Medicare cuts are looming; how good is your outlook?

Practices resort to creative survival strategies

If your physicians thought it was getting safer to go back into the Medicare waters, the outlook for physician reimbursements this year and next could lead to a definite sinking feeling.

With big Medicare cuts looming in the new proposed federal budget, physicians are going to have to continue working harder and smarter than ever just to keep from losing ground to smaller payment increases.

"I do think it’s going to happen this year," says Heidi Wagner Hayduk, JD, referring to the drop in reimbursement rates that physicians are likely to see between now and 1998. Practices have been spared deep reductions due to past disproportionate cuts to physicians, she adds.

But Hayduk, an independent Medicare policy consultant based in McLean, VA, says big cuts in payment increases are overdue. With a Republican Congress, a middle-of-the-road president, and no major omnibus budget reconciliation act since 1993, the stage is set for sizable limits on the growth in Medicare spending, Hayduk says.

"[The] bottom line is physicians are going to have to work harder and smarter," says Donald P. Parsons, MD, associate medical director with Permanente Medical Group in Washington, DC.

Working smarter means managing their practice even better than in the past and finding new reimbursement sources to offset the expected loss of revenue from Medicare, Parsons adds. To adapt to the new situation, physicians should follow these suggestions:

Adjust your patient mix according to revenue sources.

In markets where Medicare volume runs high and rates are low compared with commercial programs, pulling back may be critical to financial survival, says Donald J. Lloyd, executive director of Murfreesboro (TN) Medical and Surgery Center, a 37-physician practice.

A quick revenue stream analysis will show how well Medicare is paying by CPT-4 or ICD-9-CM codes compared with commercial rates. In some markets, capitation can be financially rewarding. But doctors can’t increase Medicare business and pursue additional commercial contracts without stretching office hours.

Consider new services as a hedge against Medicare.

One way to be proactive about boosting payments is to enter new service lines, which can expand a practice, says Eugene Ogrod, MD, chief medical officer at Sutter Medical Group, a 130-physician practice in Sacramento, CA.

At Sutter, a commitment to illness prevention and patient education programs is helping to hold utilization in check. The resulting boost in retained capitation dollars from commercial contracts is further helping the group weather declining growth in Medicare revenue.

New services also can serve both Medicare and commercial payers, observes Lloyd. Last year, physicians at Murfreesboro Medical Clinic invested $100,000 in new lab equipment for performing automated multichannel blood tests. "We were losing about $300,000 per year by contracting with an outside reference lab," Lloyd says. The group also added a bone densitometer to its internal medicine practice. At a start-up cost of $75,000, the investment has boosted revenue and led to profits margins of 25% for the service from both Medicare and commercial contracts.

Do what you’re already doing, but do it better.

Despite lackluster payment growth, physicians are determined to preserve and even increase their Medicare volume. Many say that by increasing patient volume and adding physicians they can offset lower payment increases.

But seeing more Medicare patients has its downside. At some point, the question becomes "what if you can’t do any more?" Ogrod says. Achieving economies of scale can help, he adds. Physician networks such as independent practice associations (IPAs) have garnered mixed reviews on overall effectiveness, but they can offer built-in economies that help practices incorporate higher patient volume.

Electronic billing, provider profiling, and high-tech information resources can give practices a logistical edge in pursuing additional Medicare business through low-cost assistance and information that can boost efficiency. "Strategically, that’s where an IPA can be a real value," Ogrod says.