Medicaid physician payment rates hurts primary care doctors

Across the country, state Medicaid health insurance programs serving low-income children and families, people with disabilities, and older adults are struggling in an environment of chronic underfunding.

Consider that, nationwide, at least one child in four relies on Medicaid for health coverage. Medicaid funds healthcare services for two out of every five births and fills in gaps in Medicare coverage for the elderly and disabled.

But inadequate payments and outmoded methods of delivering them to providers are limiting access to primary care and wellness and prevention services for these vulnerable populations.

Historically, Medicaid pays physicians and hospitals at rates below the cost of the care provided. Nationally, acute care hospitals are paid, on average, 88 cents for every dollar spent caring for Medicaid patients.

Such low reimbursements create a payment gap that privately insured employers and consumers must close through a cost shift.

Overall, this cost shift represents 15% of the current amount spent by commercial payers on hospitals and physicians, according to a study released in 2008 by the American Hospital Association and insurers.

An analysis of data from 1995 to 2006 shows that hospital operating margins:

* from care provided to patients with commercial insurance increased from about 15% to more than 23%
* from Medicare fell from 0% to nearly minus 10%
* from Medicaid fell from about minus 5% to nearly minus 15%

These underpayments are especially troublesome to hospitals that serve large numbers of Medicaid patients with few commercially insured patients to balance resulting losses.

In the five-county Philadelphia metropolitan area, for instance, hospitals on average receive about half their patient care revenue from public payers, with about 12% of the total coming from services provided to patients with Medicaid.

In fiscal year 2008, about 40% of the region’s hospitals had total margins of less than 2% — the bare minimum needed to maintain operations.

Of the 10 hospitals where Medicaid accounted for more than 15% of net patient revenue, 70% had total margins of less than 2%.

Today, the long recession and slow jobless recovery are pushing Medicaid budgets and payment systems further into crisis.

While state tax revenues have plummeted, causing unprecedented budget shortfalls, the number of Medicaid enrollees is rising sharply as consumers lose jobs and health insurance benefits.

According to the Kaiser Commission, a one-point increase in the national unemployment rate results in an additional 1.1 million uninsured, one million more enrollees in Medicaid and the Children’s Health Insurance Program, and a 3% to 4% decline in state revenues.

Fiscal year 2009 saw the largest ever one-year increase in Medicaid recipients. Nationwide, enrollment grew 7.5% — more than double the previous year’s 3.1% growth rate — to 46.9 million. In the Philadelphia region, Medicaid enrollment increased 8% in 2009, 18% in the past two years.

Yet, because states must balance their budgets yearly, and Medicaid comprises a large portion of these budgets, Medicaid becomes a prime target — just at a time when increases are needed.

The American Recovery and Reinvestment Act’s stimulus money brought significant increases in federal Medicaid matching rates, providing an estimated $87 billion to states over a nine-quarter period. But that extra funding is scheduled to end Dec. 31, 2010. And to date, state revenues show no signs of recovery.

Meanwhile, governors and hospitals across the country are advocating for a six-month extension of the federal Medicaid matching rates through June 2011.

It’s important that state leaders understand the financial burden that Medicaid underpayments place on providers.

The recently enacted federal healthcare reform legislation acknowledges as much, increasing state Medicaid payment rates for primary care physicians to Medicare levels in 2013 and 2014. But hospital providers also need Medicaid payment increases.

Beginning in 2014, the healthcare reform legislation also requires state Medicaid programs to cover people making up to 133% of the federal poverty level. This expansion could result in more than 15 million more Medicaid enrollees — regardless of what the economy does.

Although federal funding will be available to help pay for newly expanded populations, will existing payment systems be able to attract and sustain the providers needed to care for these new enrollees?

For the foreseeable future, Medicaid will play a large role in our nation’s healthcare. Payment systems must be developed to allow providers to serve this population without jeopardizing their financial stability or their ability to serve other consumers.

David B. Nash is Founding Dean of the Jefferson School of Population Health at Thomas Jefferson University and blogs at Nash on Health Policy.

Originally published in MedPage Today. Visit for more health policy news.

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  • KC

    Specialists will continue to take a hit from Medicaid patients. Unfortunately, what this means is lack of access. I am a surgeon in a very busy large single-specialty practice- more than 30 physicians. Three years ago we quit seeing Medicaid patients because of losses on these patients. Only one practice in our county sees these surgery patients. This does not bode well for access as thier operating costs rise and Medicaid reimbursement stays the same or decrease. A disaster is in the making for Medicaid patients in our area.

  • Vox Rusticus

    If Medicaid were a private entity and not a public one (or quasi-public for the contractor proxies) they would be under criminal investigation for fraud and conspiracy. The fraud is of handing out cards for a purported insurance policy that doesn’t just underpay, it frequently pays nothing. Or it stops paying when the annual budget, which is never adequate runs out. If a private company did that with the frequency with which Medicaid agencies do, its corporate officers would be indicted. But because it is the state government, the fraud gets a pass.

