Physicians all across the country are breathing huge sighs of relief. Congress has once again kicked the SGR can further down the road, and Medicare is once again processing claims. This time, Congress has even added a 2.2% increase to the schedule, which will surely be welcomed by physicians who have not seen an increase in Medicare reimbursement for many years. The new SGR delay will last until the end of November, which gives us five whole months of Medicare payment predictability. This all sounds great, right? Not so fast.
Ironically, the latest move by Congress may turn out to be the worst thing they could have ever done to doctors. I have talked to many physicians about this, and most are shocked when I tell them that this is actually a very bad thing. They look at me with puzzled expressions and ask how a 2.2% increase in Medicare reimbursement could possibly be a bad thing? Allow me to explain.
Let's travel forward in time. Imagine it is November 10th and the mid-term elections are over. If most predictions are correct, it wasn’t a great night for the Democrats. In a recent projection piece I read, the author predicts that the Democrats will lose 7 Senate seats and 25 house seats. This would mean that the Senate would have 50 Democrats, 48 Republicans, and 2 Independents. The House would be 231 Democrat and 204 Republican. For argument sake, let’s pretend this is exactly what happens. The Democrats will still have control of both the House and the Senate, but they will have nowhere near enough of a majority to push things through like they did with Health Care Reform legislation. The Republicans, feeling more powerful, will look to 2014 to take over both Congress and the White House. We will have a lame duck Congress until the new one gets sworn in, and in just a couple short weeks, the SGR is going to kick in again and reduce physician payments by over 23%. And if nothing gets done, the SGR will reduce physician payments by another 5% in January of 2011.
At this point Congress must (again) consider what to do about the SGR. The choices are simple: 1) do nothing or 2) get rid of the SGR and put into place a replacement that is tied to a cost of living adjustment. After the mid-term elections, the Democrats will be very concerned about adding any more money to the deficit, since that will likely be used against them in 2014. Those who have just lost their elections may not be motivated to do anything at all. The Republicans, who smell blood in the water, will likely take the same approach and won’t vote for anything that adds to the deficit. I imagine they will point to the Democrats (who still have a majority) to fix this problem. But where in the world are they are going to come up with the $230 billion dollars needed?
This scenario puts the Democrats in a no-win situation. If they get rid of the SGR, then they will be accused of running up the deficit. If they get rid of the SGR and increase taxes in order to pay for it, then they will be accused of killing the system through increasing taxes. If they let the SGR happen, then they will be accused of ruining the entire Medicare system when the doctors drop Medicare faster than they sold their BP stocks. The Democrats will be stuck in a catch-22.
So why don’t they just deal with it before the November elections? That is even less likely because the last thing any politician wants to do in a close election race is to get caught in a controversial vote that his or her opponent could use against them. Taking a look at the current poles, it seems that nearly every politician is in a tight election race right now. And let’s not forget that a Republican now sits in Ted Kennedy’s seat and that Arlen Specter didn’t even win his own primary.
So what is likely to happen? Well, if you ask me, I think it’s quite likely that Congress won’t take any action on the SGR until sometime in 2011. I don’t think they will be able to get something done in November or December, and they will push it off on the new Congress to deal with. When the new Congress finally gets seated, it will take at least a few weeks until they can even address the issue. So a very real possibility could be an SGR reduction of 23% for December and then another 5% in January with Congress not truly “fixing” the issue until sometime in February or March of 2011. Now here’s the really scary question: What if they don’t ever truly fix it?
What will your practice look like if Medicare revenue is down by 28% for 2011? Let’s say you are a small primary care group. Your five physicians make $150,000 each per year. Your overhead is 50% of your revenue. Medicare is 40% of your practice revenue and your expenses go up by only 3% per year. In this example, if the Medicare rates went down by 28% on January 1, 2011, your practice would experience a decrease in total revenue of 11% and an increase in expenses of 3%. Since the doctors are the owners of the practice and they get paid whatever is left over after overhead, these physicians who made $150,000 in 2010 would take a 25% cut in pay and would only make $112,500 each in 2011. If that isn’t bad enough, consider this: If that group was 50% Medicare and their expenses went up by only 6% it would drop the physician salaries to less than $100,000 per year.
So what should you do to prepare for what may be a very long, hard winter if this actually happens? First of all, make sure your feelings are known, and be sure to keep the pressure on in Washington. Remember -- they didn’t actually fix anything! They just put off the inevitable hard choices and decisions that eventually must be made. Make sure Congress knows that you aren’t fooled, and demand that they deal with this issue once and for all. Since we all know that even with your best efforts, our elected representatives are still likely not to handle this hot potato before November, the other thing physicians need to do is take a long hard look at the financials of their practices. You need to know exactly how hard a cut in Medicare is going to hit you. Start thinking about what steps you are going to take to address this kind of cut. You should build a five-year financial projection for your practice that is flexible enough to start to evaluate some of these “what if” scenarios. What if Medicare fixes the SGR by letting half the cut happen? Can you survive a 10% cut? What about a 15% cut? To be prepared, you need to know the answer to all of these questions. Once you know how much it will impact your practice, then you need to start to develop your plans.
Another thing to keep in mind is that Medicare cuts not only impact groups differently, but they also impact different physicians within a group based on their own compensation models. For example, if you are a specialty group, the pediatric specialists in your group may not be impacted at all by a Medicare cut while some of the other physicians who sub-specialize may take a huge hit. How are you going to deal with that? Are you going to make a change to your compensation model? These are things that need to be analyzed and figured out as quickly as possible. It will be fall before we know it, and the winter that follows could be one of the most difficult in recent history on physicians who are not well prepared.
