Dropping Medicare

January 15, 2003

Should you drop Medicare? And how would you do it?

Andrew Fine, MD, isn't merely  complaining about declining Medicare reimbursement rates. Like a growing number of physicians across the country, he's responding by refusing to accept any new Medicare patients, and he hasn't ruled out the idea of dropping his existing ones.

The Denver internist, a solo practitioner, has grown resentful about a government program that he says doesn't pay enough to cover the costs of treating patients. So while he's sympathetic to seniors having trouble finding a physician, he's determined to keep his practice's Medicare payer mix at 10 percent or below.

"Nobody in the South Denver area" is accepting new Medicare business, he says. "That creates an access problem for patients."

When seniors call his office to make an appointment and are turned down, Fine adds, "they're frustrated. They've already called 20 other doctors and can't find anyone to take them. They'll find someone eventually, but only if they make enough calls."

Fine may be exaggerating, but not by much. According to Colorado's Division of Insurance, only about 40 percent of that state's physicians were accepting new Medicare patients shortly after the 2002 reimbursement rates were announced. Working with a public interest group, the Patient Advocacy Coalition, the department interviewed more than 500 physicians and found that physicians blame low reimbursement and paperwork hassles for their refusal to participate in the program.

Crisis brewing

While serious, Colorado's access problem isn't isolated. And healthcare policy experts worry that matters will only get worse -- there and across the country -- as Medicare reimbursement continues to drop.

"The long-term effect on the future, and what we're seeing already in Colorado, is that physicians are looking at the numbers and they're starting to realize, 'Wow, I can't do this anymore,' " says Chet Seward, director of healthcare policy for the state's medical society. "With more cuts, I think there will be more of an exodus. It's ominous."

With reimbursement rates likely to be sliced another 4.4 percent for 2003, on top of last year's 5.4 percent cut, seniors in practically every state may soon confront serious difficulty in finding physicians, according to the Washington, D.C.-based Center for Studying Health System Change (HSC).

Although it does not blame Medicare alone for the problem, HSC reports that in 2001 -- before last year's cut -- nearly 29 percent of physicians nationally were declining new Medicare patients, up from 25 percent four years prior. Some parts of the country are experiencing more dramatic access difficulties than others.

Even more recently, an American Medical Association survey found that about a quarter of physicians had limited their Medicare patients, or were planning to.

"They're dropping Medicare entirely," says Toby Watt, a healthcare lawyer with the Atlanta firm Smith Moore. "It's a combination of things: they don't like the rates generally. They don't like Medicare's bundling rules -- the way the government packages multiple services together as one, which is really an indirect way of reducing payments. And the other problem is the absolute hassle, the administrative bureaucratic hassle, of dealing with Medicare. Not to mention the legal exposure they put themselves in with Medicare. At the end of the day, a lot of them are just saying, 'Life is too short for this crap.' "

How to fight back

Is it a drastic response? Perhaps. Such actions were all but unheard of only a few years ago. But is it an overreaction? Not necessarily.

Many practice management experts are advising physicians to reconsider their Medicare participation, or -- for those who can't or won't drop out of the program -- to at least take other steps to help guard themselves against the cuts.


However you choose to respond, you can't ignore much longer the conflicting trends of declining reimbursement rates and rising overhead costs.

"What's going on is sort of a double-whammy," says Todd Welter, president of Denver-based healthcare consulting firm R.T. Welter & Associates.

Medical practice overhead increased 5 percent in 2001, according to the Medical Group Management Association -- a typical annual increase. And the American Medical Group Association estimates that the average practice was losing $16,000 a year per physician even prior to last year's Medicare cuts.

"The Medicare population is growing, and as it grows, so does the number of Medicare patients doctors see," Welter says. "And so that's squeezing out the other, perhaps better-paying, patients. The analogy I give doctors all the time is you're no different from the airlines," meaning that some travelers pay a lot more for their airline tickets than others, and those higher-paying customers expect a different level of service. "I tell [physicians], 'Patients are the same way. Your waiting room is filled with patients, and some of them are paying $24 for this visit, while some are paying $52. And you can't afford for the growing demographic [of lower-paying patients] to fill your waiting room.'"

Instead of simply allowing demographics to control your schedule -- and your revenue -- Welter suggests limiting your Medicare population by declining to see new Medicare patients. Set a target for your Medicare payer mix and work to stay within it. It's a less dramatic step than dropping out of the program entirely.

