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Doctor pay: Calculate your business case for Medicare and Medicaid

A cost-benefit analysis of public insurance programs helps physicians determine whether participation will pay dividends.

By Kathleen Phalen Tomaselli amednews correspondent — Posted July 22, 2013

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For a while, it was easy for internist Thomas Hwang, MD, of Tustin, Calif., to see Medicare patients in 30-minute visits. But as his costs skyrocketed, he had to look at other ways of bringing in money or cutting expenses.

“I've been in practice for seven years, and 70% to 80% of our patients are geriatric,” he said. “I didn't really understand about my Medicare reimbursement until I met with my biller.”

It turns out the meeting was important in his decision-making. Medicare was a more reliable payer to his Tustin Irvine Internal Medical Group than private plans. Nonetheless, Dr. Hwang was having trouble keeping pace with all the patients he needed to see to stay afloat.

“A year ago, I was pretty miserable. I had too many complicated patients, and I was taking three hours or more of work home each night,” he said.

Dr. Hwang was confronted with a decision that many doctors have wrestled with when it comes to Medicare, as well as Medicaid: Should I drop it?

Given the current Medicare and Medicaid environment, physicians wrestle with ethical, moral and business decisions regarding that question. With a rapidly aging population and expansion of health insurance under the Affordable Care Act, patient participation in both programs is expected to go up.

“No doctor feels good about turning away patients,” said Eric Grigsby, MD, president and CEO of Neurovations, a clinical trial management and education company, and medical director of the Napa Pain Institute in California. “Our hearts tell us to do one thing, but we have to keep the business open. The reality is we have to put food on the table.”

Before taking drastic measures, experts suggest a thorough financial and market analysis. Consider these questions: If I drop Medicare or Medicaid, what happens if commercial sources disappear? Will I have a competitive disadvantage turning these programs away? Have I really looked at what's coming in and going out? Can I honestly say dropping government insurers is the best choice for me?

Dissatisfaction with government plans

States have cut physician Medicaid pay because of budget troubles, especially during the 2007-09 recession and its aftermath. Currently, a majority of physicians across many specialties said they could no longer afford to accept new Medicaid patients because of declining pay, according to a 2013 Jackson Healthcare survey of 3,456 physicians.

The federal government promised to match Medicaid primary care payments to Medicare pay in 2013 and 2014. But Congress has overridden cuts set by Medicare's sustainable growth rate formula 18 times. No pay increase has been greater than 2.2%, and Congress merely held Medicare pay flat nine times. In addition, doctors have complained about Medicare's unfunded mandates, and practices have had to invest in order to get rewards for such programs as meaningful use of electronic health records.

Despite that, the Jackson Healthcare survey indicates that 88% of physicians were accepting new Medicare patients, a seven percentage-point increase from 2012. But other surveys show that acceptance is not universal. A recent Texas Medical Assn. survey reports that only 58% of the state's physicians accept new Medicare patients. In Florida, 92% of Tallahassee primary care physicians participate in Medicare, but 44% don't accept new Medicare patients, according to a Florida State University College of Medicine survey.

Sugar Land, Texas, orthopedic surgeon Thomas Parr, MD, keeps his Medicare patients even though he says he is paid less today for a total knee replacement than he was 25 years ago. His wife, Joannie, a certified public accountant who has managed the practice for 26 years, does tasks that were once split among three people.

“My husband went to medical school to do good for others, and that's why we're still trying to make it work,” she said. “But every year it gets worse.”

Dr. Parr, chief of staff at Houston Orthopedic & Spine Hospital in Bellaire, continues to accept Medicare in his private practice, although he does not take Medicaid. In addition to his struggle with below-cost payment, surgical claims often are denied. One such claim was finally approved on a third appeal after more than 40 hours of preparation and the patient's wife supplying photos of the patient's knee in a brace before the surgery. “There is extra overhead to do all the paperwork if we are dealing with a Medicare surgical patient,” he said.

On April 1, 2% sequester cuts to Medicare Part B affected North Shore Hematology Oncology Associates in New York, forcing the community cancer center to send a third of its chemotherapy patients to the hospital for treatment. “If we treated the patients receiving the most expensive drugs, we'd be out of business in six months to a year,” said Jeffrey Vacirca, MD, chief executive officer of the center.

