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If ACA Survives, Many Small Medical Practices Will Fail


If forced to accept Medicaid patients without increased reimbursements, most private practices will be dealt a fatal blow to operations.

The fact is that the Affordable Care Act, which will add as many as 40 million people onto the Medicaid rolls over the next few years, will deal most private practices a fatal blow if they are forced to accept Medicaid patients without increasing reimbursements to at least Medicare levels.

These stark choices are forced by fiscal reality. For most physicians, Medicare covers costs and Medicaid pays about 40 percent below cost. To survive, most physicians, particularly those in smaller practices of 10 or fewer doctors, will have to refuse or severely limit Medicaid patients.

This is hardly a secret to physicians in smaller private practices, who in survey after survey, respond that they are already struggling and can’t afford to accept or expand Medicaid, or Secretary of Health and Human Services Kathleen Sebelius, who recently said that HHS is looking at increasing Medicaid reimbursements to Medicare levels for first time physician visits, the first public recognition of the problem.

Here is how the present numbers break down and the heart of the problem:

• Using pediatric care, which proportionately mirrors other specialties and age groups, the average Medicare reimbursement for basic physician’s services is about $76, which covers costs. The average private insurance reimbursement for the same services is over $92, or 21 percent higher, which provides profit. The average Medicaid payment is about $46.50, or 39 percent below Medicare and cost and 50 percent below private insurance. That money has to be made up by private insurance.

• Two privately insured patients generate $32 over cost, enough to cover the $29.50 loss with some small change left over. As the numbers dictate, things are already in a tenuous state, and we are still a year and a half away from the mandate and flood of up to 20 million new Medicaid patients hits in 2014. Going from bad to worse, the CBO has estimated that up to 20 million more people with private insurance may lose it, their employers opting to pay the less costly tax instead, and have to turn to Medicaid.

A recent study of physicians in private practices with 10 or fewer doctors paints a grim picture of the future of many private practices. Twenty-six percent say they may not be in business a year from now and 75 percent say they have severely cut costs, are borrowing money, or are selling assets to stay in business.

The physicians polled cited the increased cost of expanding regulation, the financial environment, and increasing costs as the reasons for today’s woes. An additional concern that is making the situation even more acute is the increased cost of collection and bad debt from privately insured patients. These patients cover the first $1,000 or more of their care through exploding deductibles, which are needed to keep costs manageable for employers offering coverage.

The transfer of up to 20 million people from employee-provided private insurance, mostly to Medicaid, and the addition of up to 20 million more Medicaid insured from the presently uninsured creates a perfect storm for private practices and an enormous challenge for the hospital systems and large clinics.

Dr. Jane Orient, the executive director of the Association of American Physicians and Surgeons, said, “a high percentage of physicians have said they cannot afford to or simply will not practice under these new regulations." She added that many physicians are already selling their practices to big hospitals and clinics.

With so much speculation that there will not be enough primary-care physicians to manage the influx of newly insured patients, implementing a system that puts them out of business makes no sense.
If this problem is not resolved, for many, the sole option will be to close or sell their practice and go to work for an insurer, hospital, or clinic or a large group.

Given this predicament, physicians will be well advised to invest in professional assistance to increase the value of their practice and, if it becomes necessary, to have professional assistance in negotiating the sale.

Find out more about James Doulgeris and our other Practice Notes bloggers.

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