29 June 2009

When he's good, he's very good, but when he's bad...

I make no secret for my admiration of Ezra Klein. He's an example of the sort of journalist we need more of -- he's identified his niche, is dogged in figuring out the intricacies of his subjects, and brings a fresh way of looking at things that I've often found valuable.  But he's never worked in the health care industry, and book learning has its limits, as he demonstrated today:

Ezra Klein - Does Medicare Work by Dictat?
Some of the folks I've talked with seem to think that because Congress sets [Medicare] prices, providers have to accept them. The long arm of the government reaches in and breaks the window and unlocks the door and pushes the elderly into the waiting room. But that's not true at all.

At the beginning of each year, providers decided whether they will do business with Medicare. In other words, they choose whether or not to accept public insurance like Medicare or Medicaid. Almost all of them choose to do so, because providing health services to Medicare patients is actually a very profitable business (Medicaid patients, less so).
I'm not really sure where to start with this, because it's breathtakingly wrong on several levels.

Let's start with the idea that Medicare patients are "profitable."  First of all, profitable means different things to different specialties.  If you're an orthopedic surgeon specializing in hip replacements, almost all of which are done to old people under medicare, then yes, the reimbursement for that procedure is adequate to pay the bills and provide a good living.  Fair enough.  If you are a primary care doctor, however, the reimbursement for that is a lot lower, low enough that alone it may not cover costs at all.  Remember that primary care is a business and that docs have to pay rent, insurance, office staff and benefits, equipment, etc before they can pay their own salaries.  The Medicare Professional Fee schedule has not had a meaningful update in well over a decade and in fact pays less well now than it did in 1995.  That's in gross dollars, not inflation-adjusted dollars.  Meanwhile, the other costs have gone up, some well in excess of inflation -- healthcare costs for office employees being a prominent and ironic example.

The result there is that most docs take a loss or at best break even on Medicare patients.  The proof of this is the difficulty that Medicare beneficiaries have in finding physicians.  Yes, most docs do still participate in Medicare, but they have capped the number of spots in their clinics available to Medicare patients.  A practice with more than a certain fraction of Medicare is just not financially viable.

So why don't more docs just opt out?  Part of it, from my experience talking to family docs, is that they feel an obligation to their existing patients and don't want to cast them out.  A bigger reason, I suspect, is that there is a big disincentive for docs to opt out.  If I cancel my group's Aetna contract today, and decide it was a mistake in four months, I can re-enroll and be up and running in their network within days.  Medicare requires a two-year waiting period for docs who opt out before you can re-enroll in the program.  If it turned out to be a bad business decision, then there's no take-back.  That's a risk many docs are not willing to take.

The other consideration in the "voluntary" nature of Medicare participation is that many specialties are hospital based and as such are required by their hospital partners to participate in Medicare as a condition of being allowed to practice in the hospital.  Every ER contract I have ever reviewed stipulated obligatory Medicare participation.  Ditto for radiologists, anesthesiologists, pathologists, as well as many surgical specialties.  So if you're an ER doc who does not participate in Medicare, I wish you well in finding a job, but you cannot work at any of my facilities!  Whether an arrangement in which external agents compel participation in a voluntary program could be considered "voluntary" is an exercise left for the philosophers.  As a practical matter, for any hospital-based doctor it is mandatory if you wish to be employed.

Turning to the practical extension, whether health insurance reform should include a government-run option:
If [the public plan] underpaid providers, providers would stop accepting it. And if they stopped accepting it, then people would switch to a private insurer because they'd want to be able to keep their doctor and they'd be willing to pay the difference to do so. Just as private insurers could lose members if their rates weren't low enough, the public plan could lose members if its rates were too low.
Depends.  That's the "weak" version of the public plan, and I hope it's implemented.  Proponents of a "strong" public plan would like to see its reimbursement linked to Medicare's and would like to see participation mandatory for docs who are on Medicare.  Given that the public plan is itself at risk of elimination, I think the strong public plan is becoming vanishingly unlikely, so it's not the #1 fear I have these days.

But yes, Ezra, Medicare does work by dictat.

(Oh, and by the way, thanks for the link last week.)


  1. Well said. Medicare is a nightmare for PCPs, as they can't keep the doors open with the reimbursement from Medicare. However, they can limit the number of medicare patients they see, which is what most end up doing. It's an unfair burden to place on PCPs, however.

  2. Well, well, look who turned into a republican all of a sudden.

  3. http://voices.washingtonpost.com/ezra-klein/2009/07/does_medicare_pay_below_cost_w.html

    Take a look at Ezra's rejoinder. It's quite convincing especially when he hammers you on the so called dictum. If it's a dictum, it's a free-market dictum, not a government dictum, which would happen by law. Instead the free-marketeers have decided it is to their advantage to require Medicare participation of their doctors. Perhaps it sucks but welcome to the free market.

  4. "MedPAC analysis has identified a set of low-cost hospitals that consistently out-perform other hospitals on a series of quality measures, including mortality and readmissions," Hackbarth explained. "Among this set of hospitals, we found that Medicare payments on average roughly equaled the hospitals’ costs."

    The Liberal Magical Hospital Theory:
    1. Hospitals save more lives by cutting costs to the point that even Medicare is profitable.

    Occam's Razor theory:
    1. Hospitals that specialize in the most highly reimbursed procedures lose less money, and
    2. Hospitals which are losing less money can provide better care.

    The smart money's on Occam.


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