Midterm elections are over...now what?

The midterm elections are over and done, and we now know that the next Congress will be split.  The Republicans will own an impressive majority in the House of Representatives with the Democrats controlling a slim majority in the Senate and of course, the White House.  So what will all of this mean for doctors?   Since nobody truly knows that will happen down the pipeline, I will attempt to speculate and at least provide you with my best guess of what the next few months will look like for doctors.   I must warn you that it isn’t a much better picture than it was before these elections.  So sit down, get comfortable, and prepare for the gastric pain that this article is likely to cause.

Medicare:

The most critical issue doctors are facing right now is the future of Medicare and the SGR cuts that are coming up rather quickly.  And this is with good reason.  Right now, if Congress takes no further action, on December 1, 2010, the Medicare rates paid to physicians will be reduced by 23.5%.  As if that isn’t bad enough, there will be another 4% cut on January 1, 2011.  So if Congress can’t come to an agreement on a new approach or override the current law, physicians all over America will be asked to provide services to Medicare recipients at fees that are almost 30% less than they are today.  So what does all this mean to the average doctor?  Well, at Fulcrum Strategies, we looked at what this would mean for our clients.  We currently provide consulting services for approximately 1,000 physicians in multiple specialties in markets across the country.  Now, while this is not a statistically valid sample, it does present an interesting illustration.  We took the information we have on each our clients and calculated the revenue reduction that would happen if these cuts take place.  Then, we divided this by the number of doctors in the practice to come up with the average salary cut by doctor if the full SGR cut is allowed to happen in 2011.  The results were nothing short of astounding.  

For Fulcrum Strategies’ clients, the average per-doctor salary cut if the SGR cuts are allowed to continue is just over $50,000 per year.  On the lower end, we have some clients, like pediatricians, who don’t see any Medicare patients, who would feel almost no impact from these cuts.  On the higher end, we have some specialties and groups that are highly dependent on Medicare revenue and would take a huge hit.  The largest reduction for any one group is a $120,000 per year salary cut from the SGR reductions.  Even this doesn’t tell the whole story.  Some groups are comprised of some physicians who are partners and some who are either simply employed or not yet partners.  These non-partners may be on a fixed salary so they wouldn’t be impacted by this revenue reduction.  In that case, the partners not only have to absorb their own cuts, but also the cuts in revenue from the members of the group who are on a fixed salary.  Furthermore, in many groups there is a significant difference in Medicare penetration among the physicians.  Some specialty groups have physicians who, by the nature of their sub-specialty or the length of time they have been in practice, have much larger Medicare panels than their partners.  These physicians would face much larger cuts than the group average.  

The bottom line is that these kinds of Medicare cuts will have a dramatic impact on physician salaries and compensation and would force physicians to take a very serious look at their ability to continue participation with Medicare.  It’s just simple economics.  Consider the following: Currently, Medicare compensates a physician for a standard return patient office visit (99213) $66.74.  On January 1, 2011 that same office visit will be paid at $48.39.  Let’s say that your group has negotiated contracts with the insurance companies to pay you 130% of 2010 Medicare.  In this case, that office visit for a non-Medicare patient with insurance will bring in $86.76.  So the question is, why would you see a Medicare patient for $48 when you can see a non-Medicare patient for $86?  At this point, many of my physician clients will point out that Medicare is 40% of their practice and if they dropped Medicare, they wouldn’t be able to fill up all of those appointments.  To which I ask them if they know how much of that 40% they would have to replace to make the same amount of money they are making now.  Most don’t know the answer.  The math is pretty simple.  If Medicare is 40% of your practice and the difference between Medicare and your non-Medicare reimbursement is something like the 44% that is illustrated above, you only have to fill about half of those lost patient appointments to break even.  So our hypothetical group, could stop taking Medicare completely and cut back their office hours to 4 days a week instead of 5 and the doctors would actually make more money.  That is because they would be bringing in the same amount of revenue in 4 days with just non-Medicare patients as they would in 5 days of work that includes Medicare patients while reducing practice expense by only being open 4 days.  We are rapidly setting up an environment where doctors can work less and make more money simply by deciding to stop providing care for our senior citizens.  

