Primary care is disproportionally hurt by Medicare cuts

Doctors don’t garner much sympathy when they rail against the perpetual threat of Medicare reimbursement cuts.

In a story from CNNMoney.com, a primary care physician provides some stark reality.

In an independent solo primary care practice, employing an office staff and two nurse practitioners for instance, fixed costs add up to $60,000 per month. A 21% cut in Medicare reimbursement, assuming an average sized Medicare panel, can take away $3 out of every $5 a physician earns.

Compound that with the pressure for doctors to adopt expensive electronic medical records, along with rising malpractice insurance rates, and it’s easy to see why generalist doctors get disproportionally hurt by any decrease in Medicare payments.

Furthermore, private insurers often base their rate schedule on Medicare’s, so it’s likely their payments will correspondingly go down as well.

Two points become apparent from this situation. One, it’s another disincentive for any newly graduated doctor to pursue such a financially risky field like primary care; and, two, it’s apparent that the days of the solo practitioner are numbered.

Primary care practices will have to function as loss leaders, surviving only after by being bought by hospitals or larger physician organizations.

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  • http://www.drlindalee.com Linda

    Can someone explain to me how you reconcile the fact that the HCR bill promises better reimbursement for both Medicare and Medicaid for primary care physicians and also the threat for a 21% cut in medicare? Which is true? You can’t have it both ways!

    • Doc99

      Welcome to Newspeak. Thank you, Big Brother. We are all Goldstein.

  • anonymous

    21% cut now and 5% per a year for next 4 years. then the rates will improve. requiring the states to increase medicaid enrollment will bankrupt a handful of states for sure. and enrollment in medicaid doesn’t even give them access to more than a handful of slots a month in the practices that accept them.

  • Finn

    I don’t understand how a 21% cut in Medicare reimbursement becomes a 60% cut in earnings ($3 out of every $5).

    • dizzle

      If your expenses remain the same, the 21% cut becomes a 42% loss in net earnings.

      If you bring in 100 dollars and have 50 dollars of expenses, then you bring home 50 dollars net.

      However, if there is a 21% cut, you bring home 79 dollars while the expenses remain the same, 50 dollars. Thus, you net 29 dollars. 29 dollars is 42% less than 50.

    • http://throckmortonsothersigns.blogspot.com throckmorton

      Finn:

      The cost of seeing patients will remain the same or increase slightly, the reimbursement however will decrease. Physican income is what is left after all other costs have been paid. Overhead for most practices runs about 60 to 85%. It is then simple math. If overhead is 500,ooo and you get reimbursed 600. you get to take home 100. Cut reimbursement by 20%, overhead is still 500,000 but now you only get $480,000. You are $20 in the whole.

      Some docs might do better, some worse. It all depends on their productivity. My numbers are based on a Medicare only practice. More and more docs have to limit the amount of Medicare they see to just stay in business as this example demonstrates.

      An important point is that much of the overhead of a medical practice is mandated by State and Federal Laws.

  • H

    “two, it’s apparent that the days of the solo practitioner are numbered.”

    Just like many small businesses are being swallowed up by corporations.

    1. Corporate medicine may use charity to offset the cost of low reimbursement.
    2. Corporate medicine may charge a hospital fee, increasing their revenue.
    3. Corporate medicine will not be as burdened with adapting to an EMR.
    4. Corporate medicine has more clout in negotiating with insurance companies.
    5. Corporate medicine system can coordinate care better than a solo practitioner without forms and transfer of medical records.
    6. Corporate medicine offers in office labs, radiology..providing one stop care.
    7. Economy of scale.

  • http://rebeldoctor.blogspot.com/ Michael Rack, MD

    “I don’t understand how a 21% cut in Medicare reimbursement becomes a 60% cut in earnings ($3 out of every $5).”

    because of the high overhead in primary care, a 21% drop in revenue will result in a larger drop in earnings.

    For example, if a solo primary care doc with 500,000 yearly revenue and overhead of 300,000 suffers a 20% revenue drop, revenue will drop to 400,000 and earnings will drop from 200,000 to 100,00- a 50% drop in earnings

  • Tom

    If you choose to accept the compensation, you cannot complain about it. You’ve made your choice. I think few would argue with the statement that Medicare is very poor reimbursement, and rarely, if ever, covers the cost of providing healthcare. The argument that Medicare patients make up the majority of ones practice is not a reason to continue taking it.

    Bluntly the choice is to continue to take Medicare, and go broke slowly but inevitably, or take a risk, and stop taking it. I recognize the fear of uncertainty regarding revenue stream, but the certainty of your revenue stream disappearing should inform your thinking. We cannot continue as we are. It is time to stop, and say, “No more”.

  • jsmith

    Finn, Here is an analysis of the numbers: Now:
    Yearly costs = $720,000. Yearly revenue = $800,000. Yearly profit = $80,000. Assume 70% of the pts pay at private rates and 30% pay at Medicare rates, and assume Medicare rates are 2/3 of private rates. These numbers are pretty close estimates from the article.
    Set up the equation: (Medicare rate x Medicare volume) + (private rate x private volume) = 800,000. But Medicare volume / private volume = 3/7, and Medicare rate / private rate =2/3. Substituting for Medicare rate and volume, we have (2/3 x private rate x 3/7 x private volume) + (private rate x private volume) = 800,000, so 9/7 x (private rate x private volume) = 800,000.Solving for private rate x private volume , we have this equal to 5,600,000/9 = 622,000 or about 620,000.
    This means, at current rates, the doc gets about $620,000 in revenue from private insurance and therefore about $180,000 from Medicare. Now reduce that $180,000 by 21% or $37,800.
    Total revenue decreases about 38k, and, since costs are fixed, profit decreases from $80k to $42k.
    I have one question: Why the heck doesn’t this doc get a paying job?

  • http://www.blog.greatzs.com ZMD

    Good New York Times article today about private practice becoming an anachronism. Most doctors have figured out that they can’t make it as a solo or small group doc and have sold their practices to large corporations. We will soon all be employees of a hospital conglomerate or the government. Go union rules and benefits!

  • SmartDoc

    Why does everyone assume that the Administration wants to encourage primary care? This is an obviously false assumption.

    The clear agenda is to drive private practice primary care out of business as soon as possible. This newest government created crisis can only be solved by… more government.

    The crisis solution will be a huge expansion of federal primary care clinics.

    No wonder the authors of this legislation exempted themselves from ObamaCare.

    • MedStudent

      I am also becoming suspicious that med school tuition has not been addressed because there is a political advantage to having graduating doctors with enormous debt… with debt rising and reimbursement falling, how appealing to have the government forgive the debt–all for the *relatively* lesser evil of letting the government determine where you work and live for a good 4-5 years.

      • Anonymous

        The latest industry to be nationalized by Vladimir Obama is the private student loan multi-billion dollar business.

        This serves precisely the purpose you described: to manipulate student loans into mandating involutary staffing of third rate government health clinics.

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