Will I have a doctor next year? I worry about that. You might worry a bit, too, if you happen to be of Medicare age.
When the 2013 Medicare trustees report was released two weeks ago, the immediate media response was positive: There was no immediate problem and medical cost inflation had flattened out. Economist and Nobel laureate Paul Krugman, writing in The New York Times, declared: “The Geezers Are All Right.”
I’m not so sure.
I worry that Professor Krugman may not have read Appendix C in the report. That appendix discusses the Medicare trustees’ doubts that cost reductions mandated by the Affordable Care Act will be possible. (The issue is further discussed in a longer memo released by the Office of the Actuary on the same day: “Projected Medicare Expenditures under Illustrative Scenarios with Alternative Payment Updates to Medicare Providers.”)
The problem here is that media reports focused on trustee estimates of the long-term financing of Medicare under the rules of the ACA. Unfortunately, few understand that the viability of the ACA itself will be severely tested early next year. If it fails that test, all those happy-talk numbers will be out the window. The test will occur over a single action.
What could possibly be so powerful that it threatens the viability of the largest revamping of health care in half a century? It’s the amount of money Medicare pays doctors for services rendered. Next year the ACA mandates that the reimbursement rate for doctors’ services be cut by 24.7 percent.
Yes, you read that right: 24.7 percent.
If that happens without a hitch — without the first Million-Doctor March on Washington or doctors forming a union as tough as the Teamsters — the health-care cost savings envisioned by the ACA may actually come to pass because doctors will either be working for less money from Medicare or they will have said goodbye and good luck to their Medicare patients.
If it doesn’t happen, then the trillions of dollars in medical cost savings envisioned by the ACA will disappear. We’ll be back to square one. After four years of miserable conflict, we’ll still have a health-care system destined to bankrupt the country.
You can understand how hard doctors will push back by following me through a quick examination of what most doctors face today. When I visit my internist, the first thing I see is a room with three assistants. They work on billing, collecting and scheduling. You probably see something very similar. Those workers are part of the overhead cost dictated by our highly regulated and enormously bureaucratic third-party payment system.
Once I get through the waiting room, I may encounter two or three additional support people who do weigh-ins, blood pressure measurements, EKGs, blood draws for testing, etc.
For a doctor, that’s a lot of payroll. Every one of those people has to be paid before my internist, or yours, makes a dime. While we’re at it, let’s not forget the cost of the newly mandated electronic medical records system, the cost of office rent, office equipment and computers, malpractice insurance and accounting.
Now remember that the 24.7 percent payment reduction is a reduction in gross revenue. What the doctor gets to take home is her revenue less her overhead. If overhead is about 40 percent of revenue (This is an optimistic estimate, many doctors spend much more.), and revenue is reduced by 24.7 percent, then my internist could be heading for a 40 percent pay cut.
(Note: The 40 percent figure assumes that the doctor’s practice is 100 percent Medicare patients, so the actual income cut will be smaller. It will depend on the nature and demography of the doctor’s practice.)
It’s not a pretty picture. What does it portend? For starters, fewer doctors will be willing to see Medicare patients. They may want to, but the cost squeeze will make it financially impossible. If this happens, the ACA will have achieved great health-care savings not by design, but by unintended consequence. Money will be saved because care will not be available.
Fortunately, it’s unlikely that the cut will stand. As I pointed out last week and earlier, the trustees themselves have repeatedly expressed doubt that cost savings mandated in the ACA will be realized, starting with the fee reduction for doctors.
Ironically, the 24.7 percent size of the cut itself is evidence that it won’t happen. Why? Because the only reason the cut is so large is that it is the cumulative amount that payments were supposed to have been reduced, by law, over most of the last decade! The cuts never happened because Congress routinely restored the payments.
SCOTT BURNS is a principal of the Plano-based investment firm AssetBuilder Inc., a registered investment adviser.