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Medicare cuts forcing some hard choices

From the January ACP-ASIM Observer, copyright 2003 by the American College of Physicians-American Society of Internal Medicine.

Is an access crisis looming? Here's what the surveys have to say

By Bonnie Darves

After only three and a half years in practice, David M. Alvarez, ACP-ASIM Member, has had some difficult conversations with patients. The reason? His practice is turning away new Medicare patients.

"Families always want to know why Mom or Dad can't be seen by one of our doctors," said Dr. Alvarez, member of the eight-physician Associates in Internal Medicine in Chattanooga, Tenn. "We try to explain as nicely as possible that we can't afford to."

He lamented that his decision to stop accepting new Medicare patients is significant in a small city like Chattanooga. There are few young internists starting up practices in town, he explained, and many of the young physicians building practices are refusing to see new Medicare patients.

As internists struggle to cope with last year's 5.4% cuts in Medicare pay, tough conversations with patients and family members will become more common. And because attempts to restore that cut—and to stop another 4.4% reduction scheduled to take effect next month—have stalled, the "I'm sorry, but ... " script may soon be standard in many physicians' offices.

The financial fallout

For many physicians, the current crisis started early last year, when Medicare cut physician fees by 5.4%. While the College and other medical organizations have fought for more than a year to restore the cuts, the financial fallout is beginning to hurt physicians' bottom line.

Practices with high percentages of Medicare patients have been especially hard hit, and many have had to make difficult decisions to remain afloat. Michele D. O'Fallon, ACP-ASIM Member, closed her Anchorage, Ala., internal medicine practice last summer and opened a new practice, Alaska Internal Medicine and Pediatrics. While the decision was driven by several factors, she and her partners needed to reduce the disproportionately high number of Medicare patients they saw. Some had patient panels loaded with up to 60% Medicare patients.

While making the decision was painful, Dr. O'Fallon said that breaking the news to patients was even worse. "I would walk into a patient room and [tell them], and we would both start crying," she said. "Then I would go out, compose myself and go on to the next patient." The reaction from patients, she said, ranged from "understanding to devastation to anger."

Today, Dr. O'Fallon makes sure that no more than 20% of her patients are covered by Medicare. And she said she may need to make further modifications when the next cuts hit.

"If worse came to worst, I would stop seeing Medicare patients altogether," she said. Because of high overhead and low reimbursements, she said that seeing Medicare patients is already an unprofitable venture. "I don't even break even," she explained. (For more on how the Medicare cuts are affecting physicians and patients in Alaska, see "How health care for the elderly has gone awry in Alaska.")

Even practices that have already made tough decisions say they may face even harder choices. In January 2002, Medical Associates of Northern New Mexico stopped taking new Medicare patients. The nine-physician multispecialty practice in Los Alamos has long struggled with harsh market conditions, and physicians there felt they had to limit their participation in Medicare.

Last fall, however, the combination of Medicare cuts, rock-bottom reimbursements and a 36% malpractice premium rate hike put the practice perilously close to the edge. In November, internist Carolyn A. Linnebur, FACP, had to borrow $66,000 from a line of credit just to make payroll.

"We haven't yet started to discharge patients we have seen for years who are now turning 65, but that day may come," she said. "This is a very sad state of affairs."

Dr. Linnebur attributed many of the practice's financial woes to the ever-increasing administrative burdens and related costs of treating Medicare patients. The practice's lab, for example, is no longer profitable because of CLIA regulations. And transcription costs now exceed $70,000 annually, she noted, because of the documentation physicians must provide to avoid violating fraud and abuse regulations.

Access issues

While the Medicare cuts are inflicting financial pain on physicians, an even larger problem looms: access to care.

In its efforts to persuade Congress to restore reimbursement cuts, the College has repeatedly warned that access to care is being threatened. Surveys show that up to 40% of physicians may stop participating in the Medicare program, leaving many of America's seniors without a regular source of care, or forcing them to pay more to see physicians who refuse to accept Medicare rates.

Melvyn L. Sterling, FACP, Governor for the College's Southern California II Chapter, said that the current difficulties represent the "tip of the iceberg" of access problems. In his own one-man practice in Orange, Calif., Dr. Sterling now turns away all new Medicare patients except in special circumstances, such as when the person is a relative of a current patient or a physician colleague.

"I haven't yet heard of a southern California physician who has told current Medicare patients to go elsewhere, but it's a frightening thought," Dr. Sterling said, adding that the idea is becoming "more conceivable."

Frank Kurz, MD, president of Cascade Clinics in Portland, Ore., said he also sees an imminent access crisis. His 15-physician internal medicine practice experienced "a surge of Medicare patients" in the first three quarters of 2002 when other local practices began shutting them out.

Now, Cascade Clinics has had to follow suit and has stopped accepting new Medicare patients who aren't enrolled in managed care plans. "We really didn't have a choice, since some of our younger patients couldn't even get into our practice," Dr. Kurz said.

College Regent Isabel V. Hoverman, FACP, described a similar situation in Austin, Texas. She said that some physicians no longer accept patients over age 60, while others are moving to "boutique" practices where patients pay a monthly membership fee to access services.

Like many physicians, she was optimistic that Congress would "fix the problem." With her expenses on the rise, however, she is weighing her options. She can refuse to accept new Medicare patients, accept no Medicare assignment except for true hardship cases (by becoming a nonparticipating Medicare provider), or stop seeing Medicare patients altogether.

(An ACP-ASIM guide with information on the effects of changing your Medicare participation is online.)

Dr. Hoverman's four-physician practice, Austin Internal Medicine Associates LLP, has also considered expanding office hours and increasing its range of procedure-based services while reducing direct care to boost the practice's bottom line. Dr. Hoverman said that the first option, however, would require more staff to support harder working physicians. The second solution, she said, simply goes against the grain.