Most people don’t believe that Congress will be stupid enough to let this happen.  I tend to agree with them, but at the same time, I get very nervous betting on the collective intelligence of our elected officials.  That being said, my projection is that Congress, for political reasons, won’t get around to fixing the SGR problem until sometime around the end of the first quarter of 2011.  The reasoning is that I don’t think anyone in the lame duck session will want to deal with this problem.  And after the new Congress gets seated, this issue will likely get wrapped up in other political maneuvering and become a victim of the congressional grid lock that we are likely to see with a split Congress.  The problem is that fixing the SGR would add somewhere between $200 and $400 billion dollars to the deficit.  After this election, I don’t think anyone is going to be associated with a vote that adds more money to the deficit.  That is why I don’t think it will be addressed until the new Congress is seated.  Once the new Congress is seated, the SGR may be used like a political pawn as the two parties start to establish who is really in charge.   I could easily see a scenario where Republicans in the House put forth a bill that significantly waters down the health care reform law and that as part of that bill, they use the $500 billion in projected Medicare savings to shore up the Medicare program and fix the SGR.  You can just hear the spin now;  

“Today, House Republicans passed a bill through the House.  The Medicare Actuarial Salvation and Health Care Fiscal Accountability Act, or MASHFAA bill, that was sent to the Senate will remove the individual mandate and employer penalties contained in the previous health care reform law.   It also rolls back the expansion of Medicaid because in this economy we simply cannot afford to put that financial burden on the states or the tax payers.  It keeps many of the health insurance reforms that we all know are necessary.  The most important thing about this landmark legislation is that it shores up Medicare by taking the projected $500 billion in Medicare savings and reinvests them in that program.  It does this by getting rid of the SGR and replacing it with a cost of living type of annual adjustment to Medicare reimbursement s to doctors and hospitals because it doesn’t do you any good to have Medicare coverage if no one is willing to be your doctor.  The rest of the savings projected at $300 billion is used to put Medicare back on financial solid ground so that we can fulfill our commitment to our seniors for many years to come.”    

This bill gets sent to the Senate with full Republican support.  Now the Democrats in the Senate have a problem.  They really can’t vote against this bill because 24 of them have to run for re-election in just two short years.  So they are left with either filibustering the bill and getting labeled with the “party of no” title, or passing the bill and sending it to a President that they know will have to veto it.  This scenario is only one of many that could play out.  Unfortunately, most of the likely scenarios in my opinion all result in the same outcome which is several months of back and forth before the issue of SGR finally gets resolved.  Will Congress simply kick the can down the road again and remove the cuts, or will they allow some level of reduction to happen?  We will have to wait and see.

Health Care Reform:

When it comes to health care reform, the question of “what happens now?” is a simpler one to answer.  I don’t see any scenario where health care reform gets repealed or even significantly revised in the next two years.  The Democrats and the President in particular put too much political capital into that legislation to give up on it now.  In addition, the Republicans have time on their side since most of the provisions don’t get put into place until 2014.  Republicans can wait and see if the Supreme Court solves this problem when one or more of the state cases finally get to the high court.  I’m not saying that new bills won’t be introduced in the House about health care reform.  On the contrary, I would expect the House Republicans to take regular shots at repealing or revising health care reform almost out of sport.  They will do this because they know it will put the Democrats on the defensive in the Senate, and it could also put the President into the position of pulling out the Veto pen and once again defending a piece of legislation that has become extremely unpopular.

Long story short, I don’t think things will get much better for doctors as a direct result of the recent midterm elections.  In the long run, however, I am still very hopeful that things could begin looking brighter for health care providers.  For the time being, we will just have to wait and see because only time will tell.