Medicare's economic, noneconomic impact

A column that answers questions on ethical issues in medical practice

The Ethics Group provides discussions on questions of ethics and professionalism in medical practice. Readers are encouraged to submit questions and comments to [email protected], or to Ethics Group, AMA, 515 N. State St., Chicago, IL 60654. Opinions in Ethics Forum reflect the views of the authors and do not constitute official policy of the AMA. Posted Sept. 4, 2006.

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The question of when is it economically prudent and ethically defensible for a physician practice to stop accepting new Medicare patients becomes critical as policy-makers and regulators intent on ensuring health care access for Medicare beneficiaries face reductions in payments to physicians.


Every year since 2001, organized medicine has reacted to projected payment reductions with the claim that reduced payment would jeopardize access to services because a significant percentage of physicians would stop accepting new Medicare patients. These predictions have been based on physician surveys. Payment reductions are once again embedded in the final regulation announcement for physician payment in 2007. If they are actually implemented, physicians will confront a real choice, not the hypothetical one posed in surveys.

The decision whether to accept new Medicare patients is a function of economic and noneconomic factors. Economic factors include the physician's personal and practice income expectations; the number of active patients in the practice; current differences between Medicare and other payer rates; the opportunity to fill the practice with higher-paying patients; and the size of payment reductions and whether reductions are anticipated for future years. Dramatic payment reduction is more likely to cause refusal to accept new patients.

Noneconomic influences on the decision include professional commitment to current patients and community; longstanding mandates to serve Medicare patients in certain settings (e.g., federally qualified health centers, rural health clinics and hospital emergency departments); personal ethical decisions to see all patients regardless of payment source; unwillingness to burden one's local physician colleagues with Medicare patients; and concern about one's reputation among community members and colleagues.

Rural Policy Research Institute (RUPRI) Center for Rural Health Policy Analysis research found that many rural physicians were committed to accepting new Medicare patients -- even at a financial disadvantage -- because the practice was the only source of local primary care for that population. It also has been shown that the longer one has been in the current practice location, satisfaction derived from treating Medicare patients and a belief in the Medicare program positively impact the likelihood that a physician will accept new Medicare patients.

A physician's time is finite, and accepting patients from a lower-paying group means accepting fewer patients from a higher-paying group, resulting in reduced practice income. If a physician behaves as an economically rational actor, he or she will judge Medicare patients to be less desirable than commercially insured patients on two counts: Medicare payment per service rendered is likely to be less, and time per Medicare encounter is likely to be greater.

But suppose the physician treats income as a variable to be optimized but not necessarily maximized. If the practice's current mix of patients results in a satisfactory annual income, this physician will see no reason to consider change. Furthermore, each new patient affects income only at the margin, so until the next patient represents a significant income loss, there is no economic reason not to accept the present patient.

This rationale might help explain the national stability of the percentage of physicians who accept new Medicare patients. The Center for Health System Change reports that more than 65% of primary care physicians accepted all new beneficiaries seeking care (vs. accepting "some" or "no" patients) in 2004-05, an increase from 61.7% in 2000-01. A Government Accountability Office report showed that the number of Medicare beneficiaries who received physician services increased from 2000 to 2002, and that the number of services per 1,000 beneficiaries who saw physicians also increased in both rural and urban areas, except for rural Alaska.

AMA survey results suggest, however, that the percentage of physicians declining new Medicare patients would increase were there to be one more year of 3% to 5% decreases in payment. The results are not contradictory -- the GAO and HSC studies measure physician behavior, while the AMA survey measures physician attitude.

Physician attitude vs. behavior

Physician attitude and physician behavior are not aligned regarding accepting new Medicare patients. So how can policy-makers predict when Medicare payment reductions will significantly reduce access to physician services?

Predicting when physician attitudes will become behaviors is difficult, because the relative impact of economic and noneconomic decision-making factors differs in every community and with every physician. A significant increase in the number of practices that are closed to new Medicare patients will occur when the economic incentives to reject these patients outweigh the noneconomic, service- and satisfaction-related factors that encourage continued Medicare patient acceptance. The result will be reduced access to physician services for Medicare beneficiaries.

Should physicians continue to see new Medicare patients and thus preserve beneficiary access to physician services despite reductions in Medicare payments? The answer is an obvious "no" if by accepting those patients the health of the practice becomes unsustainable due to unsatisfied financial commitments. The answer is "yes" if the practice can survive financially and one of two conditions prevails: the physician's personal utility is enhanced, or commitments to the community warrant continued acceptance of new Medicare patients. Personal utility is enhanced either when the physician derives personal gratification from serving the new patients or when the physician's professional commitment to service outweighs the marginal effects on income.

If one practice in a multipractice community declines new Medicare patients, other practices might see an increased percentage of Medicare patients that effectively reduces their potential practice income. Patient access may not be immediately impacted, but it is at significant risk. The RUPRI Center has visited communities where this occurs.

A different type of disequilibrium occurs in communities with a high percentage of Medicare beneficiaries and Medicare payments insufficient to sustain a successful practice. Public programs may have an obligation to supplement payment to ensure access. Public supplements underpin programs such as cost-based reimbursement for critical access hospitals, bonus payments to physicians in shortage areas and special payment policies for rural health clinics and federally qualified health centers.

In summary, national studies suggest that the economic and noneconomic pressures on physician practices to stop accepting new Medicare patients are in fact not causing widespread problems of access. But national statistics do not tell the whole story.

Physician attitudes and individual practice patterns may portend impending change that is not reflected in nationally aggregated physician behavior. Policy-makers should evaluate those sentinel communities and practices in which the economic pressures to discontinue Medicare services have overpowered the noneconomic incentives to continue serving Medicare beneficiaries. Only then can policy-makers create informed public policies designed to ensure fair Medicare payment to physicians and stable access to physician services for Medicare beneficiaries.

Keith J. Mueller, PhD, director of the Nebraska Center for Rural Health Research at the University of Nebraska Medical Center, Omaha, Neb.; director of the Rural Policy Research Institute (RUPRI) Center for Rural Health Policy Analysis

A. Clinton MacKinney, MD, rural emergency physician and participant in health services research at the University of Nebraska Medical Center, Omaha, Neb.; senior consultant, Stroudwater Associates, a rural hospital consulting firm

The Ethics Group provides discussions on questions of ethics and professionalism in medical practice. Readers are encouraged to submit questions and comments to [email protected], or to Ethics Group, AMA, 515 N. State St., Chicago, IL 60654. Opinions in Ethics Forum reflect the views of the authors and do not constitute official policy of the AMA.

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