24 June 2010

The Impact of the SGR

A commenter in a previous post asked how much money I personally have lost due to the SGR fiasco.  I was initially kind of taken aback by the question.  At first I thought he was trying to discredit my policy positions by implying that since I have a vested personal interest in the matter I am not to be trusted.  Well, it's true -- I do have a direct financial stake. Full disclosure on that point, I guess.  For what it's worth.  I'm sure the reader was just wondering, though.

To be technical, as yet, I have lost nothing, because we pay ourselves based on revenue already booked, and the impact of any cuts won't be felt until three months or so down the road.  And also, nobody expects the cuts to stick.

But it's an interesting question, and I thought it was worth exploring what would happen to us if the cuts were to be enacted.  Here's what I found out.

We average about 1,900 medicare patients per month, in our practice which sees about 125,000 patients annually.  So Medicare is about 19% of our payer mix.  The typical Medicare patient codes somewhere between a level four and five, with the average bill being 4.3ish RVUs, with the net result being that we bill about 8,600 RVUs to medicare every month. Medicare pays about $36 per RVU under the 2009 standard, so our monthly expected revenue is about $310,000. Under the new, lower, conversion factor, the revenue will be about 20% lower, so call it a $65,000 loss every month.  Our practice would lose about $800,000 for the year if the cuts went through and stayed.

One of the consequences of being an owner/partner in a practice is that there are fixed overhead costs, and that the only variable cost is physician income.  So if the revenue floats up -- or down -- that directly impacts take-home pay.  We have about 40 doctors, so the average doc seeing 2.5% of the patients will take 2.5% of the lost income.  Meaning that for me, so far, my share of the loss would be (drumroll please) $1600 per month, or $20,000 annually.

Would that suck?  You bet.  Do ER docs deserve a lot of sympathy?  Maybe not -- we are paid reasonably well overall, and being hospital based we have no option to suck it up and try to recoup it from commercial payers by demanding higher compensation for privately insured patients (yes, Ezra, it does work that way).  But the plight of ER docs is not why the SGR catastrophe is catastrophic.  We can't refuse patients based on their insurance. But office-based physicians can, and do.  It's not that primary care docs are opting out of Medicare in meaningful numbers -- they aren't.  But what they are doing is simply refusing to see new medicare patients, turning them away at the door. (To be more precise, what practices generally do is limit their number of medicare patients to a certain fraction of the overall census, and refuse to enroll new Medicare patients until a spot "opens up.")

And the relative impact is much worse for office-based physicians; our overhead is low.  For an ER group the amount of revenue which goes to practice management can run 10-30% (depending on how lean the practice is run and what they count as overhead).  For clinic-based docs who have to pay rent, buy supplies, pay wages and benefits for staff, etc etc etc, the impact is much more substantial.

To put it more formally: consider an ER practice which runs 25% overhead, leaving 75% of revenue for physician compensation.  There is a 10% drop in revenue; this results in a 13.3% drop in take-home pay for the doctors.  Bummer, but tolerable. Now consider an office-based practice which has 70% overhead. The same 10% drop in revenue results in a 33.3% cut in physician income.  How do you think the typical doctor will react to that?

I should be clear: I have no clue what the typical expense ratio is for an office based physician. 70% is what I heard once as the upper end, so I used that to illustrate the point. The point is that if the SGR cuts go through, the impact will fall disproportionately on the already-strained primary care network.  This will predictably worsen the crisis Medicare patients experience with limited access to care, as PCPs further close their practices to money-losing Medicare patients.


  1. I was the one who asked. I wasn't trying to be clever or snarky, just interested. I had no idea how this would actually effect the bottom line of individual docs. Thanks.

  2. Those numbers indicate 1.5% of patients are medicare patients. Did you mean 19,000 medicare patients?

  3. No, I switched time periods within a sentence, just to be confusing. 1,900 medicare patients per month, but 120,000 patients annually. So about 23000 medicare patients annually.



  4. I assume reduced access to primary care will bump up the medicare in your mix.

  5. I have a comment like Kipper's:

    One of the places I work is a FP/Urgent care type place. The Doc who owns the joint limits the number of Medicare people she allows in each day. The crappy thing is she makes us, the support staff (nurses, techs, etc.) tell the Medicare patients instead of nutting up and doing it herself.

    I understand the need to make enough money to keep the doors open (and I do like my paycheck) but most of these "over quota" people end up with an appointment later in the week or going to the ED.

    I think if Medicare pays less and less, you all (and me in my other job) are going to see more and more of these poor people.

    As an aside, I hate hate hate this policy. It's a terrible feeling when I turn someone away who isn't really sick, condemning them to a several hour wait in the crowded ED.

  6. If a 2.5% decrease in your pay costs you 20K a year does that mean you're making 800K? If so where do I send my CV?


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