Reforming Medicaid to Stabilize Medicare
The Pending Medicare Crisis
The Sustainable Growth Rate Formula is scheduled to cut Medicare reimbursement by 29.5% beginning January 1, 2012. This will place access to care for American seniors. This section describes the problem, its background, and the solution. In brief, Washington must find $300 billion over the next ten years to keep Medicare fiscally viable.
All is Not as it Seemed
When President Obama lobbied for his healthcare reform package, he looked America squarely in the eye and promised his $1 trillion healthcare plan would “reduce the deficit.” As a result of increased taxes, huge Medicare cuts, and multiple budget gimmicks, the Congressional Budget Office estimated the law would reduce the 10-year budget deficit by $143 billion.
The President also assured seniors the legislation would save Medicare and they could “keep their physician if they wanted to.” But seniors are learning that all is not as promised.
When the president claimed the Patient Protection and Affordable Care Act (PPACA) would reduce the deficit, he neglected to mention one key point. The calculated “savings” required a $298 billion cut for physicians caring for patients on Medicare.* A cut this deep would severely limit access to care for seniors.
Trouble Brewing in Medicare
Even without this cut, Medicare payments often do not cover the cost of delivering care. For example:
- In January of 2010 the Mayo Clinic stunned seniors when it announced one of its Arizona primary care clinics would no longer accept payment from Medicare. This launched a two-year pilot project to determine if Mayo should drop Medicare reimbursement in other clinics in Arizona, Minnesota, and Florida. Combined, these clinics serve more than a half-million seniors.Why consider such an extreme measure? Mayo was operating at a loss. In 2008, Mayo Clinic posted an $840 million loss in caring for patients on Medicare.** A business cannot survive when expenses exceed revenue. What makes the Mayo Clinic story so poignant is that, while pushing his healthcare plan, President Obama praised the Mayo system as a model of efficiency. He noted Mayo gave “the highest quality care at costs well below the national norm.”***
- In 2010 Medicare repeatedly ran short of money. Physician offices experienced interruptions of cash flow in January, March, May, and June. The interruption of June’s Medicare payment lasted nearly the entire month while Washington scrambled to find additional funding to prop up Medicare.Because Medicare payments comprise up to 70 percent of some physician’s revenue, this interruption of payment forced many doctors to secure short-term loans just to cover office payroll. Doctors are small business owners. Low Medicare reimbursement combined with the uncertainty of payment has caused many physicians to limit their financial exposure to patients on Medicare.
- Driven by low reimbursement and onerous government regulations, physicians are now leaving Medicare at an alarming rate. In the state of Texas, prior to 2003, no more than three physicians left Medicare in any given year. However, 151 physicians left the program in 2008. Another 135 left in 2009. Another 172 Texas physicians abandon Medicare in 2010.**** In less than a decade, Texas witnessed a 3,000 percent increase in the number of physicians leaving Medicare.
- As a direct result of declining Medicare reimbursement, physicians are going out of business nationwide. For example, in one midsized town in western North Carolina three physician groups have been forced out of private practice since 2008. One group practiced hospital-based medicine; the other two groups practiced cardiology. Nearly all of the 25 physicians involved are now hospital employees, not private physicians. When expenses exceed revenue, a business simply cannot survive—no matter how well intentioned.
Can We Reverse Course?
The question seniors now ask is, “If Mayo lost $840 million caring for seniors in 2008, and physicians leaving Medicare even now, what will be the impact of the massive cut scheduled for January 1, 2012?”
Before we look at a solution to this dilemma, we must first understand the background to the problem.