    I no longer accept Medicaid or any of the Medicaid contractor plans. I once did, and did for several years, but the frustration, abuse and outrage became intolerable. Having dropped it, I can’t say I miss it at all. The program is a failure by almost any reasonable standard one could have for an insurance plan, save for that of finding enrollees. When it is free to the taker, someone always signs up.

    Only the large universities have the resources to deal with the state that keeps them in line. A small practice doesn’t have enough at stake to have lawyers on retainer to take the state to court when it doesn’t pay claims; a big university medical center usually has these resources.

  • Alina Shipman

    David, is there a study providing a comparison of Medicaid, Medicare and third-party payer fees for top procedures? There have been several articles lately about the inadequacy of government reimbursement (Medicare included, although in many cases these fees are comparable to the ones paid by insurance companies). Also, I have yet to see an article outlining physician’s and hospitals expectations of what these fees should be. What kind of gap are we talking about? This should be the first step in knowing what’s feasible. Obviously the additional $87 billion of federal aid has not been proven sufficient as more and more physicians are dropping Medicaid patients. So proposing an extension of 6 months doesn’t seem to be the solution, not even for the immediate future.

    On the other hand as you mentioned a lot of people have been laid off. Even if these people have not joined the Medicaid ranks, as some have COBRA, with no income also comes no taxes. This in turn translates into less funds available to the states and the federal government. What is your proposal on where should the additional funds come from?

    In the meantime what should we do with these patients? The more we pass on the buck and let them be someone else’s problem the more chronic this problem will become. But if every doctor takes in at least a few Medicaid patients then the risk/loss could be spread throughout and also mitigated by the other payers in the mix.

    You also included some figures about the state of Philly area hospitals and how they are affected by the Medicaid patients. Will you be able to share the source of this study? I would be interesting in seeing what other metrics were considered in the analysis (e.g., other operational factors, investments, etc.). If the implication is that 70% of these hospitals are crippled by the Medicaid patients, then what are the other 30% of the hospitals doing differently? As you mentioned they also have net Medicaid revenues in excess of 15%.

  • docguy

    current rate for a office visit for a patient with medicaid reimburses at 28 dollars per visit. Not too many offices can see patients at that rate of reimbursement and stay open.

    I figured we might want to put a number on the discussion.

  • Vox Rusticus

    I calculated the recovery per scheduled appointment for office Medicaid services when I did take those plans. It came to $12 per scheduled appointment. The average rate paid was something around $18-19 per visit, but 40% of the Medicaid appointments went unpaid because the patients no-showed, so you have to deduct the lost office time for that. We weren’t allowed to charge Medicaid for no-show fees–you can’t bill for services not performed, and more than a few patients who didn’t show actually thought that the state would also pay their no-show fines for them.

    No sound practice can see patients at that rate. Even cooperative and responsible patients cannot be seen at that rate, let alone the population commonly serviced by Medicaid, who as often as not were neither cooperative nor responsible.

    Is it any wonder that Medicaid-paid work ends up at federally-subsidized community clinics and residency program outpatient clinics (besides all the EDs, I know)?
    You can’t pay your business bills, let alone earn anything to take home to pay your personal bills at that rate.

    Calling Medicaid an insurance program is a fraud. The only people I see making out well are the Medicaid agency employees who get state jobs and the private Medicaid contracting companies who take their cut of the top before doling out payments (or not, as is often the case) to the physicians actually providing the work.

    I simply do not believe the reports about public insurance efficiency are true representations of the proportion of the budgeted dollars that get spent on services. They completely discount the value of claims that are unjustly unpaid and underpaid.

    And to those who think the “answer” is for every doctor to see Medicaid patients so as to somehow distribute the charity burden evenly, all I can say is that you are fooled. All that will do is perpetuate, and even justify the farce of mismanagement that these programs presently are. If I have to give charity, which I do, I will do it without the inept, corrupt and wasteful assistance of a state agency and its private business cronies.

    • Alina Shipman

      You must be in a region that doesn’t pay so much as the rates you outlined are well below the ones listed in the Health Affairs article (see link in my post below). By comparison what are the rates paid by Medicare and third-party insurance?
      I agree with you that Medicaid plans (and Medicare for that matter) should not be administered by insurance companies. Never really understood why they are in the mix at all when their administrative fees could go to the physicians instead.
      In the meantime, what do you think we should do with the patients that are unfortunate enough to have Medicaid as their payment means?

    • Alina Shipman

      And one more thing – what was the % of your Medicaid business (compared to the total payer mix) when you did take those patients?