"When you have a calling and an occupation," she said, "it seems wrong to have to stop doing what you do well—managing patients and caring for them in a sympathetic, involved manner—just to make more money."

Nevertheless, she predicted that when push comes to shove and physicians can't meet their expenses, many will start dropping Medicare patients.

Converging crises

While medicine waits to see when—and if—Congress will address Medicare reimbursement, many physicians say that the rate cuts could not come at a worse time. A convergence of factors—rising medical liability premiums, stagnant reimbursement from commercial insurers, high overhead and increasing costs from administrative burdens—all contribute to physician practices' fiscal woes.

The American Medical Group Association's most recent survey of members' financial performance, for example, found that the average group was losing $16,840 per physician. Worse yet, the numbers don't fully reflect the impact of the 2002 Medicare cuts.

"Our groups are already operating on very thin margins, and they're now wondering where they'll be able to take the next hit when the 2003 cuts go into effect," said Debra Cohn, the organization's vice president of government affairs. "They're already losing millions because of last year's cuts. I think groups will be looking very seriously at their options and whether they will renew their Medicare agreements."

College Regent W. James Stackhouse, FACP, in Goldsboro, N.C., who estimated that nearly half of his patients are covered by Medicare, worries that he and his partner won't be able to recruit new physicians to the practice because Medicare reimbursements are falling just as other costs are growing.

In 2003, for example, he expects to pay $7,000 more per physician for malpractice insurance, and he must give staff a much-deserved raise next year. While he has considered becoming a nonparticipating Medicare provider, even the extra 3.5% that nonparticipating providers receive wouldn't offset increased expenses, he said, even if his group could collect 100% of those fees from patients. "In general," he added, "our patients cannot afford to pay up front."

Dr. Stackhouse hasn't yet decided what he will do this year. He knows that insisting on payment before or at the time of service runs counter to his personal practice ethic.

"Everybody is having to make decisions like this," he said. "Every internist out there is looking at a $20,000 to $30,000 difference in the bottom line, and they'll all have to decide what they are going to do."

Bonnie Darves is a freelance writer in Lake Oswego, Ore.

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Is an access crisis looming? Here's what the surveys have to say

Will Medicare's payment cuts cause so many physicians to leave the program that an access crisis is inevitable? While opinions vary, one thing is certain: Even physicians who haven't completely stopped taking new Medicare patients are reducing—substantially, in some cases—the number of enrollees they accept. And that trend will be the chief cause of an access crisis, if and when one develops.

Getting a handle on the issue is difficult because of the way the Centers for Medicare and Medicaid Services (CMS) collects data. It publishes statistics on physician participation in Medicare, but those data do not reflect adjustments that participating physicians make in their own practices. As a result, CMS can overestimate the number of Medicare patients who can expect to find a participating provider.

"When CMS looks at access, it tends to review how many physicians have signed the participation agreement," said Robert Doherty, ACP-ASIM's Senior Vice President for Governmental Affairs and Public Policy. "They figure if so many physicians have signed, then the fees must be OK. But the data don't tell you how many patients each physician will see."

So what is actually happening in practices? Here is what recent surveys conducted by physician organizations and advocacy groups have found:

  • American Academy of Family Physicians (AAFP). A study released by the AAFP last summer indicated that family physicians are leaving the Medicare program in droves. More than 21% of AAFP members no longer take new Medicare patients, a 28% increase from 2001.

  • American Medical Association (AMA). Results from the AMA's most recent survey on Medicare pay, released last July, also point to a growing access problem.

    Although 92% of those surveyed said they plan to remain in the Medicare program, 18% stated that they are either reducing the number of new Medicare patients or accepting no new Medicare patients.

    Perhaps most telling is physicians' response to the question of what they'd do if the 2003 cuts went into effect. Two out of five—42%—said that they would not renew their agreements because they "couldn't afford to."

    Finally, 60% of physicians reported that they will make practice adjustments because of the cuts. Changes include delaying needed equipment purchases, cutting

    certain services and laying off staff.

  • Center for Studying Health System Change (HSC). This Washington-based organization is reluctant to attribute the Medicare-beneficiary access problem to Medicare payment cuts alone. While it cites a number of factors affecting access from physician maldistribution to regional market issues, it acknowledges that problems will quickly worsen if more physicians leave Medicare.

    An analysis of HSC's surveys published in September 2002 showed that the percentage of Medicare seniors who reported access problems increased from 15.2% to 18.4% between 1997 and 2001. The proportion of physicians accepting all new Medicare patients dropped from 74.6% in 1997 to 71% in 2001.

  • The Medicare Rights Center. The New York-based organization conducted a survey last summer of state Medicare counseling programs and advocacy organizations in 30 states.

    It found that in at least eight states, seniors are having increasing difficulty finding a physician who accepts new Medicare patients. In Arizona, New Jersey, Tennessee and Virginia, the access situation—as evidenced by the number of calls received from Medicare enrollees who claimed they couldn't find a physician—appears to be worsening rapidly.

    The organization's president, Robert Hayes, said that while the situation may represent an "emerging crisis," he is reluctant to describe it as "a mass exodus." He noted that only 1,100 of the country's 850,000 physicians have stopped accepting Medicare.

    "We get a lot of calls, and categorically those from enrollees who can't find a doctor who takes Medicare are not high on the list," Mr. Hayes said. "The crisis may be at the door, but it's not in the living room yet."

    He added that while the organization has urged Congress to address the payment situation to ensure adequate access to care, his group considers the lack of a prescription drug benefit "a more pressing issue."

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