2) Updates and Controls
3) Balance Billing Restrictions
1) Fee Schedules
Medicare uses a Resource Based Relative Value Scale (RBRVS) to pay for medical services. Actuaries compute the "objective value" of approximately 7000-9000 procedures, across 89 different coverage areas across the country (about 712,000 different prices). Each is assigned a weighted social "value," which is then converted into a dollar amount via a statistical algorithm and used to determine what fees Medicare will pay doctors for their services.
This is coupled with the Statistical Growth Rate (SGR), which is a congressionally mandated formula, indexed to growth in the national economy, and used to determine any updates to reimbursements to keep in line with budgetary projections. This however has been all but useless in fulfilling that purpose, and Medicare's future outlays far exceed any expected revenues to be had. Estimates vary as to the total cost of the program's unfunded liabilities, but a conservative estimate would peg the figure at around $30 trillion (with a "t." Other estimates put it at upwards of $60 trillion.).
This mechanism is mere pseudo-science to offer the impression that the fees are scientifically determined. If we have learned anything from the command-and-control economies of the world, government is least able to make payments either accurately or differentially, to say nothing of the flexibility required to adapt to ever-changing consumer preferences and supplier needs.
In the case of Medicare fee schedules, once variables like cost-of-living, share of labor, cost-of-practice, medical liability costs, etc., every doctor across the country is paid exactly the same, the very best and the very worst. It cannot account for differences in physician skills, quality of service and benefit to patient, completely unlike nearly every other sector of the economy. These prices are set by Congress, and very often subject to political influence. How's that for promoting quality!
As a method of cost control, these prices are generally set at below market rates although, to be fair, some are set above what the market would pay. This merely illustrates the inefficiency that can be expected when a government body is put in charge of managing such a large sector of the economy, or really any other, for that matter. Further, as Medicare prices provide private insurance companies the culpability cover they need to make thrifty reimbursement decisions, they often shadow price what Medicare pays.
Thus, in effect, the government sets the prices for all services within the health care sector. Think about that the next time someone tells you that American health care is an illustration of "market failure." There is virtually no market to fail!
2) Updates and Controls
To limit Medicare costs, volume control is based on an official projection of the "appropriate" growth rate of Medicare physician utilization, and it is tied to the SGR.
As mentioned above, this methodology does a very poor job of actually controlling volume or costs, as collective incentives tend to have practically no impact on individual action. As reimbursements are indexed to the broader economy, no individual doctor is going to drastically alter the way they practice medicine because the Wall Street Journal says a recession or an expansion is on the horizon.
This failure is illustrated by the by the "tweaks" in physician reimbursements expected over the next five years, which is set for a 5% cut each year. This cut does not take into account the costs mentioned in the previous section such as cost-of-living/practice, et al.
This, quite naturally, is a politically sensitive issue, and groups like the American Medical Association are strenuously lobbying against it. Politicians, for their part, are equally hesitant to cut reimbursements, as they know that this will eventually jeopardize access to care for millions of Medicare patients. To that end, the Congress staved off the cut scheduled for last year, and they are doing their best to do the same this year. While their intentions are right, the efforts are futile.
Eventually, this tab must be called in, and we can expect a 25% cut or more in reimbursements at some point in the future. Currently, about 95% of physicians participate in the Medicare program, but even with the mere suggestions of cuts, combined with the enormous regulatory hassle of dealing with government reimbursement, more and more physicians are closing their doors to elderly patients. There is not a mass exodus from the program, to be sure, but if the trend of cuts continues, we can certainly expect to see the number of participating physicians decline dramatically.
3) Balance Billing Restrictions
No way out for patients.
Cuts to Medicare reimbursements themselves would not be so problematic if certain legal aspects of the program were not in place. If payments from the government for a given procedure were unreasonably low, doctors could simply pass the remainder to the patient so as to make service viable, otherwise they would have to eat the loss. If a senior could not afford to make up the difference, many physicians would balance bill in other ways, charging wealthier patients more so as to keep charity care a viable possibility. This practice was widely accepted and utilized prior to the 1960s and the advent of Medicare and Medicaid.
While not explicitly prohibited, the practice is certainly discouraged through the program's regulatory milieu. A doctor and patient can contract for a procedure that is covered under the Medicare program, however should they do so the doctor would be forced to forgo any Medicare reimbursement for the next two years. Thus, doctors do not have the flexibility to adjust prices to attract new business or to react to market challenges and opportunities, having the corollary effect of stymieing innovation. Further, when one considers that the elderly are the primary consumers of medical care, such a forfeiture of revenue would be disastrous for most any practice.
The rationale for such an infringement of liberty, as near as I can gather, is that if beneficiaries and providers were allowed to privately contract out of Medicare on a service-by-service basis, it would effectively create a two-tiered health system where the wealthy would get better health treatment than the non-wealthy.
This falls on it's face however once one considers the numerous studies that have shown that, even in explicitly socialized countries, the wealthy and well-connected typically receive a higher level of care with much shorter wait times; either that or they just come to America. The same can, and does, occur in America, with wealthy seniors typically having their own insurance policies and utilizing Medicare as a mere supplement.
Thus both doctors and patients are stuck between a rock and a hard place. Docs can either provide the service at a loss to themselves, which will eventually force them to cut back on other services, or they can stop accepting new Medicare patients, making it more difficult for the elderly to acquire the care they need. In either case, the outcome is far from ideal.
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Keep this in mind the next time you hear cries for "Medicare for all."
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