MedCity Influencers

Double digit Medicare decrease bad news for doctors

The worst possible scenario has come to life. The 21% Medicare cut for physicians has been implemented. For the seniors of this country, their Congress has failed them. What they have done to physicians is give them no choice. Walk away from Medicare or continue to suffer the consequences of economic reality.

The worst possible scenario has come to life. The 21% Medicare cut for physicians has been implemented.   For the seniors of this country, their Congress has failed them.  What they have done to physicians is give them no choice.  Walk away from Medicare or continue to suffer the consequences of economic reality.  For primary care physicians everywhere, the choice is simple.

It’s time to screw granny and let the government find a way to provide their care for them.  It’s not the physicians obligation to provide free care for every senior in this country.  Physicians have a personal obligation to their family to provide for them, a need that will trump the need of every Medicare patient on their patient panel. Doctors are not slaves or servants of this country.  They are physicians.  They have a choice to make.  I see the only choice as walking away.  The only choice that will create change.

That’s a harsh reality.  But it  is the only solution for real change in how physicians are paid.   The problem is not a physician problem.  It is a government problem.   If you aren’t a physician and you see the 21% cut as a necessary evil to stop paying those rich doctors so much, you are misguided in your anger.

If you’re wondering how doctor’s get paid, please refer to that link and this one for relative value units explained (RVU’s).  To understand where the 21% Medicare cut for physicians comes from, I’ll give you the quick summary version.

In the early 1990’s a Congressional act created the RVU system which set a value to every possible bill your doctor can submit to Medicare.  These bills are submitted with a current procedural terminology (CPT) code for CPT medical coding purposes.  The money value of that code (what Medicare pays) is determined by a complicated formula based on relative value units, the geographical location of your physician and the conversion factor.  The conversion factor applies a dollar value to every relative value unit.

As part of the Congressional act in the late 1990’s, our brilliant Congress decided to cap the total value of moneys paid to physicians based on inflation and population growth (a sort of GDP modifier).  They called this the sustainable growth rate.  But physicians were spending more money than population and inflation allowed.  Why?  It was a  combination of increased technology, more CPT codes, new procedures, higher severity of illness and an older population living longer and requiring more intense care.

In addition, the fee for service drove unnecessary office visits, procedures and other care that was used to make up revenue in a declining payment model.  And let us not forget about defensive medicine, the act of ordering studies, with no personal financial gain, to protect one’s self against failure to diagnose lawsuits.  I contend, and I see it daily, that upwards of 50% of all care provided is defensive in nature, despite the 2-3% figure thrown around in the media.

So here we have 10 years of rising physician costs, above and beyond the allowable amount established by Congress in the late 1990’s.  As a result, every year, Congress was forced, by mandate, to make Medicare cuts for physician expenses that rose above and beyond inflation plus population growth.  And every year, except one, those cuts had been reversed for one or two years at a time by a Congressional Act.  Every year we get a different version of the  “Save the Seniors Act of 20XX”.

Every year those cuts were reversed the value of the excess spending got larger and larger and larger.  Why?  Because the formula didn’t change.  When the Save the Seniors Act of 20XX expired, we were left with larger and larger amounts of money that needed to be cut by Congressional law.  That’s  called the irrational  Sustainable Growth Rate.  And that is the reason the AMA is selling their soul to try and eliminate it from the Medicare books.

So what is the formula for doctor pay?
RVU= relative value unit
w= work (the intrinsic value of the doctors education and effort)
pe= practice expense (the expense incurred to offer the service)
m= malpractice (money to defer malpractice costs)
gm= geographic modifier
cf= conversion factor

(wRVU*gm +peRVU*gm + mRVU*gm)*cf=$$$$

Every CPT code your doctor submits to medicare has a dollar value determined by this formula.  So how is the 21% Medicare cut applied to all physicians simultaneously?  Every wRVu, peRVU and mRVU value for every possible CPT code is determined by a super secret committee of folks who represent each of their specialty societies.  Of the 28 or so members on this AMA sanctioned committee, only one vote each each are given to the three members representing the primary care specialties of internal medicine, pediatrics and family medicine.  The other committee members are mostly members of subspecialty surgical and medical fields that all receive equal representation.  It’s like the Senate for physicians.   If you are internal medicine and have 100,000 members, you get the same representation as the plastic surgeon who may have several thousand.

