How did Medicare become the highest paying carrier?

Editor’s Note: Welcome to Medical Economics' blog section which features contributions from members of the medical community. These blogs are an opportunity for bloggers to engage with readers about a topic that is top of mind, whether it is practice management, experiences with patients, the industry, medicine in general, or healthcare reform. The series continues with this blog by Carol Gibbons, RN, BSN, NHA, who is CEO of CJ Consulting, which specializes in healthcare revenue cycle management. The views expressed in these blogs are those of their respective contributors and do not represent the views of Medical Economics or UBM Medica.

Recently, I was working on credentialing with a client who is starting a practice in South Texas. I was shocked when we started getting contract proposals from the carriers and most of the major carriers were all at 80% of the current Medicare rate. I have been very vocal about the rates carriers pay physicians and the resultant physician’s search for ancillary services to generate enough revenue to pay the bills.

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A medical practice cannot survive on visit revenue alone without seeing an extraordinary number of patients every day. We see practices struggling financially that have high Medicare or Medicaid populations because of the complexity of their healthcare without appropriate reimbursement for managing these highly complex patients. The only way for practices to survive is to add equipment and/or staff to provide additional ancillary services, develop cash pay services in their practice or see so many patients that the provider has little time with the patient. 

Without ancillary services, the physicians only have time to push more medications to solve health problems and little time to coach patients to lifestyle changes that could reduce the numbers of medications they are on. If they do add ancillary equipment to their practice, many times they over order studies to generate enough revenue to pay the increasing cost of running a practice.

As a consultant, I vet best ancillary services every month for practices. There are so many people knocking on their door to sell them the next piece of equipment or weight loss product, the overwhelmed providers are calling consultants to vet these services. There is a direct correlation to the move toward ancillary services and the dramatic reduction in reimbursement to physicians to actually take care of patients over the past 10 years. Certainly, this ancillary tsunami adds cost to our healthcare system and does not always provide an outcome that actually improves patient care.

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We should not stop the use of ancillary services. We only need to analyze the use of ancillary services to determine if this allows the provider to spend more time with each patient and improve their overall health status. If the service is just to generate income and the time with each patient does not show health improvements, then that just adds cost to our healthcare system. I have found the practices that are the most successful in changing patient behavior through ancillary services are those that teach the entire staff to be “health coaches.”  Everyone has to be focused on improving health, not just medicating illnesses.

I also get angry when I look at the year-end financials of the major carriers in comparison to the fees they are paying new physician practices. If you pay attention to recommendations from investment advisors, Humana, Aetna, United Health Care, Cigna, etc., are recommended to investors because the company stocks are paying good dividends and have an increasing stock value. This is good for their investors but happens at the expense of their providers and to the detriment of their customers. It has not resulted in an improvement in population health that could drive down the overall cost of healthcare in our country.

Next: How do we fix this part of our healthcare system? 

Eight or nine years ago, when we started seeing most commercial carrier contracts being tied to the Medicare rate, they ranged from 105% to 120% of the Medicare fee schedule or they were a proprietary fee schedule below the Medicare rates that have not kept up with inflation. The insurance companies have been gradually reducing these contract rates over time to the point where today, as I contract new providers, the new contracts are significantly less than the Medicare rates. This is even in underserved areas where there are not enough physicians. In the particular instance that had me start this blog, the client is a general surgeon that has moved to a very poor county and is the only general surgeon in the town. Even with that scenario, the contracts are almost all below the Medicare fee schedule and could be the reason previous surgeons have not stayed in this community.

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The Accountable Care Act has to take some responsibility for this situation as well. The overall reimbursement to the physician for these patients is lower than a patient covered by other commercial or Medicare rates. In some instances, these products pay similar rates to Medicaid, plus, the deductible after the first visit applies to all services, leaving patients with large balances that many of them will never be able to pay. Because of the ACA, there are virtually no PPO policies available to individuals through the major carriers. Consumers are forced into HMO products with limited markets that many physicians will not take due to the low fee schedules.

How do we fix this part of our healthcare system? Well, there will be much discussion over the next few years as the new administration moves to “repeal and replace” the current law. My humble opinion, however, is that there needs to be more competition. I would suggest that large carriers who have gobbled up multiple small insurance companies at the same time they are reducing provider payments, be forced to split up rather than allow more mergers. The outcome to all the mergers and acquisitions currently has been a major reduction in payments to the providers who provide the care to their customers, and in many cases, higher cost for patients. Patients also suffer when they are forced to change healthcare providers over and over, which defeats the goals of improvement in population health. 

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So, who benefits from the mergers? Insurance premiums have increased dramatically and individual PPO plans are either not available or have a huge deductible that must be met before the policy pays any bills. Providers are being paid less than at any time in the past for the services they render despite the increased cost to run their business. Patients have to frequently change providers because of the changes in the exchange market and because of narrower provider panels in all commercial HMO products. The insurance carriers tend to limit the HMO market to low-cost providers, but low cost generally is not quality care. I cannot think of anyone that benefits from these mergers but the investors and the top employees in the insurance companies.

I hope the new administration can focus on the overall improvement of population health as the goal while it evaluates the healthcare agenda. If it allows the mergers of the carriers, there should be a stipulation that the fee schedule should increase 10% since, over the past few years, their fee schedules have decreased more than 10% to improve THEIR profitability. That could reduce the number of mergers and provide more competition in the market. Maybe I will send that suggestion to the new administration.