How Will Medicare Cuts Affect You?

Information for Patients

Recently in the news, we have recently been barraged with information about health care reform and cuts in Medicare reimbursement.  This article provides information about Medicare and how impending cuts will impact your health care, whether or not you are retired.

Background Information

              Medicare is the federal health insurance program for Americans age 65 and older, as well as patients with certain disabilities.  The program is designed to help with the cost of health care, but it was not designed to cover all medical or long-term care expenses.  The program is funded by payroll taxes as well as monthly premium deductions.  Medicare consists of four parts:

  • Part A – inpatient hospital care, skilled nursing facilities, hospice care
  • Part B – doctors’ fees, medical supplies, and outpatient services
  • Part C – Medicare Advantage – privately-administered plans providing health care services
  • Part D – prescription drug coverage.

              Medicaid is a program providing health care for low-income people. This program is run by the individual states with funding assistance from the federal government.1

Medicare reimbursement rates are based on recommendations to Congress from the non-partisan Medicare Payment Advisory Commission (MedPAC).  The new health care reform bill establishes an Independent Payment Advisory Board (IPAB) with significant authority over Medicare payment rates.  Many physician and hospital organizations are opposed to the establishment of the IPAB, since it is accountable only to the President and takes payment authority away from Congress.3 

Medicare reimbursement rates affect all patients, whether or not they have reached retirement age.  Private insurance companies set their rates based on a percentage of Medicare rates.  Physicians have very little power to negotiate with these companies, and absolutely no power to negotiate with the government.  The only choice for physicians is whether or not to participate in Medicare or in those insurance plans.  Medicaid also uses Medicare rates to set their rates, but usually pays significantly less.  Often, physicians lose money when caring for these Medicaid patients.

              Over the last several years, physicians have faced significant potential cuts in their payments from Medicare.  On several occasions, Congress has not acted until the last minute to stop these cuts, and in several instances, they had to retroactively reverse the cuts.  Each time they freeze the cuts, the impending cuts for the next year become even larger.  This requires physicians’ groups to practice in a very uncertain financial environment.

Why shouldn’t reimbursement for doctors be cut?

              Medicare reimbursement does not affect only the physician’s salary, but it directly affects the quality of patient care.  Practices are faced with ever-increasing costs, with overhead ranging from 40 – 60%, while reimbursement declines.  Administrative costs to deal with Medicare, Medicaid, and private insurance bureaucracy continue to rise.  Congress has mandated the use of electronic medical records by 2014, but these will cost an estimated $35,000 – 40,000 per physician to implement, as well as on-going monthly maintenance costs of $1500-2000 per physician.  These costs must be absorbed by the practices.  Medical practices also provide health insurance for their staff, and skyrocketing premiums have affected practice overhead, just like any other business.  Malpractice insurance premiums remain fairly high, ranging up to $175,000 per year for general surgeons in some states.7

              With the economic downturn, an increasing percentage of medical care is simply unpaid for.  In 2009, uncompensated care was estimated at $62.1 billion.8  This amount includes care for the uninsured and the under-insured.  This cost must be absorbed into the health care system, including physicians’ practices. 

              There are already certain procedures and visits for which practices actually lose money when they care for patients. Many practices are already limiting the numbers of Medicare and Medicaid patients that they accept, or are substituting physician extenders (physician assistants or nurse practitioners) instead of direct physician care.  As undesirable as this may be, doctors’ practices must remain viable in order to continue to provide any care.  As in any business, when it costs more to do the work than the amount you get paid for that work, then the business cannot survive.

What happens if Medicare continues to get cut?

              Already in 2010, three deadlines have passed in which Medicare physician reimbursements were cut by 21.2%.  Each time, Congress acted retrospectively to extend the deadline by just a few months.    This level of financial uncertainty makes it extremely difficult for medical practices to function and to make future plans.  If Congress does not act to fix the problem and Medicare reimbursements continue decrease, then even more practices will choose to no longer accept these patients.  Medicare beneficiaries will have even more difficulty finding primary care physicians.  The massive physician shortage that we are beginning to see will become even worse.  Non-physicians will administer an increasing amount of care, with a possible decrease in quality.  Emergency rooms will see worsening overcrowding.

              The new health insurance reform bill approved in March 2010 proposes almost $500 billion in cuts to Medicare, through a combination of decreased Part C reimbursements, reducing hospital subsidies, negotiating better drugs costs, and “cutting waste, fraud, and abuse”.9  While controlling costs is a worthwhile goal, increasing the amount of government bureaucracy in health care is unlikely to realize these cost savings.  Taxes for all income levels will undoubtedly increase, along with rationing of health care resources. 

                         

What can be done to fix the problem?

              Until the entire health care system is revamped, including actual cost controls, decreased bureaucratic regulation, and tort reform, then Medicare must be preserved.  Congress must act to stabilize the payment system.  Patients must get involved by educating themselves on the issues and making their views known to their representatives in Congress.

             

Matthew K. Tsuei, MD, FACS

Comments welcome at drtsuei@gmail.com



  
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