapid growth—a ten-fold increase in HMO enrollment by 1990 would

involve only about one-fourth of the total population. But more

rapid growth of prepaid group practices could create pressure for

(continued)

service-based reimbursement policy regardless of physician

specialty in A Manpower Policy for Primary Health Care. One

problem—a tendency for physicians to perform more complex

procedures—might be minimized by strengthened peer review

and second opinion programs.

An analogue to this reimbursement scheme exists in maximum allowable cost programs for prescribed drugs. Reimbursement rates are set below the usually higher priced brand-name

drugs to encourage substitution of equivalent, lower priced

generic drugs.

This method of reimbursing physicians and PEs may be

one alternative to a more general problem of how to provide

incentives through reimbursement mechanisms for physicians

to provide care efficiently in the absence of competitive

forces. If reimbursement schedules can be aligned with the

lowest cost levels of providing a service, desirable effects

on medical care prices may result. More research is needed,

however, on how reimbursement policies affect physicians'

fees.

46
the fee-for-service sector to produce care at a lower cost. 9/

Thus, the demand for PEs in other settings—in particular, Tn

physicians' offices—might also increase, as physicians sought to

be more economical providers of medical care. An indirect

result, then, of more widespread HMO growth would be a need to

train fewer physicians because their capacity to treat patients

would be expanded by using PEs.

Similarly, an alternative delivery mode in which PEs might

play a greater role would be independent practice of PEs. One

form of independent practice by physician extenders would involve

self-employment but adequate access to a physician for consultation and referral. This implies that a physician's physical

proximity is not required for a PE to deliver adequate care.

Mechanisms that ensure that PEs obtain necessary physician

consultation and limit PE practice to appropriate medical tasks

would, however, be essential.

Independent practice by PEs might also reduce medical care

prices by fostering competition in the medical care sector. 10/

Physicians would be motivated to use resources—including their

own time—more efficiently, and the benefits of the resulting

lower cost methods of delivering care with physician extenders

would be passed along to consumers. Although there has been

little experience with independent PE practices, in areas where

independent nurse practitioner practices have been established,

fees are set well below prevailing fees in physicians' practices.

More independent PEs may be a weak mechanism for establishing

competitive practices, however, if their numbers remain small.

9J The ability of HMOs to create competitive forces in some

areas where they have developed has been documented. See

Federal Trade Commission, Staff Report on the Health Maintenance Organization and Its Effects on Competition (1977).

10/ B. C. Agree, "Beginning an Independent Nursing Practice,"

American Journal of Nursing (April 1974), and H. C. Lave,

"Promoting an Independent Nursing Practice," American

Journal of Nursing (August 1975).

47
Physician Supply Limitation

If the Congress wished to constrain future increases in

the supply of physicians in order to reduce expenditures for

medical care or for training providers, current levels of demand

and need for PEs would be considerably increased. If federal

subsidies to train physicians were reduced, savings might occur

because physicians are much more costly to train than PEs. Moreover, federal spending on medical services might decline if

routine ailments once cared for by physicians were treated by

PEs. The magnitude of any such reductions would, however,

depend on how PE and physician reimbursement policies are structured.

Under this option, substantial increases in federal operating and start-up support for PE training programs as well as

more liberal reimbursement policies for services provided by PEs

would be desirable. Since many of the medical problems experienced by the population are basic and uncomplicated, expansion

of the PE supply in concert with constraining the physician

supply might not reduce access to medical care. In fact, geographic disparities in the availability of primary care services

might improve, because PEs are less likely than physicians to

locate in doctor-rich areas. The efficiency of the current

system, however, would greatly improve as more medical service

of a less complex nature would be provided by more providers

with less specialized training.

48
APPENDIX
APPENDIX A. RESEARCH ON THE FINANCIAL IMPACT OF

PHYSICIAN EXTENDERS ON MEDICAL PRACTICE

The focus, methodology, and quality of research on physician

extenders (from which the findings in Chapter III are derived)

vary widely. Because few studies are controlled experiments or

evaluations of the performance of PEs in all kinds of medical

practices, their results can be generalized to only a limited

degree. Furthermore, research has concentrated on medical care

practices already employing PEs rather than on the impact of

adding PEs to those practices. Most evaluative research has

focused on the issues of quality of care or productivity. Since

there is more consensus on these issues, germane and reliable

studies are simply footnoted throughout the paper, rather than

described here. The research on the impact of PEs on medical

practice expenses, fees, and revenues is less conclusive and

hence is summarized below.