Practice management experts say given this environment, it could be worthwhile for physicians to run a cost-benefit analysis of Medicare and Medicaid.

Understand the balance sheet

Dropping Medicare or Medicaid is a complex decision that includes a range of quantitative and emotional factors. “For the average physician it is about understanding market dynamics,” said Greg Scott, a principal in Deloitte Consulting's Life Sciences & Health Care practice, where he is national leader of the government programs service line. “It's important to consider there will be 10,000 new Medicare beneficiaries [a day] as America gets grayer, and there will be many, many more people with Medicaid ID cards in their pockets.”

Scott recommends this decision strategy:

  • Think of this as a balance sheet. Look at your pay rate mix today, your sources of revenue. Look at your patient panel and segment by payer.
  • Do a market analysis. Ask, “Do I live in an area where Medicare is high?” In high Medicare areas it would be difficult to refuse patients.
  • Ask, “Do I have an opportunity to increase my business in other areas?” Maybe self-pay is ramping up, or maybe there are more commercial insurers. Will there be a new stream of patients from the health insurance exchanges I need to consider?
  • Determine whether your decision will leave a hole in your business, especially if you are a primary care physician in a rural area.
  • Examine the hassle factor. How are you affected by the new requirements and red tape and the current Medicare reject rate? You could look at your claims payments as one way of gauging the hassles involved.
  • Consider the annual drama over the SGR. What if a congressional override doesn't happen?
  • Ask yourself, “Is there a way to exist with Medicare?” And consider the influx of Medicaid starting in January 2014. Can you say no to a growing market?

Changing market dynamics

When Dr. Hwang met with his biller, the numbers showed Medicare wasn't his biggest problem. But the questions that go beyond the current payment environment and into more emotional issues might tip the balance on whether dropping Medicare or Medicaid is a good idea.

Given the changes in the health system taking place under reform, Medicare may become the best game in town for some physicians. “Medicine turns into a high-volume game,” Dr. Grigsby said. “In California, Medicare is our best payer.”

Choosing to leave a public plan must be a carefully orchestrated decision, said Vicki Smith-Daniels, PhD, faculty chair in the graduate business program in medicine at Kelley School of Business, Indiana University in Indianapolis. “My question is: Where are you going to go? What's your competitive strategy?”

That competitive strategy should take into account that even if you stay independent, more physicians in your specialty and area might become employed and would be more likely to take Medicare and Medicaid.

In early 2010, James Rickert, MD, an orthopedic surgeon in Bloomington, Ind., took a medical leave of absence to get a stem cell transplant for non-Hodgkin's lymphoma. He returned in the summer of 2011. “During that time, we went from almost no employed physicians to a majority of employed physicians, including many of the most highly regarded physicians in town,” he said. “I am now employed by Indiana University Health. That's how fast the market can change.”

Dr. Rickert talks about referrals and how dropping a public plan may hurt. “Think about referrals from other physicians,” he said. “It's inconceivable to think they will keep two lists of physicians: Medicare and non-Medicare. If one doctor accepts the Medicare referrals and another does not, the doctor accepting Medicare will get all the referrals.”

And what about the patients' families? “If you no longer take care of grandma,” he said, “they may find another physician they like who will take Medicare, and you'll lose all those patients.”

Adoption of the concierge practice

Although there are risks to dropping public programs, there also is a danger to keeping any plan that loses money for a practice. Norman Chenven, MD, founder and CEO of Austin Regional Clinic in Texas, talks about an engineering approach. “It's about time and materials,” he said. The clinics take no new Medicare patients, but those who age into the program remain. Their Medicare population is about 12%. “We can pretty much predict that if our Medicare population grows beyond a certain percentage our profitability is going to go away,” he said.

Dr. Hwang decided the way to solve his financial issues was to convert his practice to a hybrid concierge model. That is a combination of traditional practice while allowing patients to pay an extra fee for service not covered by their insurers. Such an arrangement is legal under Medicare rules, although physicians have to be careful that they are truly offering something the plan won't cover.

Dr. Hwang said the move to a hybrid concierge service has made all the difference. About 70% of his 75 concierge patients are also Medicare. He blocks out 90 minutes each day for his concierge patients, and the extra income allows him to reduce the number of patients he sees in his daily schedule.

“Most of my patients are Medicare, and this hybrid concierge allows me to continue seeing Medicare patients.”

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