As always, Fulcrum Strategies is dedicated to helping our physician clients in any way that we can. If there is anything we can do to help you to prepare for what is likely to come, please do not hesitate to ask. In the meantime, let’s hope that I am wrong and that Congress will do what is right…and not just what is a good move politically.
Ironically, the latest move by Congress may turn out to be the worst thing they could have ever done to doctors. I have talked to many physicians about this, and most are shocked when I tell them that this is actually a very bad thing. They look at me with puzzled expressions and ask how a 2.2% increase in Medicare reimbursement could possibly be a bad thing? Allow me to explain.
Let's travel forward in time. Imagine it is November 10th and the mid-term elections are over. If most predictions are correct, it wasn’t a great night for the Democrats. In a recent projection piece I read, the author predicts that the Democrats will lose 7 Senate seats and 25 house seats. This would mean that the Senate would have 50 Democrats, 48 Republicans, and 2 Independents. The House would be 231 Democrat and 204 Republican. For argument sake, let’s pretend this is exactly what happens. The Democrats will still have control of both the House and the Senate, but they will have nowhere near enough of a majority to push things through like they did with Health Care Reform legislation. The Republicans, feeling more powerful, will look to 2014 to take over both Congress and the White House. We will have a lame duck Congress until the new one gets sworn in, and in just a couple short weeks, the SGR is going to kick in again and reduce physician payments by over 23%. And if nothing gets done, the SGR will reduce physician payments by another 5% in January of 2011.
At this point Congress must (again) consider what to do about the SGR. The choices are simple: 1) do nothing or 2) get rid of the SGR and put into place a replacement that is tied to a cost of living adjustment. After the mid-term elections, the Democrats will be very concerned about adding any more money to the deficit, since that will likely be used against them in 2014. Those who have just lost their elections may not be motivated to do anything at all. The Republicans, who smell blood in the water, will likely take the same approach and won’t vote for anything that adds to the deficit. I imagine they will point to the Democrats (who still have a majority) to fix this problem. But where in the world are they are going to come up with the $230 billion dollars needed?
This scenario puts the Democrats in a no-win situation. If they get rid of the SGR, then they will be accused of running up the deficit. If they get rid of the SGR and increase taxes in order to pay for it, then they will be accused of killing the system through increasing taxes. If they let the SGR happen, then they will be accused of ruining the entire Medicare system when the doctors drop Medicare faster than they sold their BP stocks. The Democrats will be stuck in a catch-22.
So why don’t they just deal with it before the November elections? That is even less likely because the last thing any politician wants to do in a close election race is to get caught in a controversial vote that his or her opponent could use against them. Taking a look at the current poles, it seems that nearly every politician is in a tight election race right now. And let’s not forget that a Republican now sits in Ted Kennedy’s seat and that Arlen Specter didn’t even win his own primary.
So what is likely to happen? Well, if you ask me, I think it’s quite likely that Congress won’t take any action on the SGR until sometime in 2011. I don’t think they will be able to get something done in November or December, and they will push it off on the new Congress to deal with. When the new Congress finally gets seated, it will take at least a few weeks until they can even address the issue. So a very real possibility could be an SGR reduction of 23% for December and then another 5% in January with Congress not truly “fixing” the issue until sometime in February or March of 2011. Now here’s the really scary question: What if they don’t ever truly fix it?
What will your practice look like if Medicare revenue is down by 28% for 2011? Let’s say you are a small primary care group. Your five physicians make $150,000 each per year. Your overhead is 50% of your revenue. Medicare is 40% of your practice revenue and your expenses go up by only 3% per year. In this example, if the Medicare rates went down by 28% on January 1, 2011, your practice would experience a decrease in total revenue of 11% and an increase in expenses of 3%. Since the doctors are the owners of the practice and they get paid whatever is left over after overhead, these physicians who made $150,000 in 2010 would take a 25% cut in pay and would only make $112,500 each in 2011. If that isn’t bad enough, consider this: If that group was 50% Medicare and their expenses went up by only 6% it would drop the physician salaries to less than $100,000 per year.
So what should you do to prepare for what may be a very long, hard winter if this actually happens? First of all, make sure your feelings are known, and be sure to keep the pressure on in Washington. Remember -- they didn’t actually fix anything! They just put off the inevitable hard choices and decisions that eventually must be made. Make sure Congress knows that you aren’t fooled, and demand that they deal with this issue once and for all. Since we all know that even with your best efforts, our elected representatives are still likely not to handle this hot potato before November, the other thing physicians need to do is take a long hard look at the financials of their practices. You need to know exactly how hard a cut in Medicare is going to hit you. Start thinking about what steps you are going to take to address this kind of cut. You should build a five-year financial projection for your practice that is flexible enough to start to evaluate some of these “what if” scenarios. What if Medicare fixes the SGR by letting half the cut happen? Can you survive a 10% cut? What about a 15% cut? To be prepared, you need to know the answer to all of these questions. Once you know how much it will impact your practice, then you need to start to develop your plans.
Another thing to keep in mind is that Medicare cuts not only impact groups differently, but they also impact different physicians within a group based on their own compensation models. For example, if you are a specialty group, the pediatric specialists in your group may not be impacted at all by a Medicare cut while some of the other physicians who sub-specialize may take a huge hit. How are you going to deal with that? Are you going to make a change to your compensation model? These are things that need to be analyzed and figured out as quickly as possible. It will be fall before we know it, and the winter that follows could be one of the most difficult in recent history on physicians who are not well prepared.
As always, Fulcrum Strategies is dedicated to helping our physician clients in any way that we can. If there is anything we can do to help you to prepare for what is likely to come, please do not hesitate to ask. In the meantime, let’s hope that I am wrong and that Congress will do what is right…and not just what is a good move politically.
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