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What If Doctors Got Paid Only Medicare Rates?

By Dr. Nilesh Kalyanaraman
. 10 Comment(s)

Whenever I think of our health care system I think of Dr. Frankenstein’s monster, assembled from an assortment of parts, trying to find and give love but reviled by all. Short of killing the monster, how do you fix it?

One of the biggest problems with our health care system is the unchecked growth of health care costs. We know that Medicare does a better job of controlling health care costs than private insurers. Along with this comes lower reimbursement rates for doctors which leads to the oft reported phenomenon of doctors not accepting new Medicare patients or dropping out of Medicare altogether.

Every time I read one of these stories I wonder why doctors can’t make a living based on their reimbursements. What would happen if we were paid Medicare rates for every patient we see? Would we really lose money or would we just be getting less than what we’re getting now? If so, how much less?

I was pleasantly surprised when about a month ago I came across a study looking at just this question: What if every doctor was paid Medicare rates? This study was published in March 2010 (I can’t believe I missed it) by the Urban Institute and the Medical Group Management Association for the Medicare Payment Advisory Commission (MedPAC). It used reported physician compensation along with RVUs to calculate what annual compensation (take home pay) would be if all services were paid for under Medicare rates. They took into account regional payment differences, practice expenses, and non-RVU based income.

They projected that if the average physician accepted payment based on the Medicare Fee Schedule her annual compensation (her take home pay) would be roughly $240,000.  That’s sounds like a very nice yearly income. So why do some doctors not like Medicare reimbursement rates? It’s because that total represents a 12% loss in income from $272,000.

Let’s look at some more data. Take a look at the annual incomes for the following specialties and think about whether you consider these amounts fair compensations:

Orthopedics:              $457,000

ENT:                            $380,000

Neurosurgery:           $689,000

Radiology:                  $488,000

Those look like great incomes to me, and in fact, all four of these incomes would put you in the top 4% of incomes in the U.S. I picked these four because these would be the hardest hit under a universal Medicare payment plan, they all would take over a 20% hit in annual income. Here’s what the table looks like with the change in income:

Orthopedics:              $362,000        -20.8% from $457,000

ENT:                            $282,000        -25.6% from $380,000

Neurosurgery:           $462,000        -32.8% from $689,000

Radiology:                  $389,000        -20.2% from $488,000

Lest you think I’m unfairly biased against specialties, here’s what will happen to the three primary care fields:

Family medicine:       $169,000        -10.6% from $189,000

Internal medicine:     $175,000        -7.9% from $190,000

Pediatrics:                  $180,000        -8.5% from $197,000

These are not insignificant drops in income and I’m sympathetic to the idea that this would be a deep hit to doctors, myself included. If we’re going to curb health care costs (overall health care costs are rising at an unsustainable rate) we’re going to have to look at not just how doctors get paid but also how much they get paid. The point of highlighting this paper is to show that Medicare rates for all, on an absolute level, would provide an excellent income for doctors. It’s only because we get paid so much more that Medicare rates seem stingy.

It may be painful but at some point, we as a profession need to recognize that we are getting compensated very well and that we too will have to make sacrifices to maintain the solvency of our health care system. One of our duties in caring for our patients is making sure they can afford the care they need and if that means that I have to drop from the 94th to the 92nd percentile in income, I’m willing to take the hit.

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  1. Jacqueline Sequoia, M.D.

    Permalink
    Bring it on! Guaranteed reimbursement at Medicare rates is better than fighting for every penny from insurers and getting even less from Medicaid. It's all garbage anyway. And people wonder why midlevels are the new big thing. IMHO, insurance should be between the insurer and insuree. Cash only practice is looking sweet to me.
  2. Eric Hanks

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    Well as Chiropractors, we get paid LESS than medicare rates. here is how it works. BCBS uses monopoly rates to force our offices to take about $22 for an office visit. The co-pay for that visit is 30-40 bucks. Therefore, they nearly never have to pay out for the visit since the patient pays the first 30-40 bucks and the fee is the provider price of $22. With medicare, at least they pay a sickening $19 bucks for a $38 service. Even though this is is almost half as much it is better than the $0 check we get from BCBS. Is it any wonder why I am in favor of Obama Care that will fix most of this? Under Medicare, all of the services Chiropractors are liscen. to do are not paid for other than manipulation treatment. That is, even though state law allows us to do what we are trained to do under other plans for musclulosckel conditions such as lab tests, diagnostic tests, and therapy and exams, the ONLY service we get payment for is manipulation at about $19-$24 for a $38-$44 service in 'real life' We would be more than glad to accept medicare rates the way ANY other profession is paid across the board. In the Medicare Demonstration Project of 2 years ago, DC's in a few areas of the country were paid for what they did. That is, the scope of practice payment was allowed to be paid for 2 years for what the DC's actually did like any other doctor/ therapist. The results were in all but one site out of the many the THE COST TO MEDICARE WAS EITHER NEUTRAL-NO COST INCREASE- OR ACTUALLY RESULTED IN A COST SAVINGS. Why is this not national news when a group of health care providers are allowed to see patients for what they do and are paid for that AND THE COST GOES DOWN NOT UP!
  3. Henry L. Abrons, MD, MPH