Two studies on the financial impact of PEs have been undertaken as part of the physician extender reimbursement experiment

funded by the Health Care Financing Administration of HEW. The

first study was conducted by the Division of Research in Medical

Education of the University of Southern California. The results

of this study are reported in Collection and Processing of Baseline Data for the Physician Extender Reimbursement Study, Final

Report (August 31, 1978). This study is a national crosssectional survey of primary care physician practices that employ

nurse practitioners, physician assistants, or Medex and a comparison group of similar physicians that do not employ physician

extenders. Data concerning the productivity and utilization

of physician extenders were obtained during 1974-1977 from a

survey of 1,023 physician extender practices and 975 physician

control practices. The USC study has several assets. It includes a geographically representative sample of PE practices,

is the largest controlled study of physician extender practices

to date, and is also the most recent. Consequently, the USC

findings may be best generalized to the total PE population of

all the available physician extender studies. Unfortunately, a

major flaw is that it studies a self-selected, rather than a

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statistically valid, sample of PE and physician practices.

Self-selected physicians may possess characteristics that distinguish them from physicians who declined to participate in

the survey.

The second study is System Sciences, Inc., Survey and

Evaluation of the Physician Extender Reimbursement Experiment,

Final Report (March 1978), which validated the data collected

in the USC study and collected additional data for analysis. Of

the practices included in the USC study, 70 physician extender

practices and 50 control practices were selected for on-site

visits and collection of data pertaining to practice characteristics and costs. In addition, System Sciences evaluated the

quality of medical care provided by physicians and physician

extenders. The System Sciences study provides detailed information on practice costs and physician extender performance for a

much larger group of practices than nearly all other physician

extender research. Its internal validity suffers from the fact

that the PE practices studied tended to be located in health

resource-poor areas to a greater extent than control practices

without PEs. Also, group practices with PEs differed from

matched control practices in that they tended to have a larger

number of physicians. These differences in practice characteristics slightly bias the study's findings. The study also suffers

from the same flaw as the USC study—it lacks a random sample.

In "Effects of Adding a Medex on Practice Costs and Productivity," Journal of Community Health, vol. 3 (Spring 1978),

Robert L. Kane, Donna M. Olsen, and C. Hilman Castle take a more

reliable methodological approach than the first two studies.

Their study utilizes both cross-sectional and time series data.

Changes in total revenue, practice expenses, and patient volume

were examined in a group of 12 practices both before and after

the hiring of a Medex and were compared with similar data for

a set of matched control practices that did not hire a Medex.

Data for each practice were collected at several intervals over

a four- to five-year time period. The generalizability of this

study, however, is limited by the small number of practices

studied and because only one type of physician extender in only

one geographic location was studied. Furthermore, the differences between the Medex and comparison practices along the

several dimensions studied were found not to be statistically

significant for most of the practices studied.

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"HIT
JiLL

The efficiency and costs of care delivered to patients by

physician extenders and physicians in a single health maintenance

organization (HMO) were compared in Sheldon Greenfield, Anthony

Kamaroff, Theodore Pass, Hjalmar Anderson, and Sharon Nessim,

"Efficiency and Cost of Primary Care by Nurses and Physician

Assistants," New England Journal of Medicine, vol. 29 (February

9, 1978). Two hundred patients with any of four common acute

complaints were randomly assigned to either a physician or

a physician extender. An additional group of patients (not

randomly assigned) received care from either type of provider.

No significant variation in efficiency or cost of care was

found between the two patient groups. This study involved a

nearly ideal methodological approach and complete data collection. The data included provider time spent with patients,

provider time spent in consultation, provider salary rates,

cost of laboratory tests, and medications ordered, as well as

frequency of patient return visits and hospitalizations. The

generalizabiity of the findings is limited, however, because only

one prepaid primary care practice was studied.

An empirical and theoretical assessment of the financial

impact of physician assistants on a prepaid group practice was

undertaken by Jane C. Record and Joan E. O'Bannon, Cost Effectiveness of Physician's Assistants, Final Report (1976). This

study included a detailed analysis of the costs and performance

of physician assistants employed by the Kaiser-Permanente prepaid group practice in Portland, Oregon. Data were collected

by observation and examination of Kaiser patient records. Although few faults can be found with the methodological approach

undertaken, the results pertain to only one type of physician

extender practicing in one setting. Thus, the authors' findings

may not necessarily characterize PEs in other settings.

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