  • Alina Shipman

    Health Affairs published an article called Trends in Medicaid Fees, 2003-2008:

    They outlined the primary care fees as follows:
    Office visit, new patient, 30 mins. $62.59
    Office visit, new patient, 45 mins. $88.46
    Office visit, established patient, 15 mins. $38.05
    Office visit, established patient, 25 mins. $56.12

    The article also states that Medicaid fees are about 72% of Medicare fees.

    The problem is that most people’s main focus is the reimbursement issue, but this is only one piece of the puzzle. In order to have a successful business there are many other aspects to consider.

    The current state of the healthcare system is similar to the housing bubble and it’s just not sustainable in the long run. The value is not there since we’re paying more than any other country but in terms of outcomes we are #37.

    We have to be realistic and acknowledge what is going on around us. The economy is in pretty bad shape, lots of people lost their jobs, some found other jobs with incomes significantly lower than what they once earned. Some of the ones that still have jobs have not had a raise, and so on. So the available money is shrinking, not growing. At the same time it doesn’t mean that physicians have to provide free services. It just means that people have to become more creative and be willing to approach their business in a different way. By simply saying that doctors will not take this patient or that patient because they pay with Medicaid, Medicare or even cash it will only create a bad image and a lot of distrust between patients and physicians.

    On the other hand, by moving towards a value-based, patient-centric market, physicians (especially primary care ones) have an opportunity to make a real difference and at the same time increase their earnings.

  • Vox Rusticus

    Who is to trust or distrust when you refuse to do business under terms of Medicaid? They pay inadequately but prohibit balance billing. The patient is made, wittingly or unwittingly, into the state’s vehicle for cheating the doctor of fair and decent pay. Why is that acceptable to do to a physician with Medicaid but it is unthinkable to do to a grocery store with food stamps? I just refuse to buy into that obvious double standard. If I am to be “distrusted” because I refuse to be made into a chump by the state, too bad. I guess I will be distrusted, to use your words. At least I won’t have to explain why I would be stupid.

    And don’t presume to confuse accepting Medicaid with charity. That is the tack taken by those who won’t properly fund the program but who excoriate doctors and others for refusing to play along with a scheme that is manifestly an awful deal for them. I don’t owe it to the public to put my practice business at risk so that John Q. Public doesn’t have to pay the taxes to fund Medicaid or to have the state perform the tough and unpopular task of rationing what will and will not be covered so it might be possible to fund adequately what will be covered. No one wants to say “no”, so the payment per procedure is whittled to unmanageably low levels so that the rationing occurs by the indirect mechanism of providers refusing participation altogether. That is political and moral cowardice on the part of state government. These state Medicaid agencies just shrug their duty and let the doctors seem like the bad guys, denying “access.”

  • Alina Shipman

    Sorry, but I can’t trust any numbers or anything else that comes from an alias, especially when these numbers are in complete contradiction to what appeared in reputable publications.

    Some physicians complain about Medicaid patients and how these patients alone cripple their practice. The reality is that on average, this payer represents only a small percentage of the total revenue. It seems that your solution is to increase our taxes so we up the physicians fees. I presume this should also be done regardless of the outcomes. What in your opinion should be the hourly fee – $400, $500, $1,000? As it is we’re already paying for a brand new Lamborghini and we’re getting an old, bit up Yugo with the current healthcare system. I’ve seen practices that refuse to take Medicaid patients. They are more dysfunctional, and less friendlier than other practices who do take these kind of patients.

    Luckily, there are already signs that the market will move towards a customer-centric (and by customer I mean patient) and value-based model. Physicians who are true to their profession, are competent, and compassionate will do very well. As they should.

    Physicians who are more concerned about the money than the patient will do so at their own risk. As I stated in my previous comment there are ways to do the right thing and make plenty of money. You just have to be willing to do so.

    • Vox Rusticus

      I have no objection to moving to a “customer-centric” pattern of practice. Please, let’s do. Let’s have customers do what they are supposed to do, actually pay for what they wish to have.

      If you think Medicaid-”sponsored” care resembles anything like a customer relationship with a provider, then you have no idea what Medicaid is like at all.

      An hourly fee? That’s an idea. Usually i get paid piecework, and I have to do enough of it to cover my practice business costs and only then do I get to count anything for myself, like the money I need to live on and pay for my health insurance and my mortgage and my retirement, all of which i pay for myself.

      Alina, you have strong opinions about medicaid, but from your posts, it appears as if you have no experience at all of the responsibility of running and paying for a business. Go learn a little about that first before you presume to lecture on how those who bear real personal enterprise risk, whose personal wealth is on the line with their business, who make the decisions that not only affect their own welfare but those of their employees. When you actually get some real knowledge of that–and I can see you have some work to do there–then come back and see if what you wrote makes much sense.