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    Physician overhead in the Canadian single payer system averages $60,000 less per year per physician than in the U.S. (http://content.healthaffairs.org/content/early/2011/08/03/hlthaff.2010.0893). When all is considered, average U.S. physician income in a single payer system will be comparable to what it is now.
  4. Laurie Morgan

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    Really interesting post. To echo Jacqueline's post, I was wondering if anyone had looked at whether a practice could be profitably built accepting only Medicare - going out-of-network for everything else. It seems to me that while Medicare rates are sometimes lower than other payers, from what I hear they pay reliably and promptly. There might be enough opportunity to save on staffing and paperwork to make such a plan viable.
  5. chris

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    Does this calculation take into account overhead for a practice? For example if an ophthalmologist collects $100 a year from medicare and $65 is part of his overhead, he or she takes home $35. If his collections goes down 20% down to $80, his overhead stays the same at $65 and his income goes down to $15. A 20% cut in medicare rates can result in huge reduction of income for specialties with high overheads.
  6. Nilesh Kalyanaraman

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    Thanks for the question. These numbers are what remains after practice expenses are paid. The best way to think of it that this would be your salary if everything was paid at medicare rates.
  7. Jay

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    Great piece - this information was news to me. As a physician, I would definitely take this drop in income, however, the devil is in the details. Will this truly guarantee "better" healthcare? And how long until the single payer decides it wants to start paying less? What recourse will physicians have at that point without an alternate insurance competitor to the single payer?
  8. Michael Evans MBA,BS

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    Medicare denies more claims then private health insurance and that was not in your calculation. http://www.examiner.com/article/medicare-denies-more-claims-than-private-insurance
    Plus, the assumption that the claims would all just be paid is a huge assumption. I own National Billing, a medical billing company and bill for doctors across the US. If it were not for the private insurance companies paying more the majority of my practices would be out of business, they have slim profit margins. Plus, Medicare rates have not increased in years and are scheduled to go down every year. So, reimbursement stays the same but the costs to run the office go up. Rent goes up, salaries go up, taxes go up, utilities go up, everything goes up except what they doctor is getting paid!

    A single payer system would result in more denied claims and rationed care.

    If you need help making your practice profitable, get paid on every claim and help with managing your practice contact me. I will help your practice succeed.
  9. Michael Evans MBA,BS

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    While this may be a simple solution again it doesn't take into account a few things.
    1. Medicare denies more claims
    2. Medicare does more audits
    3. Reimbursements are flat and don't reflect what it costs a doctor to perform the service.
    4 it pays all providers the same. A board certified cardiologist gets paid the same as a family doctor with no extra schooling or knowledge.

    Those are just a few examples. The private system might not be perfect put it is better then a single payer system run by the government. Why do so many people come here for treatment? They don't go to Canada!
    Michael Evans, MBA,BS
    Www.nationalbilling.com
  10. Jason Brooks

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    This article was definitely informative, and for that I give the author the proper respect. I do have to fundamentally disagree with the idea as a whole. I am a consultant to private practices across the country with an emphasis on the Northeast, and I am seeing a deep-seated change occurring. Clinicians are embracing technology, social media, and a small segment are transitioning their practices over to concierge, cash-only, and hybrid combination business models. Telemedicine, outsourced service providers, ancillary services, and downright innovation are eliciting a change that results in smaller patient panels, longer and more exploratory visits, and better outcomes. Patients are getting involved in their care. At home visits, at work visits, visits over the camera of your pc, group appointments...some use a subscription model, others charge a flat fee. Some have multiple levels based on income...and I'm willing to bet my clients play more golf! They aren't concerned with churning out 3 appointments per provider every 15 minutes. They are not burned out at the end of the day, week, month, and year. This is just what I am seeing with my clients, and I know there are many more out there.

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