Nickel and Diming Docs Won't Pay For Medicare

The doctors' lobby rushed to support Obamacare, but with the Medicare "doc fix" delayed again, they may be having a case of buyer's remorse.

It looks like physicians are having second thoughts about the wisdom of supporting Obamacare.  This week, the media reported on efforts by the American Medical Association to lobby Congress to delay a proposed cut in Medicare reimbursement payments for doctors.  Congress passed a “doc fix” in June to delay those fee cuts, but the hold is set to expire.  The AMA which made a naïve commitment to Obamacare in apparent return for a promised resolution of this annual fight over Medicare reimbursements is now having buyer’s remorse.

The nature of the dispute is instructive. Medicare is primarily a reimbursement plan based on a fee for service with a fixed payment schedule. If a previous year’s costs are too high because of a high volume of services, the following year’s payment schedule is supposed to be reduced to keep the growth rate with the targets for spending. Every year Congress fixes the proposed reduction as the cuts would be intolerable. But because of these past actions, we have reached the point where a 23% cut in payments in 2011 is required to bring the overall spending on physician services in line with the mandated growth in costs over the past several years. In the recently enacted Obamacare, the “fix” was left out as it would have shown the costs of federal health care spending overall would grow at a rate to obliterate all the purported savings of the new law.

There is no easy solution here. Given the overhead costs of physician practices, Medicare reimbursements are barely sufficient to cover these costs. A 23% reduction would require most physicians to either lose money on providing care to Medicare recipients or to refuse to see Medicare patients at all. Either option is unacceptable to nearly everyone. So the “doc fix” is likely to occur once more. It may be another case of kicking the can down the road for a bit but ultimately the problem will need to be confronted in a legitimate fashion. The new band of cost cutters elected to the House of Representatives may just not be in the mood for the fix.

The consequences of failing to resolve this problem may be worse than anyone can envision. A massive cut in Medicare reimbursement without some major structural reforms in the overhead that physicians must deal with could spark the sort of physician uprising that led to a doctor’s strike that was recently seen in Germany. Physician unionization is illegal for all intents and purposes but the push for some organizing ability on the part of the profession is not out of the question. You cannot expect young physicians to finish medical school with $200,000 to $300,000 of debt, demand that they care for an aging population that expects excellent outcomes yet reimburse these caregivers at a rate that fails to allow them to recoup their costs and receive an income commensurate with the commitment, sense of responsibility, and years of training both expected and required of them.

All this points out the tragedy of Obamacare. We have a health care system that is rapidly becoming unaffordable for the country and the current administration decided to respond to this problem by focusing on the 10% or so of the country that lacked health insurance. That was the mantra of “universal health care”. This was seen as the culmination of health care reform rather than an important but ultimately minor component of a much larger economic issue that involves the other 90% of America.

Moreover, Obamacare hardly achieved universal coverage; nonetheless some extension of coverage would have been reasonable if it was not virtually the entire focus of the law. But after the battle that was fought, the chances of having meaningful reform that focuses on controlling costs seems pretty remote. I know the president is going to roll out more anecdotes about patients in untenable situations with unaffordable health care bills. But this is a problem that could have been dealt with by simply forming certain subsidized high risk pools without the creation of the massive bureaucracy and avalanche of unintended consequences unleashed on the nation.  It is remarkable that a recent report showed that so few individuals signed up for the new high risk pools for those that could not obtain insurance because of pre-existing conditions- less than 5% of the initially planned numbers.

Some observers point out the potential experiments in Obamacare like accountable care organizations represent a serious attempt at finding ways to control costs. This is classic reinventing the wheel. We already know that these models work perfectly well. There are many examples of quite successful organizations like Kaiser Permanente and Geisinger Health Care system operating on a prepaid model. We do not need an experiment to see if this works. We need an administration that identifies cost control as the overarching problem in our healthcare system and attacks it in a way that preserves patient choices about where and when to obtain care as well as physician and hospital choices about how to provide the best care by eliminating waste and optimizing treatment approaches. This is doable if the right economic model were in place.  The mess created by the “doc fix” issue points out the failure of the centrally determined reimbursement scheme in a single payer model like Medicare. Trying to control costs by price controls always fails.