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Medicare Maneuvers, Part 1: The Problem

Capitol Hill, Washington. D.C. Payment cuts for doctors who treat Medicare patients – which have been looming for about a year – finally went into effect yesterday. The payment cuts of 10.6% will affect the 600,000 doctors who treat Medicare patients, and thus millions of elderly and disabled Medicare enrollees who rely on them.

Maybe if you’re under 65 and/or not relying on government health care benefits you think this isn’t your problem. You’re wrong.

A little history (based on the writings of Jonathan Cohn):

President Johnson created the Medicare and Medicaid programs in 1965, in order to make sure the elderly, the disabled, and the poor could access the same advances in modern medicine that were available to those who had private insurance to help cover the costs. Despite the high cost of treating these folks – who are in continually poorer health than the rest of the population – Medicare on average has kept its costs down much better than private insurance companies, in part by having administrative costs that are a fraction of those of in the private sector.

That said, in the 1990s lawmakers succumbed to the craze for managed care and private insurers’ ability to drive a hard bargain with health care providers to control patient costs. They allowed a portion of Medicare to be privatized. “Medicare plus choice” was not a success – the insurers were demanding more public funding than they really needed and by selecting out the healthiest seniors in order to keep costs down.

Yet President Bush decided in 2003 to expand Medicare privatization with Medicare Advantage (MA). MA plans are publicly funded (and at a higher rate than standard Medicare) but privately administered, and can include prescription drug coverage (Medicare Part D) policies, a benefit seniors had long been requesting. Simultaneously, the Bush administration forbade the federal government from negotiating drug prices with drug companies.

Since then, Medicare costs have been climbing higher. The physician payment cuts are a built-in regulation that automatically kicks in when the program’s costs get too high. The American Medical Association (AMA) and the Association for the Advancement of Retired Persons (AARP), lobbying groups for doctors and seniors respectively, had been pushing for a legislative solution to these mounting costs for some time, knowing that if costs rose, a doctor payment cut must surely result.

Put aside your mistaken impression that all doctors are wealthy and can afford to take a pay cut. (Better yet, read the WhatIf piece on this very myth.)

Here is what worries doctors:

  • This would not be a one-time cut of 10%-11%. If the funding problem is not addressed, cuts are expected to rise to a 40% decrease by 2016.
  • A doctor’s pay must cover not just the cost of treatment  but the expenses of running the medical practice: staff, payroll, etc. These administrative costs are expected to rise 20% within a decade, so cutting doctor pay doesn’t mean they take home less at the end of they year, it means their practice can’t function as well.
  • Private insurance reimbursement rates for doctors are based on the federal government’s rate. Cutting this rate does not just affect the doctors who treat Medicare patients but all doctors.
  • As the baby boomer population reaches retirement age, a physician shortage due to inadequate pay could lead to a public health crisis.
  • Cutting reimbursements to health care providers without actually reducing their costs of practicing medicine means that they will pass the costs onto someone else – typically those they bargain with: insurers and employers. Ultimately, those costs get passed onto you in the form of higher premiums and decreased benefits.

Based on a 2007 AMA survey of 9,000 of doctors, due to the salary cuts:

  • 60% will have to limit the number of new Medicare patients they treat
  • At least 50% will not be able to meet their payroll and will have to reduce their staff
  • Around 1 in 7 would “completely get out of patient care”

Stay tuned for tomorrow’s post — Part 2: The Solution?

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