The reason doctors can’t make ends meet

There are many reasons why private physicians are struggling financially and why many health systems are failing to generate sufficient margins. I hope that my little title will at least make you want to continue this educational lesson.

I have written extensively about optimizing medical groups to enable clinicians to deliver (what they define as) high-quality care, improve patient access, manage IT systems, and use data analytics to improve care. Following my latest book on the CMS’s 2025 proposed rule (The CMS regulation proposal for 2025 is out: more reductions? Why not! (July 2024) which, among other things, contemplates further cuts in clinician spending via a reduction in the conversion factor (CF), I decided to examine actual reimbursements to explore a. the downstream impact of the CF (in implementation) and b. the relative stagnation of allowable amounts (e.g. revenues) paid to physicians for services rendered.

Inflation has been a bit crazy lately. For many Americans, it’s causing severe financial pain and stress on their families. And if health care isn’t getting cheaper, doctors, in general, aren’t doing so well either. After reflecting on my missive on cystic fibrosis, this got me thinking: How have Medicare reimbursements negatively impacted clinicians? Being a bit of a numbers guy, I tried to figure it out. I had a thesis, and it turned out to be right. (You won’t congratulate me on my intelligence; it seemed like a pretty obvious hypothesis to me.)

The thesis

Medicare reimbursements are not keeping up with inflation, which is negatively impacting the revenue streams of physicians who participate in Medicare. I believe physicians whose commercial contracts are tied to Medicare rates are also being shortchanged. This logic becomes even more glaring in my example below (Figure 3). And lest you think that health systems (with their clout) are able to negotiate these rates, think again: Medicare rates are not negotiable.

Approach

It’s not rocket science, actually. I randomly extracted a portion of the CPT dataset. I looked at Medicare payment rates for evaluation and management (E&M) codes 99201 – 99205 (new patients) for the years 2013 – 2023. I sliced ​​the data for the Greater Atlanta market. In Figure 1 below, note the payment rates for new patient visits in the Atlanta area over the past ten years. Box: In 2015

the reimbursement year was nominally (ridiculously?) adjusted upwards and in 2021 (**) Medicare no longer recognized the 99201.

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If you’re not inclined to blindly read the fine print in Figure 1, Figure 2 graphically illustrates reimbursement rates for new patient visits for the same period.

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The CPT code trend lines run from the bottom to the top of the chart, where the lowest line is 99201 and the highest line is 99205. Graphically, it is interesting to note a slight increase in the payment of Level 5 compared to Levels 3 and 4. While this may, at first glance, seem like a step in the right direction, statistically, a Level 5 should be charged much less than a Level 3 or 4. (The 99205s are the tail of a normal distribution.) In other words, the 99203 and ‘204 reimbursement levels appear to hover at roughly the same payment level over the years.

To go out E&M codes represent the vast majority of CPT codes billed in the outpatient setting. And while my “n” example is small, I am confident (without spending a year on this exercise) that the output data would likely yield similar results for most other CPT codes in the stable. In Figure 2, you see that payment rates are, for all intents and purposes, flat. When inflation was lower during this measurement period, increases almost inflation tracking; I sayalmost

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Reimbursements have tried to keep up with inflation for a while, but as inflation has risen rapidly over the past three years, reimbursement values ​​have not kept up. The impact of inflation is quite interesting but quite logical. In Figure 3, I have isolated the reimbursement of the 99205 in Atlanta from 2013 to 2023. The “blue” line shows the “real” value of the reimbursement of the 99205 over the years; for example, the blue line is the reimbursement rate it should have if it kept up with inflation. The “green” line shows the nominal or real reimbursement rate over that period. From 2013 to 2015, the reimbursement rate followed the “real” value quite closely. However, starting in 2016, the “real” rate has significantly exceeded the nominal reimbursement rate.

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The gap between 2015 and 2016 indicates when the “value” of Medicare reimbursement for a 99205 in Atlanta began to decline. In other words, the “monetary value” of the same service was less. In other words, clinicians in Atlanta are earning less today, in “real” terms, for a 99205 than they were in 2017. So while inflation has reduced the value of reimbursement, rising costs make the impact more acute.

What does that mean?

The answer is simply to see more patients, right? Yes and no. At some point, you can no longer simply see more patients. In practice, the persistent reductions in Medicare payment rates (whether via RVU, GPCI, or CF) are nothing short of cataclysmic for practitioners.

To understand, let me paint you a picture from the annals of La-La-Land, my static data environment we’ll call Unicornville. In Unicornville, Dr. X saw 1,000 Medicare beneficiaries in 2013 and billed $99,205 for each (which, as the sidebar shows, is likely a red flag for Medicare). In 2023, Dr. X saw another 1,000 Medicare beneficiaries and billed $99,205 for each. That’s all he billed for the year. (Figure 4)

Gorke In our scenario, Dr. X compared his 2013 and 2023 P&L statements because he is a nostalgic person with too much time on his hands. In 2023, he had the exact same staff, the same outdated IT system, the same building, and was using the same “other stuff” as he did in 2013. He literally hasn’t changed anything in a decade! Sure, it’s silly, but we are

in Unicornville.

Over the years (we hope), Dr. X has indeed billed other CPT codes, upgraded IT, added appropriate human capital, and added “other stuff” where it made sense. But Figure 5 paints a picture of the impact of nominal gains in CPT reimbursements versus the impact of inflation over time.

Gorke

Dr. X went from a practice with 54% overhead (46% profitability) to 65% overhead (35% profitability) while doing the exact SAME work and using the same resources. How did this happen? Figure 5 clearly shows the damage done by inflation (in general) and how the small increases in Medicare reimbursements have not kept up with inflation. Dr. X is paid $220.93 on $99,205, but all of his business costs have kept up with inflation. I told you this to tell you this: no, this is not a “real” example. but

Its implications are very real and show how Medicare reimbursements continue to hurt clinics and health systems’ finances. And, again, if clinicians’ commercial fee schedules are tied to Medicare rates, the situation will not improve anytime soon (for example, practitioners will continue to lose ground to inflation).

Persistent problems (another thesis):

· the American population is aging. The pressure on Medicare will continue to be felt unabated and until thoughtful leaders and honest brokers prevail, this situation will not improve.

· clinicians in states with large populations (Florida) may feel the effects more acutely (e.g., a major revenue source will be Medicare)

· specialties with high concentrations of Medicare beneficiaries (cardiology, ophthalmology, orthopedics, etc.) may experience additional constraints

What to do?

· Optimize clinics to mitigate financial strain. Ensure operations are streamlined, staffed appropriately, and clinicians are empowered to see patients (also remember that you can’t cut expenses to become profitable)

· explore integrated partnerships or networks; perhaps a management services organization (MSO) or other avenue to pool operational resources

· contact your association, your state medical society, and members of Congress. While this may seem unnecessary, it works.

· Don’t spread slander or anecdotes (e.g., “…Medicare is killing us”). Even if it may be true, you should bring receipts. They carry more weight than spitting in the wind. (Data is always useful.)

· Be a voice for change. I know it’s hard to see patients and practice medicine and then lobby on your behalf, but the system won’t change until it’s forced to.