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Effects Of Changes In The Medicare Physician Fee System

Dr. NoGuest post by John Di Saia MD

Relatively newly practicing physicians may not know that the Medicare physician payment system changed pretty substantially in the early nineties. This was by design.

The perception of those who designed this new system was that certain services were overpaid and others underpaid. It likely had much more to do with ratcheting down the costs of health care. As physician fees constitute only 10-20% of the entire equation, the wisdom of concentrating on physician’s fees to change the system is perhaps questionable. This is what was done nevertheless.

A cornerstone philosophy of the new system was that procedure-based specialties were overpaid. The physician fee system prior to this was based on usual and customary fees. This newer one based payments on a model that paid for a service at a uniform rate regardless of who performed it. While this seems fair on the surface, it had predictable effects.

Why would a surgeon with much higher overhead remove a lump in a patient if the new payment system put the procedure in a revenue negative position? The practice of surgeons removing certain lumps gave way to family practice and dermatology physicians removing many of them. These were the only specialties that under the newer system could turn a profit doing so.

The Medicare fee schedule economically regulates procedures in medicine. It also indirectly fed the growth of cosmetic medicine and surgery as this was the escape hatch many practitioners sought as the Medicare boom feel upon us. Surgeons interested in turning a profit quickly figured on what paid adequately and more importantly on what did not. As my grandfather told me as a young child, everyone needs to make a living. It is perhaps unfortunate that doctors do not discuss these matters with patients when telling them why they cannot offer a service. Is it really ever wrong to tell your patients the truth?

About: John Di Saia MD is a board-certified Plastic Surgeon and formerly (he didn't re-certify) a board certified General Surgeon as well. He also serves on the California Medical Board's Expert Reviewer Program reviewing cases of proposed negligence in the field. He blogs at and is a Contributing Author to Medical Spa MD.

Reader Comments (4)

So does this mean that the new policy is unfair for physicians? I've been hearing a lot of complains about the said ObamaCare issue. I think this one's related to that?

This is one of the reasons why I never liked this Obamacare! GET RID OF OBAMACARE before we kill the practice of medicine,and our country.I do not wish to be a recipient or a provider in this tragic travesty of our health care system!

I agree with you Dr. Lafferty. This has driven me to close my practice and take on employment in occupational health for less hours, better pay, no nights or weekends, and more time off. I had enough.

May 16 | Unregistered CommenterLissa R.

This is a very poignant and well written article. The truth is, that given the Medicare fee schedule for General Surgeons, there is very little incentive for Med School Grads to enter this specialty. I think that its time for Surgeons especially to consider opting out of Medicare (and poor paying insurance companies like Aetna, United Health Care, Cigna) in large numbers in order to shift the balance of power. Why anyone would want to go through 4 years of Med School, 5-7 years of residency and fellowship, then accept $300 for a partial colectomy is beyond me. My wife's tab at the salon sometimes exceeds this numeric amount. Meanwhile, the CEO of United Health Care retired with a $2 billion retirement package in 2006. In order to make things better for Physicians, we have to demand what our training is worth, not accept these ridiculous fee schedules.

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