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The Hidden Force That Drives Up Healthcare Costs

The Hidden Force That Drives Up Healthcare Costs

By: Eric Bricker, MD

A referral is when a doctor tells a patient that they need to see another doctor—typically with a different area of expertise. 


For example, a primary care physician may refer a patient with acid reflux (i.e. ‘heartburn’) to a gastroenterologist. 


The frequency of referrals is a major driver of healthcare cost for an employer-sponsored health plan because referrals to specialists frequently result in tests and procedures—many of which are unnecessary. 


In the above example, a primary care physician can prescribe an antacid medication as a therapeutic trial for the patient and only if that treatment does not work, would he or she potentially need to refer the patient to a gastroenterologist. 


Referring the patient to a gastroenterologist before trying the antacid is unnecessary. 


Problem: referral rates by primary care physicians are rising and highly variable across primary care practices. 


In 1999, only 4.8% of primary care visits resulted in a referral.1 Almost 20 years later in 2018, the referral rate increased to 20%.2 


In other words, referrals went from 1 in 20 visits, to 1 in 5 visits… a 500% increase! 


Additionally, referral rates are highly variable across primary care physician practices.  A study in 2021 found that referral rates for primary care physicians ranged from 10% of visits to 28% of visits… and almost 3-fold difference.2 





Reasons Why Primary Care Referral Rates are Rising and Variable 


  1. More primary care physicians are now employed by large hospital systems that have purchased previously independent practices.  Hospitals strategically acquire primary care practices intentionally to capture primary care referrals to specialists at their hospital and therefore, drive patients to their facility for tests and procedures. 


  1. Primary care physicians differ in their approach to patient care, with some referring out to specialists for conditions that historically could be addressed in the primary care clinic and others conversely continuing to provide the majority of care for their patients. 


Implications for Employer-Sponsored Health Plans 


Employers would be wise to pay attention to how referrals are affecting the cost and quality of care provided to their health plan members.  Referrals are an incredibly powerful force. 


Employers can and should play a role in referrals given their importance. 


Employers have a major tool that is completely within their control to impact changed:  Plan Design. 


A plan design that varies copays to plan members based on physician quality metrics—including appropriate referral rates—is an easy-to-understand way for plan members to translate doctor quality into their own out-of-pocket cost. 


Great doctor, lower out-of-pocket cost. 


Not-so-great doctor, higher out-of-pocket cost. 


The good news is there are a lot of great doctors in the community and an employer does a great service by having their members see these fantastic clinicians.