DECLINING REIMBURSEMENT RATES: THE DEATH OF FEE-FOR-SERVICE MEDICINE
Yes, folks, the age old “fee-for-service” payment model for medical care has been dying a slow death for 30 years. But now, paying the doctor his fee for providing medical services is about to breathe its last breath. Why do I say that? Because for the 23 years (1984-2007) I was in solo practice, I experienced the decline first hand, and now, for the first time I can remember, Medical Economics magazine also acknowledges it.
In a letter to readers, the publisher of the journal, Mike Hennessey Jr, admits that “declining reimbursement rates…..raises concerns about the sustainability of medical practices….The impact of shrinking reimbursement rates on practice revenue demands careful consideration and strategic planning. Not to mention the profession needs a unified voice to fight for better rates.” Good luck with that! That voice is definitely NOT the AMA. They’ve been selling doctors down the river for 50 years, and that won’t ever change. Once, I thought it might be the AAFP, but they’re more concerned about DEI than they are their members ability to stay in business.
Reimbursement, of course, is the amount of money the doctor gets paid by Medicare and private insurance companies to compensate him/her for the care/service he/she provided. The doctor charges a “fee for the service.” I’ve complained about this for years and have written several blogs critical of the Medicare conversion factor which drives the “resource based relative value system.” Every service a physician provides has a numerical “relative value unit (RVU).” The RVU is converted to dollars and cents by the conversion factor which is set by Congressional mandate. Every single year for at least 30 years, Congress has lowered the conversion factor. In 2023, it was reduced by 2%, and in 2024 by 3.37%. So, in the past two years, doctors were paid less than in 2022, and are paid 5.37% less this year. Over the past 30 years, the small annual declines have added up to an unsustainably low rate of reimbursement.
With inflation at historic highs, the doctor’s costs to do business also have risen significantly. To pay for those costs, the amount Medicare and insurers pay the doctor needs to be enough to cover those costs with some left over to pay the doctor a salary. Increasingly, though, reimbursement has become inadequate to accomplish those tasks. Physicians respond to this crisis in one of five ways: they become an employee of a hospital or physician group, they convert their practice to the concierge model, they change career paths completely, they stop seeing Medicare patients, or they throw in the towel and retire. Most of these alternatives leave patients with limited or no access to medical care.
“Everyone, including most members of Congress, knows cuts are devastating to doctors and could start to threaten the viability of the program if physicians stop accepting Medicare,” but for the past 30 years, Congress hasn’t seemed to care because the downward trend of reimbursement has not ceased. “Value-based care,” in which the doctor is paid more if he/she meets all the Medicare outcome criteria, was the hot ticket for a few years, but has “stalled out.” “Medicare struggles to implement value-based care programs that save money” because doctors didn’t buy into the concept. They found they spent more time documenting the required criteria than actually taking care of the patient.
Private payers also are moving physician contracts away from fee-for-service (FFS) in favor of a different system, but that system has yet to be determined. Payers also are generally unwilling to cover inflationary cost increases to physicians beyond standard cost of living adjustments, and we all know inflation has outpaced the cost of living. These economic challenges are forcing physicians to make the choices I listed above. Physicians still want the FFS payment model, but the so-called “experts” say “we can’t keep going on the FFS path.” With all financial factors working against them, to obtain better reimbursement, physicians need to designate negotiators who can provide proof “of better outcomes with data and performance [measures]” so doctors can prove their value. These comparative measures and patient satisfaction scores, experts say, will lead payers to place higher value on the care they provide. “Practices absolutely need to have data to prove their value.” They hope that will lead to higher reimbursement rates.
As mentioned, fee-for-service (FFS) medicine is being priced out of existence. When a physician realizes he is receiving payments that are less than 10% of his fee, he is shockingly aware his business (practice) is going under financially. He is also shockingly aware at the end of the month he is unable to pay himself a salary. And when payments decline to the point of being unable to pay for supplies, rent, and wages, it’s time to seek one of the alternatives above. Any business whose overhead exceeds revenue is destined for bankruptcy. Few doctors actually declare bankruptcy, but they are retiring, or seeking other ways to make a living, in droves.
In my opinion, the people and government entities that decide healthcare policy (and it’s not practicing physicians) would prefer doctors be salaried employees, ie. civil servants. They would be paid an amount determined by their specialty and length of service to the bureaucracy with incentive payments as a bonus. Physicians would receive the same salary regardless of whether they see five patients a day or 50, or on a capitation (money per patient per month) basis. Payment for each individual service would be replaced by the salary due a government employee with X number years’ service. Medical Economics doesn’t say this in the article, but hidden under “performance measures” and “outcomes data,” the Center for Medicare Services (CMS) is saying you’re ripping off the government with your FFS payment model. We’re only playing ball with you if you can prove you do what you say, and the care you provide has a good outcome.
So if you notice your doctor seems distressed, it’s because he is. If he seems to be in a hurry, he probably is. He has to see a lot of patients to stay in business. If he doesn’t seem to listen, he probably isn’t. If you notice he’s hinting at making a career change, he’s reached the desperation point, and you need to be prepared to find a new doctor. His business (practice) is no longer sustainable with the reimbursement he’s receiving. If he tries to respond by seeing more patients, he seems hurried and rude, does cursory exams, and makes quick diagnoses. Burn out influences his decision-making, and that only leads to loss of access to care. This downward cascade is what physicians live with today. They can’t stop it, but attempts to have been unorganized and half-hearted. Now, it’s reached the point of survival, but how. When billions are sent to other countries for questionable reasons, one asks why are we enriching foreign entities, when our own citizens and our own country have so many needs. It makes little sense.
References: Hennessey M. Navigating Declining Reimbursement Rates. Med Econ 2024 January:5.
Shryock T. 2024 Physician Payment Outlook Med Econ 2024 January:8-11.
