Effects Of Changes In The Medicare Physician Fee System

Guest 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 CosmeticSurgeryTruth.com and is a Contributing Author to Medical Spa MD.

Assembly Line Medicine & The Patient-Doctor Relationship

By Kenneth A. Fisher, M.D.

The latest data from The Organization of Economic Cooperation and Development is for 2008.

At that time the United Kingdom spent 8.7% of gross domestic product (GDP) on health care while the United States spent 16.0%. The amount spent in U.S. purchasing power parity dollars in the United Kingdom was $3129/person compared to $7538/person in the United States. The disparity in the amount of GDP spent on health care between the U.S. and other industrial countries is similar. A recent Rand Corporation study documents that this imbalance in the per-cent GDP devoted to health care has a negative impact on the U.S. economy and jobs.  Furthermore, this impact will become more evident when per-cent GDP for health care in the U.S. reaches 20% or more.  Unfortunately, the Chief Actuary for the Center for Medicare and Medicaid services predicts that per-cent GDP devoted to health care in the U.S. will exceed 20% when our new health care bill reaches fruition in 2014.  This is an issue of concern for many thoughtful Americans. In the U.S. in 1940 health care accounted for 4.5% of GDP, increasing to 12.2% in 1990 with an estimated 18% for 2010. Why has American medicine become so expensive compared to other countries despite having such a negative impact on the health of the economy?

I submit the major reason is the downgrading of the previous close-knit relationship between the doctor and patient. The causes for this are multiple, but the largest factor is the physician reimbursement schedule for Medicare and Medicaid. Medicare as the largest insurer in the U.S. drives private health insurance reimbursement rates. Initially Medicare adopted a Blue-Cross-Blue Shield (BCBS) payment schedule. BCBS was founded by surgeons and its payment schedule was procedurally oriented.  The Congress of the U.S. probably more than in other countries is heavily influenced by commercial entities and sub-specialty physician groups, both of which emphasize payments for technology and procedures. In 1992 Medicare adopted an even more complex system of reimbursement, Resource Based Relative Value Scale, which again favors technology and procedures.

The result of this 50 year odyssey is insufficient reimbursement for doctor-patient interactive time.   This decreased time has led to assembly-line medicine. Many if not most physicians in the U.S. spend about ten minutes face to face with a patient during a visit. This is grossly inadequate; core skills atrophy.  History taking and physical exam skills of many perhaps most physicians in the U.S. are inferior to those in Great Britain. Recently some prominent American physicians have commented and written about this problem (i.e. Dr. Abraham Verghese), but no formal rectifying action has taken place.  As confidence in and time for history taking and physical exam skills diminish, reliance on technology increases.  As patients consult with multiple physicians there is little coordination and care suffers.  As hospitals and pharmaceutical companies advertise, patients become less influenced by the decisions of their primary physician. As the trust relationship dwindles, patients are more confused as to the appropriateness of care, especially in end-of-life situations.

Congressional attempts to control spending, with the ever present lobbyists have only exacerbated this problem. One group, trial attorneys, seem to have an undue influence, increasing defensive medicine.  We seem to be in a deteriorating cycle, more assembly line medicine, less reliance on human skills, greater costs leading to more assembly line medicine and so forth. One could ask, “Where are the medical societies, why don’t they speak out about this issue?” I believe the answer is that our societies are looking at short term gains, see themselves as just another lobbying group and are afraid to impact the income of some segments of our profession.

In my opinion the U.S. must provide universal coverage at about 15% of GDP. This means that the documented approximately 30% of care that is non-beneficial, costing about $700 billion/year must be addressed and significantly decreased. This can only happen if physicians combine their efforts to dramatically improve the patient-doctor relationship by insisting on an increase in funding for patient visits, while working together to control non-beneficial activity. Being a physician is a person-to-person relationship involving humanity, judgment, knowledge and skills.

Signature: Doctor Fisher is a board certified Internist and Nephrologist. He has published many scientific articles and is the author of, In Defiance of Death: Exposing the Real costs of End of Life Care (Praeger 2008). Recently he published an electronic book, The Ten Questions Walter Cronkite Would Have Asked About Health Care Reform. He blogs at www.drkennethfisher.com 

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2011 Tax Law Changes Every Physician Needs To Know

The tax laws are changing in 2011. Here's how that will apply to you as a physician.

Recently I sent the following information to my clients regarding the 2011 tax law changes which are almost a done deal. Hope this helps you

You may have heard that a deal for 2011 tax laws is almost a done deal. I'd like to point out several things which will apply to you.

1. Federal income tax rates

Will remain the same as they are now for 2011 and 2012. However, we don't know what the cutoffs for the tax brackets are yet. It's unclear whether phaseouts for deductions on Schedule A of your income tax return will remain as is or will get worse next year. It looks like they will remain the same as now for the next 2 years. Obviously this is good news for high income taxpayers such as all of you.

2. Dividend and capital gains tax rates

Before this deal dividends in taxable accounts were going to be taxed at your highest rate, which was going to be 39.6% as of next month. However even the current dividend tax rate of 15% will stay on for 2 more year. This is also true for capital gains taxes, which were supposed to go up to 20% and instead will remain at 15% for 2 more years. If you have a taxable investment account, this will make it easier for me to rebalance portfolios since the cap gains rate will remain low.

3. Roth IRA conversions

I've already discussed and converted several of your traditional IRAs to Roth IRAs already this year. If you have not converted your traditional IRA to a Roth yet but are considering it, you may be OK doing it next year in order to defer paying taxes on the conversion. However, realize that by converting this year there is an option to spread out the income over 2011 and 2012 and that option is good ONLY for converting in 2010.

The other issue is that for those of you whom we've converted in 2010 already, it is probably more advantageous for you to spread out the income over 2011 and 2012 since tax rates will remain the same. Please discuss this option with your CPA when tax time comes. In other words instead of reporting the income on the conversion for 2010 only (this would be more advantageous if tax rates are going up next year) you may be better off reporting it in 2011 and 2012 in order to defer taxes to those years.

That brings up another issue—estimated tax payments. If your CPA plans on reporting this all in 2010, then adjust your 2010 Q4 estimated tax payment. However, if the plan is to split the income from the conversion in 2011 and 2012, then there may not be a need to adjust your Q4 estimated tax. Instead, you will have to adjust estimated taxes for 2011 and 2012.

And finally if you have nondeductible IRA contributions, remember that portion is not taxed on the conversion.

4. Estate tax

It looks like the estate tax exemption will be $5 million for 2011 and 2012. This changes things like whether to set up life insurance trusts. However, realize that this is once again a temporary rule and eventually this will change again in 2 years. So it may still be better to proactively address these issues rather than to address them later. But at least this might buy some more time.

5. Medicare investment tax is coming

For taxable investment accounts starting in 2013 there will be an additional Medicare investment tax on investments sold for a gain in addition to capital gains tax. This tax will be 3.8% on "high income" earners and will apply to both capital gains and dividends. This was part of the health care law passed earlier this year. Of course the details on this still have to be worked out.

Hope that helps put some of this in perspective. If you have any questions about this, please ask them as a comment and I'll do my best to answer them.