Medicare cuts are looming; how good is your outlook?
Medicare cuts are looming; how good is your outlook?
Practices resort to creative survival strategies
If group practices thought it was getting safer to go back into the Medicare waters, the outlook for physician reimbursements over this year and the next could give way 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, say practice managers interviewed by Physician’s Payment Update.
"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 by 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 growth in Medicare spending, Hayduk says.
The new Clinton budget targets about $100 billion in savings over five years (see News Brief on p. 47 for more details). The savings will hit physician practices with overall reductions of up to $10 billion over the next six years.
Health maintenance organizations (HMOs), a growing source of Medicare revenue for many practices, probably will see the federal government’s support for risk contracts decline by some $46 billion through 2002. The loss to HMOs will come from adjustments to the Average Adjusted Per Capita Cost (AAPCC) formula, which sets Medicare payment rates for HMOs based on regional factors.
Taken together, the savings add up to a large bite out of physicians’ future incomes. Precisely how big the bite is will vary according to each practice’s geographic location and Medicare patient load.
Physicians need to work harder
"[The] bottom line is physicians are going to have to work harder and smarter," according to Donald P. Parsons, MD, associate medical director with Permanente Medical Group in Washington, DC.
Working smarter means managing your 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, follow these suggestions:
• Adjust your patient mix according to revenue sources.
Practice managers are closely monitoring their reimbursements to determine how they can boost non-Medicare business. But cutting back on Medicare won’t be easy. Physicians are apt to let go only as a last resort.
However, 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, FACMPE, executive director of Murfreesboro (TN) Medical and Surgicenter, a 37-physician practice.
A quick analysis of your revenue stream will show how well Medicare is paying by CPT-4 or ICD-9 codes compared with commercial rates. In some markets, capitation can be financially rewarding. But you can’t increase Medicare business and pursue additional commercial contracts simultaneously without stretching office hours.
And weigh the strength of your decision, Lloyd says. Pursuing additional commercial contracts just to offset Medicare shortfalls can be a weak defensive tack. Commercial rates in many managed care markets are at or near the Medicare Resource-Based Relative Value Scale and shrinking further. You could end up working harder on the commercial side for less, says Lloyd.
New services can bolster income
• Consider new services as a hedge against Medicare.
However, one way to be proactive about boosting payments is to enter new service lines, which can add up to expanding your 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 quite well, 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 profit 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, Ogrod says, the question becomes, "What if you can’t do any more?" 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.
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