Also   remember that the pot of RVU dollars is fixed.  The pot is divided through RVU economics by this super secret AMA sanctioned committee, which is  mostly filled with procedural subspecialists who highly value their own work at the expense of their evaluation and management (E&M) counterpart physicians.  E&M visits are the clinic visits, the hospital visits.  E&M visits are all the CPT codes that involve a face-to-face encounter without any type of procedural or surgical intervention. E&M codes are a subset of all CPT codes.

On a time based axis (the amount of time necessary to provide either E&M or surgical/procedural internventions) E&M is valued far less.  This has been  determined to be appropriate medical economics by the super secret RVU committee of subspecialists.  And that’s why primary care is dead in the water.  Because the relative value of other fields, as determined by the RVU economics is valued much greater, far greater than can be explained by extra education necessary to become a subspecialist physician.  This is, I believe at the root of a dead primary care system.

Put a fixed pot of money in the hands of a committee of procedural and surgical subspecialists who get to recommend how that money gets divided and you have a recipe for disaster.  Not only is the fixed pot a broken system.  But putting that money into the hands of all members who have an intrinsic selfish desire to value their own work ahead of everyone else is certainly not smart economics.  Actually, it’s a recipe for exactly what we have today.  It’s like going to a grocery store where the value of every vegetable is determined by a committee of vegetable farmers who each decide how much their vegetable is worth in a fixed pot of vegetable dollars.  The tomato farmers would be wheeling and dealing with the banana farmers while the spinach farmers were left hanging out to dry.  The whole idea of an RVU system is ludicrous.  But somehow, your Congress has decided that’s the way every physician in this country should get paid from the Medicare National Bank.

The value of procedural interventions is vastly superior to the value of cognitive only medicine  not because it should be, but rather because of the politicalization through the RVU committee process has made it so.

Now that you know how everything a physician does is valued, I suppose you’re wondering how  you cut 21% from an outpatient comprehensive care doctor and an orthopaedic surgeon who use vastly different CPT codes.  You do that by cutting the value of the conversion factor, the number that sets a dollar value to the RVU.  Here is a table for the conversion factor for the last 10 years.  The value of the conversion factor has not changed in 10 years.  That means  the intrinsic value of the work physicians provide for Medicare patients is valued the same today as it was 10 years ago.   Despite health care inflation in the 7% or more range for a decade, the value of your physician pay has changed zero percent.  What other section of the economy do you know that experienced zero wage growth over ten years?

The only way to increase revenue among increasing yearly overhead is to increase the volume of services provided in a fee for service system.  And that’s why you have the overmedicalization of America.

The value of one RVU on February 28, 2010 was $36.0666.  On March 1st, 2010, the value of an RVU was 21% less.  Congress has now determined that the relative value unit of work for your physician is now worth only $28.50.  As you can see from the attached table, that is 22% less than 10 years ago.  Add in the cost of inflation (about 30% loss of buying power) and your physician makes more than  50% less today than they did 10 years ago for taking care of Medicare patients.

And you wonder were all that money went?  It’s no wonder why physicians have dramatically increased the volume of services provided in a declining revenue market.  And why many physicians have simply said enough is enough and left the program.  You don’t have to be a genius to understand these basic economic principles.

How does this affect the bottom line for comprehensive care physicians?  A couple years ago, I described this exact scenario and showed you how, under the currently implemented Medicare cuts, your physician will make less than a minimum wage burger flipper at Burger King.  Go check out that blog post.  I calculated the take home pay after five years of SGR cuts for a primary care physician to be $6.60 an hour.  Do you want your physician collecting food stamps and earned income tax credits?

When you see the 21% cut, you need to double that number.  Overhead for many clinics runs about 50% of revenue.  In an all Medicare clinic, a Medicare cut of  21% revenue means a reduction of 42% in take home pay.  That means a primary care physician who was taking home $150,000 a year now finds themselves taking home $84,000 a year, less than the starting wage of many nurse practitioners and physician assistants.   A cardiologist who was taking home $800,000 working 80 hours a week  in a clinic with 50% overhead, now finds themselves taking home $288,000 a year, when added to the 11% cuts they experienced earlier this year.  That’s $69 an hour for some of the most highly educated people in this country.  That’s obscene.