Of course, you can also abandon the program altogether. But if dropping or limiting Medicare business isn't an option, then at least consider a scheduling system that's attractive to higher-paying patients by keeping the better slots open for them. Everyone wants to see the doctor first thing in the morning or in the evening after work. Most of those premium spots should be reserved for patients who are paying more to see you, because if those patients can't get convenient appointments with you, they'll go elsewhere, leaving your practice to be dominated more and more by government beneficiaries.

"Let's say your Medicare population is 20 percent," Welter says. "It may have been 18 percent last year, and next year it'll be 22 percent. Even if you have all the spaces in the world for patients, you're still making less on each of [those Medicare patients], and in reality you're squeezing out other patients. Now, a lot of doctors will say, 'No way. Everybody gets seen.' But it's not just a matter of being seen -- it's when do you get seen? What are the most valuable slots? Everybody gets on that airplane, but people who pay more for their ticket want to sit up front."

Some practices are stuck

What about specialties that tend to be dominated by older patients? Even these practices have some options, albeit not very desirable ones.

The 55 cardiologists and heart surgeons at Des Moines-based Iowa Heart Centers, for example, don't have the luxury of dropping Medicare. Because of the nature of cardiology, the group has no choice but to stick with the program, but it has taken some dramatic actions in response to payment reductions, says its chief executive, Jim Palazzo.

"It's put a chilling effect on capital acquisition," Palazzo says. "We'd like to buy a digital imaging system, but those cost $700,000 or more. We may not get it. Iowa Heart Centers runs something like 33 rural outreach clinics -- a huge number. We haven't actually canceled any yet, but it's going to be increasingly difficult to continue taking our services to the people. And we get extra pressure put on our staffing situation -- whereas [in better times] we might be willing to add more staff to offer better service, we can't do that. We can't afford to do it."

The 400-employee group has frozen new hires and has reduced through attrition its staff-to-physician ratio by 15 percent in the past 18 months. Yet even these cost-reducing measures are not enough. And Palazzo is not sure what else to do.

"People are running out of rabbits to pull out of their hats," he says. "What a lot of the folks in Washington have forgotten is that physician practices are basically small businesses."

Further complicating matters is the fact that many commercial payers use the Medicare rates as a benchmark for their own reimbursement, meaning that as the government rates decline, so do these commercial rates.

"That's potentially even more damaging" to practices, says Welter. "Medicare has become, in effect, a relative value study. It didn't take the private payers long to figure this out. Our advice to solve that is for doctors to convert their commercial contracts into hard dollar RBRVS contracts, as opposed to a percentage of the Medicare fee schedule."


Of course, depending on what market you're in, that may not be possible. In more urban areas dominated by managed care, commercial payers are less likely to accommodate such demands. Still, Welter says, it doesn't hurt to try, and every practice in this situation should.

Other factors

Is there any chance that Medicare could be getting a bum rap in the access debate? Maybe a little. HSC, for one, says blaming the government for decreasing access to doctors is too simplistic; instead, HSC suggests a variety of factors are to blame for reduced access.

The organization notes, for instance, that patients in commercial plans are also having access trouble, though to a lesser extent. Even where access is tight, HSC says, patients have been able to locate doctors with a little extra effort, and only rarely must they delay care.

"Access problems aren't just limited to Medicare," says Alwyn Cassil, an HSC spokeswoman. "There is throughout the healthcare system a tightened capacity, and that's creating problems for people in commercial plans, too. There's a nuance here. On the one hand, the cuts in Medicare payments aren't likely to help any. On the other, just because you increase payments across the board doesn't mean you fix that capacity problem: higher payments don't clear space on doctors' appointment schedules."

But lower payments have a way of forcing doctors to rethink the wisdom of keeping spaces open for Medicare patients. Experts are divided on what the endgame is: many believe Congress will fix the problem before it becomes a full-blown crisis, but others, noting that Congress had been counted on to do something last year, and didn't, are less confident.

Either way, both sides cringe when asked to describe the long-term consequences of inaction.

"Who will care for the elderly?" says Seward of the Colorado Medical Society, repeating the question put to him. "Gosh, from a social conscience point of view, I'd like to think they will be cared for. But it's a matter of how efficiently they'll be cared for."

Bob Keaveney, associate editor for Physicians Practice, can be reached at bkeaveney@physicianspractice.com.

This article originally appeared in the January/February 2003 issue of Physicians Practice.