What if we didn’t make a “doc fix”?

Someone, presumably fed up with the whole Medicare “doc fix” issue, asked by e-mail, “Why not just massively cut physician payment?” Since I went to the trouble of writing a response by e-mail, I thought I’d share it.

First of all, it’s a political nonstarter to massively cut Medicare physician payments. But, let’s put that aside. What would happen if payments were cut, and cut substantially (15%, say)?

If physicians are to be believed, some would stop seeing Medicare patients. The ones for whom seeing only private pay patients* would be more profitable would do so. Others would still see Medicare patients, but, perhaps, fewer of them, or spend less time with them.** At some level of payment cut, all these things would definitely happen. We see it in Medicaid. The physicians who leave the program would disproportionately be the better ones. Reducing access to good physicians is not normally a policy goal. But let’s keep going. Is not providing coverage for all, or nearly all, physicians a problem?

It depends on what we think traditional Medicare is. Need it be an open-network plan? There is already reason to believe we don’t feel that access to all physicians is a necessary element of Medicare. After all, we permit Medicare Advantage plans to selectively contract even though they must offer at least the standard Medicare benefits. Thus, coverage for all physicians is not part of the standard benefit.

Even still, taking a meat ax to payments is a blunt way to define a network. Medicare could be smarter, paying attention not to fees but to cost (the product of fees and utilization). It should pay attention to quality too, but let’s leave that out. We know that the real source of the cost problem in Medicare is not its payment rates but its lack of utilization controls. Cutting payment rates and ignoring utilization would shift the cost curve, but not bend it. Cut the fees by 15% and in a few years utilization shifts and growth have wiped out the savings. You haven’t left the unsustainable trajectory, which should be the point of serious, cost-conscious reform.

I recognize that some beneficiaries really want an open network, really need an open network. They might even be willing to pay for an open network. I think they should be able to do that. I think that should be part of a competitive bidding system. Traditional Medicare could offer an open network, paying the fees that would obtain it, and charging the actuarially fair premium for it. Then it should compete against closed-network plans (one of which could also be a government option). I’ve written about this bidding system before, so won’t go into it here.

Bottom line, is there a problem significantly reducing Medicare payments to physicians? Yes. It won’t work because it is not the real problem. Utilization is. And then there’s the politics. If I’m permitted to envision the political feasibility of cuts to physicians then by the same power I grant myself permission to imagine the feasibility of competitive bidding. But if we can implement a competitive bidding system, I think Medicare can try lots of things, including massive physician payment cuts associated with a closed network. So long as it also provides an open-network option, those who want it can buy it. I have no problem with that, though I’m sure plenty of other people–people who matter–do.

Like I said, not gonna happen.

* Ack! “Private pay” means “uninsured” to some readers. I should have been clearer. I meant non-public program payers, the vast majority of whom have private insurance. (In general, I divide the world in to government or private payers. If I need to subdivide “private” into insured and uninsured, I’ll do so explicitly. I’ll be more careful with this terminology in the future.)

** There are many responses. Physicians could also decide that Medicare fees weren’t worth the loss of leisure time and choose to play more golf. I recognize that there aren’t infinite private pay patients, but in 2014 there will be more of them. Also, using the term “patients” is incorrect. If a physician can induce demand then what one may really do is attempt to squeeze more utilization out of existing private pay patients (schedule more frequent follow-ups, for instance). There are many ways to shift utilization across payers and procedures.

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