If you think these revenue numbers are going to generate doctors for the future, you live in a land of sugar plums and fairy tales.

Under the current laws, the cuts have no end point in site.  The SGR is flawed.  It was poor public policy to being with. The AMA should not be sacrificing their soul to eliminate a broken model.  It should be eliminated.  Period.  No giving up anything.  The model is broken.  You won’t have any doctors, primary care or cardiologists under SGR economics.

I once heard a subspecialist claim that 85% of his business was Medicare patients but only 15% of his revenue came from Medicare.  His solution to the Medicare cut was obvious:  drop Medicare, take a 15% pay cut  and spend more time with family.  If you can take a 15% pay cut and work 85% less, what self respecting doctor wouldn’t take that offer and let the government answer to a population looking for a primary care and subspecialist doctor to care for their every need.     Many doctors have already told me they will limit their hours and work less.  We already know doctors hours are decreasing.  This would put the nail in the coffin for Medicare patients every.

I have said it since the day I started blogging, third party insurance is killing health care.   The only solution I see is for physicians in great numbers to unilaterally pull out of Medicare.   Many options exist in the private market of health care that would allow physicians  to abandon the irrational economics of these Medicare cuts.  If you are a physician and choose to stay in the Medicare game, despite the abuse over the last 10 years, you have no one to blame but yourself.  Accept it or don’t.

The Medicare cut will have a domino effect on the nursing field as well.  Office nurses would have to be let go for cheaper medical assistants.  Nurse practitioner and physician assistants might find plenty of work, but the value of their work will be cut as their revenue stream will be slashed significantly.  Perhaps the solution to out of control health care costs is to limit the all you can eat buffet known as American health care.  Perhaps the solution is to ration care based on time and geographical site rather than to ration the intensity of services provided.

The one question I am not sure about is what effect the 21% cut will have on outpatient hospital services and other outpatient radiology and lab services.  They fall under the Medicare Part B services, but I don’t know how they are affected under the 21% medicare cut.  If anyone has any insight, I’d love to hear it.

As a hospitalist, I think my situation is different.  I am part of a group that has contractual obligations with the hospitals we provide service for.  I haven’t read the fine print, but I’m sure somewhere in there is a requirement to accept all insurance contracts as a prerequisite for providing hospitalist services.  Doctors providing private practice services are under no obligation to do so.  They are free to choose how they would like to run their business.

I would also suggest that the value hospitalists bring to hospital systems is far greater than the sum of their salaries, even at 100% subsidy.  I have shown you the numbers previously, including the 57 million dollar hospitalist advantage.  I’m not worried about hospitalist medicine.  We have a friend in hospitals  far greater than any 21% Medicare cut. That’s why we left the constraints of the Medicare National Bank.   In just one short decade, the alliance of hospitalists with hospitals has proven to be the greatest alliance in the history of medical care.

So where do the Medicare cuts leave us now?  I would suspect that a unilateral exit of Medicare by hundreds of thousands of doctors simultaneously would send a message to Washington that they have failed their largest and wealthiest constituency ever. The elderly who vote.

Once you start messing with Medicare, you mess with your life expectancy in Congress.  I think it’s time for physicians to take a stand and watch Congress suffer the ill side effects of their failure to act.  Unfortunately, I don’t think it will come to that.  Congress will come to the rescue and claim to be friends once again with the elderly vote while havoc wreaks the cash flow operations of doctors’ offices everywhere.

Unfortunately, even CMS doesn’t think Congress won’t act.  They have instructed Medicare carriers not to pay any claims starting March 1st for at least ten days, with the expectation that Congress will come to the rescue.

I think we are headed for uncertain times with exploding deficits and out of control Medicare expenses.  We have a Congress who can’t say no to anything and a fiscal policy that guarantees failure.  What is the future of Medicare?  I have no idea.   I do know it’s bankrupt today. I know that it’s unsustainable in its current form.  I know it spends money in all the wrong places and guarantees failure for years to come.   And I know a unilateral 21% Medicare cut is not the answer.  In fact, that is part of the problem that got us in the mess we are in today.

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