If you are looking for a political statement, don’t read any further. If you are looking for an endorsement for one of the myriad health care plans being proposed, don’t read any further. If you want to get an idea of the effect payment schedules have on a physician’s bottom line, read on. As it is unavoidable, however, there will be some comments regarding hospital reimbursement as it is all intertwined.
I want to point out that in my first practice (1985-1992), a small single specialty private group, revenue stream went directly to the practice, in the second practice (1993-2008) it went to a multi-specialty clinic with a flow-through mechanism (not salary) to the physicians after expenses, and in the third practice (2008-2018) I capitulated by working for a large medical system for salary. So in the first two scenarios my take home was directly based on how hard I wanted to work and, the harder I worked, potentially the more money I took home, while the less I worked the less money I would take home. In the last scenario I knew that, as long as certain work requirements were met, my salary was safe.
Did you ever stop to wonder why many physicians are reluctant to accept Medicare and/or Medicaid patients? Did you ever wonder why physicians prefer not to have Medicaid patients as part of their practice? Did you realize that the biggest threat that physicians have to government run healthcare is the fear by the feds and others that physicians won’t participate in the program?
Imagine this. You are a provider of a particular service (plumbing, legal, car repair, etc.) and you contracted with “Particular Service Insurance (PSI)” agreeing to receive payment through this. You provide a particular service for which you charge $100 (unbeknownst to your client or insurer your total cost is $90). The PSI assesses your service as only being worth $80 and, according the the contract, will only pay 80% of what is felt appropriate, in this case $64 ($80×0.8). So you, the service provider, will get a check for $64, you bill the client $16 ($80-$64), hope they pay it (many don’t), “eat” $20 ($100-$80), while realizing that you don’t break even on costs. And in this case it really doesn’t matter what you charge–$500, $1000, $5000–for that particular service if the PSI stipulates that it will only reimburse 80% of what it considers it’s “maximal allowable charge (MAC).” But you raise your charge for this particular service anyway, say to $500, because you also participate in “Particular Service Alternative Insurance (PSAI)”, which pays 150% of the PSI maximal allowable charge. So now your charge is $500, cost is still $90, the MAC is still $80, and PSAI payment is $120 (1.5 x 80). In the first case you lost $10 and in the second gained $30 so it stands to reason that, as long as you have more PSAI customers than PSI customers, you can keep the lights on. What if your customer doesn’t have PSI or PSAI but is private pay? You provided the service and charged the $500. Your customer admits they don’t have the money and you respond with a generous 30% discount–now the bill is only $350! Let’s talk “payment plan.” There is one other consideration before leaving this topic, however, as it pertains to someone who has PSI but you, the provider, don’t participate. You could balance bill, meaning you expect full payment from the customer while PSI will reimburse their participant for what is allowable. Balance billing can work as long as the State where you have your business doesn’t prohibit balance billing but a number of them do.
The above is the bare bones mechanism for Medicare (PSI), commercial insurance (PSAI) and self pay (“payment plan”). There is one more health insurer, however, Medicaid. The basic mechanism for this is quite simple: charge what you want, Medicaid pays what it wants and payment is invariably below your cost. Talk about bad debt! Econ 101 points out that any business will always have a degree of bad debt but that if that debt exceeds a certain threshold the business will be adversely affected more and more to the point it can no longer be sustained.
So now your business starts to “cost shift” by charging higher and higher prices to mitigate Medicaid losses, offset PSI losses, and improve revenue by trying to bring in more customers with PSAI. The PSI company starts to gradually increase its MAC as it is realizing that PSI customers can’t find providers where the PSI is accepted. Despite this your true costs have also been slowly increasing and you are still losing money with PSI customers. The PSAI company, not be be outdone, also begins to negotiate lower reimbursement rates on the order, say, of 120-130% of the new MAC.
The following insert gives a nice summary and, while the information is somewhat dated, I highly doubt the trends have changed.
A few examples:
In the late 1980’s our group took care of a Pennsylvania Medicaid patient who had suffered a perforated colon during a colonoscopy, underwent surgery, and was admitted to the ICU. The patient was transferred from the primary service to the critical care service (our group) for streamlining of care. While critically ill and experiencing many complications, the patient improved over time and 6 months later was able to be discharged from the hospital. Our group submitted a bill for $10,000 for the 6 months (daily management, after-hour bedside management, procedures) to Medicaid. Their response was something to the effect, “Services rendered were under a global fee system for which you have already been reimbursed.” The payment? $70.
During this same time frame our group, in conjunction with another non-hospital health care entity, began a program for chronic ventilator patients, the majority of whom would never live independent of mechanical ventilation again. The patients’ insurance was a mix of Medicare and commercial. We were good at what we did, the census grew to somewhere between 15-20 patients, and patients were happy. Unfortunately in this case we were too good at what we did and many patients lived more that a year. Why is this important? Because after a year most insurance coverage, including Medicare, “went away” as these were the “rules of the insurance game.” Once this coverage was gone patient insurance now came under the umbrella of Pennsylvania Medicaid. As time went on, as you could anticipate, daily costs far exceeded Medicaid reimbursement and the program folded.
As one last example in the above time frame Pennsylvania passed a law linking physician licensure to forgoing balance billing for Medicare patients. There was a large single specialty group in town who saw Medicare patients in their office but the vast majority of patients were commercial pay. In response to the law, the group adjusted its practice to limit (ration?) the number of Medicare patients seen in a given month, thereby freeing up additional slots for commercial paying patients while complying with the letter of the law.
In the 1990’s because of our location in Indiana our multi-specialty clinic physicians would see a number of Kentucky, Illinois, and Tennessee Medicaid patients, as well as those from Indiana. Part of the reason was the small hospital located across the street from the Clinic would accept these out of state patients in transfer, usually in a trauma related situation, or the patient would just show up in the ER for treatment often requiring hospitalization. Payments whether to the hospital or physician from you-name-the State were abysmal . The standing joke was that it cost more to mail the bill to the State than what was received in payment. This was especially so for Illinois. By the way, the hospital closed in the late 1990’s in large part due to lack of realistic reimbursement for services provided to Medicaid patients. (More and more I think this is happening to small hospitals–usually, but not exclusively, rural).
The above are just a smattering of examples; I am confident there are many more that could be listed by others. My purpose was to give you an idea of why there are doctors who are reluctant to accept Medicare patients and even more are reluctant to accept Medicaid. In part this is why there is an ever increasing amount of fraud with both insurances (typically services billed but never delivered), why doctors are abandoning private practice and joining large health care systems for a salary, and why fewer and fewer doctors are not moving to small towns to practice.
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