      And yes, if the public wants Medicaid to work like a real insurance plan, it has to fund and manage it like one. Guess what, that costs real money and taxes have to be levied to pay for that. Sorry, but you don’t get to pay for real work from other people any other way. It isn’t right or fair to under-fund a public plan and close your eyes to that reality and then pretend you have any right to demand doctors suck up the shortfall. That is moral as well as fiscal bankruptcy, nothing less.

  • Alina Shipman

    Interesting that you chose this approach especially this coming from someone who hides behind an alias. I suppose this is because you know your views would not be very popular with your patients.

    “….pay for what they wish to have.” I would think you would mean for what they suppose to have.

    Getting paid for “piecework” vs hourly rate. Same thing. But, quite different than rewarding outcomes/competency.

    It seems that you have a really hard time running your business, in which case why do you do it? And why the medicine field?

    With respect to not knowing anything about running a business. Maybe not my own, but having had the responsibility of bringing in business and developing the strategy for products worth billions of dollars I think I’ve earned my “stripes.”

    Further as a consumer who pays quite a pretty penny for top of the line insurance and who has seen a lot of waste and inadequate payments I’ve earned my right to speak on the subject.

    Sorry, but in my view physicians who refuse to take Medicaid or Medicare patients lack compassion and should find themselves another profession. Turning the sick away because they don’t meet who knows what threshold is incomprehensible. I for one would not give my business to anyone in this category to “perpetuate” the system as you put it.

    Luckily there are still doctors who do the right thing.

    I wish you good luck and I will leave you with some words (Hippocratic Oath):

    I swear to fulfill, to the best of my ability and judgment, this covenant:
    I will respect the hard-won scientific gains of those physicians in whose steps I walk, and gladly share such knowledge as is mine with those who are to follow.

    I will apply, for the benefit of the sick, all measures [that] are required, avoiding those twin traps of overtreatment and therapeutic nihilism.

    I will remember that there is art to medicine as well as science, and that warmth, sympathy, and understanding may outweigh the surgeon’s knife or the chemist’s drug.

    I will not be ashamed to say “I know not,” nor will I fail to call in my colleagues when the skills of another are needed for a patient’s recovery.

    I will respect the privacy of my patients, for their problems are not disclosed to me that the world may know. Most especially must I tread with care in matters of life and death. If it is given me to save a life, all thanks. But it may also be within my power to take a life; this awesome responsibility must be faced with great humbleness and awareness of my own frailty. Above all, I must not play at God.

    I will remember that I do not treat a fever chart, a cancerous growth, but a sick human being, whose illness may affect the person’s family and economic stability. My responsibility includes these related problems, if I am to care adequately for the sick.

    I will prevent disease whenever I can, for prevention is preferable to cure.

    I will remember that I remain a member of society, with special obligations to all my fellow human beings, those sound of mind and body as well as the infirm.

    If I do not violate this oath, may I enjoy life and art, respected while I live and remembered with affection thereafter. May I always act so as to preserve the finest traditions of my calling and may I long experience the joy of healing those who seek my help.

    • Vox Rusticus

      I was wondering when someone would dance out the old “Hippocratic Oath” and pretend that it was some kind of argument for their position.

      Here’s news to you: the Hippocratic Oath is a relic of a society that thought enslavement of people as a station in life was perfectly O.K. It is not a law, nor is it even a professional requirement to observe it. Most medical schools in their graduation ceremonies have replaced it with more modern and acceptable ethical oaths. And that has nothing to do with Medicaid, or being required to serve the interests of a political class that wants the credit for “covering” medical treatment without actually paying for it.

      The Hippocratic Oath or any other oath is not some kind of moral trump card to play that gets you the right to say doctors should work for nothing, unless you are also subscribing to the other, and less than savory beliefs of the culture from which that old oath was born.

  • Vox Rusticus

    “Sorry, but I can’t trust any numbers or anything else that comes from an alias, especially when these numbers are in complete contradiction to what appeared in reputable publications.”

    I am not interested in what anyone chooses to publish as the rate of payment for a particular service supposedly paid by Medicaid is. A figure on a rate schedule is nothing more than that. It is an abstraction. What matters is how claims are actually paid and how the average actually calculates for the services performed compared to the money collected. Medicaid agencies and their proxies deny claims and they just plain ignore claims. Some deny them repeatedly for completely improper reasons in order to delay payment, and worse yet, sometimes deny a claim that has been filed previously but ignored for” lack of timely filing.” Time is on their side and frequently the cost of complaints proceedings exceed the value of the recovery.

    If I have to tell you this, it is obvious you have no understanding how there programs work, on the ground. Arguing that some “reputable” publication’s quote of a particular Medicaid rate schedule is a refutation of how claims are actually treated just shows me that you really don’t understand why Medicaid is the failure it presently is or why so many medical practices no longer want anything to do with it.

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