The AMA News leads off this week with an update on Medicare reimbursement: Unless Congress acts very quickly, doctors who see Medicare patients will see their fees cut by 10.1% starting January 1st. The way Congress has been working lately, it is unlikely that there will be any progress on this issue any time soon. As a result, most people involved think likely that the cuts will take effect.
I have written about this before, at length, and will summarize my point of view. The fee cut is unfair, since physicians face rising prices (wages, taxes, rents, insurance, utilities) just like anyone else. Imagine the bind a gas station owner would be in if the cost of gasoline rose by 4% and he was required by law to charge his customers 10% less. (Federal law prohibits doctors from charging patients more than Medicare will pay.)
One could argue that doctors are rich and can afford a little pay cut. But remember that much of a doctor’s fee goes to overhead, the costs involved in keeping an office staffed and operating. Overhead costs are relatively fixed, and run at about 50% for most offices. (For specialist clinics that use a lot of expensive equipment, such as dermatology or surgery, overhead can be much higher.) If overhead costs are fixed, all of the 10% cut comes out of the doctor’s profit, which is his take home pay. Now we do some simple math: 50% (the doctor’s cut after overhead) – 10% = 40%. If the doctor, who once got 50 cents per dollar now gets 40 cents (with the other 10 going back to the feds), he now gets 40/50, or 80% of his old pay. This is a 20% cut, a significant reduction no matter how rich you are.
This is not simply a short term issue. Unless the Medicare law is completely rewritten there will be the cuts will recur annually, indefinitely. Many people are fond of saying that the U.S. has the “best health care system in the world.” While this observation depends on how one defines “best,” it is nonetheless fair to say that we will not be best for long if reimbursement cuts force doctors to start refusing care to the elderly.
My favorite quote from the AMA News article is this one:
Fee calculations also were affected by the three-year update of geographic adjustment factors in this year's rule. CMS [Centers for Medicaid and Medicare Services] uses the geographic adjustment factor -- an index of work and liability costs -- to benchmark physician operating costs around the country, which influences its overall physician fee calculations. In 2008, rural Maine will receive the highest geographic increase at 5.9%, while Detroit's index will decrease by 4.3% -- the biggest drop.
What does this mean? It means that doctors get reimbursed based on where they live, according to a formula. This would be funny if it weren’t so sad – doctors who treat Medicare patients not only have to take what the government gives them, they also get penalized extra for living in Detroit.
I suppose there is a rationale for this formula, but I don’t see it. In a free market system, people charge what they want for services. If you wanted a raise at work, you could ask for one. You might not get it, but at least your boss won’t say, “No, I’m cutting your salary because you live in Detroit.” I know of no other business where customers get to pay less depending on where the service provider lives. Even with government contracts, the contractor bids for a job, and agrees to a price. With Medicare, you take what they give you, and if you don’t like it, too bad.
The amount of money Medicare pays doctors may be fair, or it may be unfair, but one thing is certain – it has nothing to do with free markets. It is tempting to say that if doctors don’t like the price, they can walk; but this is not a fair argument. It is not easy to throw away a patient you have been treating for 5 years. It is not good medicine, and is unfair to patients. Besides that, most private insurance companies follow Medicare pricing. When Medicare cuts, everybody else follows.
If this continues, there will be major upheavals in medicine. Some doctors will abandon insurance and switch to cash only. Patients who have insurance will have to pay out of pocket and later settle their own accounts with their carriers. Others will stop taking new patients. A few will start charging extra fees, such as an annual subscription fee, to patients, and will drop patients who don’t pay.
What concerns me most of all is that doctors will switch to more profitable services that people will pay cash for, like liposuction, botox treatments, plastic surgery, and other non-essential medical care. Or they will game the system by offering technical services like ultrasounds, scans, and other special procedures that still pay well, while handing off patients that require less profitable care, like the kind that requires actual talking. This process, which is already well underway, is drawing skilled doctors out of mainstream medicine. Why treat pneumonia when you can make twice as much prescribing wrinkle cream and removing tatoos?
As I have said before, the evil part of me hopes the Medicare cuts take effect. When doctors start refusing patients and new Medicare patients cannot find doctors, the pressure for health care reform will rise markedly. For the first time, large numbers of middle class Americans will feel real pain. It is an unfortunate fact of political life today that people only take action when a problem directly effects them and their bank accounts, but that is where we are. Nothing to do but let the ugliness begin.