The Health Care System

The Nature of Dealing with a Problem Apart from the System


CMS Guidelines (1362 pages)

Including an Announcement of a 26.5% Fee Reduction


Physician payments under Medicare are, once again, under attack.  They are subject to a 26.5% reduction January 1, 2013..

Let’s suppose you’re a legislator, and it’s your job to vote on this.  Up or down.  Yes or No.

Why would you vote “No”.  You know Medicare payments to physicians are already low, and cutting them another 26.5% will be disastrous – to the physicians.

Why “Yes”?  You know the Medicare budget is out of control, and there comes a time when, to reel in costs, payments must be reduced.

You and your fellow legislators are caught in quite a dilemma:




Unsure which route to take, you choose the middle ground:  maintain the current fee schedule, and kick the issue down the road for a year. 

Problem solved.  Or perhaps “Problem Ignored” is a better way of saying it.

But A is A.  Reality cannot be ignored – forever.

And the next year, the issue is on your plate once again, only this time the necessary cuts are even greater!  They include not only the cuts you didn’t pass the prior year, but also the cuts necessary for the current year!


So here you are, in 2013, facing a 26.5% cut.  What do you do?

Let’s say you bite the bullet.  We either deal with this problem now, or we’ve lost the war forever.


You in the legislature have done your job.  Let’s see how it plays out in the Physician’s Office.  Let’s consider the average physician, going about their daily business, doing good work.  You come in for a visit.  How much will the physician be paid for your visit?

This depends on what type of insurance you have.

If you have typical Private (Commercial) insurance, let’s suppose the physician gets $100.  If you’re a Medicare patient, the physician gets only $60.  And if you’re a Medicaid patient, they only get $50.  Round numbers, of course, but let's assume they're close:


Now picture yourself – as the physician – doing your books at the end of the day.  How much money have you been paid?  To do this calculation, you obviously need to know how many private, Medicare, and Medicaid patients you’ve seen.  Let’s make an assumption, and break this into thirds:



In this example, you’ve been paid $7,030 for your services.  You check the local paper and see your Medicare payments are going to be slashed.  You quickly run the numbers to see how this will affect you:



Your revenue is down about $500!  Are you going to sit idly by and do nothing?  What can you do?  The payments are the payments – at least for Medicare and Medicaid.  There’s not a whole lot you can do about these.

But the private market – the commercial market.  There, you might be able to extract a bit more.  Sure, the negotiations are tough:  insurance companies want to make a profit as well, while keeping premiums low for their members.

But if you want to be a profitable physician’s office, this is where you must go.  And the amount of increase you need to seek to return to be “revenue-neutral”?  15.44%.

You shutter.  You know no insurance company is going to approve such a massive increase in the fee schedule.  But you also know this is what you need – just to remain revenue neutral!  You quickly review your work and logic to make sure the numbers are right.  A logical summary:



You go to the commercial carrier to negotiate the rates.  In your mind, you need 15.44% to maintain your current amount of revenue.  This is “pie-in-the-sky” dreaming, you’re told.  “Do you know how much pressure we’re under to keep premiums down?  15.44%?  We can give you 2.5%, tops.”

You head back to your practice, head down, knowing revenue will be down, significantly.  You also know the next year – and the next – and the next – will be much of the same.

What to do?

“This Medicare market”, you mumble.  “These government programs are bleeding me”.  “These government programs ...”

And then it dawns on you, like it has so many other physician practices.  Quit worrying about the fee schedule for Medicare, and instead concentrate on the patients you’re seeing with Medicare insurance.  More specifically, refuse to accept any more patients.  Yes, you’ll continue to see those you have been seeing, but no more.

Knowing you only have so much time in a day, cutting Medicare patients frees up time to see more private-insurance patients.  You rush back to the office and model the possible membership change, with the change in patients seen, and the new 2.5% private-market fee schedule increase:




It will work – for now – you realize.  But the impacts to the system, due to the Medicare budget crisis, are numerous – unintended – but nonetheless predictable!





What to do, you, as the legislator?  You started with a noble goal, you thought – “Have a viable Medicare system for senior citizens”, but now this noble goal has put you right in the hot seat!  You seem damned if you do, and damned if you don’t, and things are only getting worse! 

Compromise?  Or recognize you’re faced with a contradiction?  At a minimum, when confronted with such a situation, remember the words of Ayn Rand: 


“Contradictions do not exist. Whenever you think that you are facing a contradiction, check your premises. You will find that one of them is wrong.”


Medicare as an issue will only get worse.  Physician payments.  Doctor availability.  An aging population.

How to address the problem - the core problem?  Recognize ideas have consequences, and the undesirable effects in the system - whether intended or not - are part of a system. 


This is a serious issue.


This is just one of several articles in "Broken Wings".  You can download a draft here: