Revenue Compression in the Physician Office

by Save the Rustbelt

Revenue Compression in the Physician Office

As Rdan’s request, a not-too-technical review of revenue compression.

There is never enough money for health care, so the various constituencies are constantly maneuvering for their piece of the pie.

Physicians have some advantage in the piece of pie contest as physicians are the gatekeepers for most of the system.

Physicians are a target though because they bill so many units of service (office encounters and surgeries).

Both private and government (Medicaid and Medicare) payers are constantly trying to ratchet down or hold fees.

Medicaid has never paid very well, the best physicians can hope for is prompt payment.

Medicare has been a back bone of the system but has never been extravagant.

Medicare has always been based on “cost shifting,” Medicare pays lower fees and providers are supposed to make it up by better payments from private insurers. These days it is tougher as private insurers ratchet down fees as well.

The would not be so bad but costs are escalating in physician offices (labor, IT, supplies, equipment, malpractice insurance, etc.), and most of those costs behave as fixed costs. There are some variable costs (injectibles and vaccines, casting materials, etc.). **

The Bush administration has been trying to limit or decrease Medicare fees, and there is an annual dance where Congress restores the fees with a small increase. I think most of the Bears understand the long term financial picture for Medicare.

So physicians update and increase fee schedules, but almost no one pays retail. Say the charge for a mid-level office call is $120, actual receipts might range from $44 (Medicaid) to $100 (best private). The fee is set where it is for regulatory reasons.

Some private pay contracts actually are a multiple of Medicare rates, so the change in Medicare rates ripples through private rates, either directly or indirectly.

So, physicians have very little control over costs, and very little control over revenues.

Physicians have some strategies for improving collections, and the best strategy in a fixed cost environment is volume. There are limits to volume.

** When you hear a physician say “I lose money on every Medicare patient!” it is because they do not understand CVP analysis. The margin is lower on Medicare patients, it is unlikely the margin is negative.

Update: H/t to robertdfeinman for this link to Health Beat Blog

Rdan here.
The above was written in relation to Medicare D and its impact on prices paid by Medicare on the insurance payment system and reimbursements for doctors.

What is the minimum wage or price floor for a US born doctor?

At a local hospital the doctors on staff are mostly Indian, nurses are white US trained, and PCAs are Latino. Many doctors not “on staff” have combined their private practices with being ‘on call’ and consulting to the hospital in adjoining buildings, a sort of hybrid arrangement to working for the hospital.

I suspect reforming the US medical system in the real world will be complex and messy. Discusssion can be done from a macro or a micro viewpoint, and can include anything from ‘no change is needed’ to some sort of ‘universal’ healthcare plan.

It is incumbent on regulars, however, to link to good arguments or create one with data. This can include examples in real world business management, patient anecdotes for illustrative purposes, data for aggregates, policy effects and unintended effects, and if possible links to past AB posts on the matter to avoid simple repetition of talking points.

A micro point of information does not necessarily need a grand discussion of private vs public policy. Knowing how a doctor budgets can be a valuable piece of information in its own right. And a blog format appears to limit the amount of information that can be handled on any one post. Hence sometimes to limit the scope of discussion of a post has value.