Well, there are a lot of reasons why doctors are struggling financially in private practice and why many health systems can’t generate sufficient margins. I hope my little hook/title at least gets you interested in moving forward with this didactic lesson.
I’ve written a good bit about optimizing medical groups to empower clinicians to deliver (what they define as) high quality care, to improve patient access, to manage IT systems and utilize data analytics to improve care. After my latest tome about CMS’s 2025 proposed rule (CMS’s 2025 Proposed Rule Is Out: More Cuts? Why Not!, July 2024) which, among other things, contemplates further cuts to clinicians via a reduction in the conversion factor (CF), I decided to examine actual reimbursements to explore a. the downstream impact of the CF (in application) and b. the relative stagnation of allowables (e.g. revenues) to physicians for services rendered.
Inflation has been a bit kooky, of late. For many Americans, inflation is inflicting serious financial pain and stress on their families. And while healthcare is not getting any less expensive, clinicians, generally, aren’t getting ahead either. After considering my missive about the CF, it set me to pondering: how bad HAVE Medicare reimbursements negatively impacted clinicians? Being a bit of a numbers guy, I kicked some tires. I had a thesis; my thesis was proven right. (You won’t laud me for my intelligence; this seemed a pretty obvious hypothesis.)
The Thesis
Medicare reimbursements are not keeping up with inflation thus negatively impacting revenue streams for clinicians who participate in Medicare. I’d suggest clinicians with commercial contracts tied to Medicare rates are being harmed, too. This logic becomes more glaring in my example below (Figure 3). And lest you think health systems (with their leverage) are able to negotiate these rates away, think again; Medicare’s rates are non-negotiable.
Approach
It’s not rocket science, really. At random I carved out a slice of the CPT data set. I examined Medicare’s payment rates for evaluation and management (E&M) codes 99201 – 99205 (new patients) for years 2013 – 2023. I sliced the data for the greater-Atlanta market. In Figure 1 below note the payment rates for new patient visits in the Atlanta area for the last ten years. Sidebar: in 2015 (*) the reimbursement year was nominally (laughably?) adjusted upward and in 2021 (**) Medicare no longer recognized the 99201.
Figure 1
If you’re not inclined to go blind reading the small font in Figure1, Figure 2 graphically depicts the reimbursement rates for new patient visits for the same time period.
Figure 2
The CPT code trend lines run from bottom of the graph to top where the lowest line is the 99201 and the highest line is the 99205. Graphically, it’s interesting that you note a bit of an increase in Level 5 payment relative to Levels 3 and 4. While this might, on its face, seem like a step in the right direction, statistically a Level 5 should be billed far less than a Level 3 or 4. (99205s are the tail end of a Normal Distribution.) In other words, the 99203 and ‘204 reimbursement levels appear to hover at approximately the same payment level over the years.
Output
E&M codes are the overwhelming majority of CPT codes billed in an outpatient setting. And while my example “n” is small, I’m confident (without spending a year on this exercise) that the data output would probably yield similar findings for most of the other CPT codes in the stable. In Figure 2 you see payment rates are, for all intents and purposes, flat. When inflation was lower in this measured period, increases almost tracked with inflation; I say almost.
Reimbursements tried to track with inflation for a bit but as inflation raced ahead during the last three years, the reimbursement values did not. The inflation impact is quite interesting yet quite logical. In Figure 3 I isolated 99205’s reimbursement in Atlanta from 2013 – 2023. The “blue” line indicates the “real” value of the 99205 reimbursement over the years; e.g. the blue line is what the reimbursement rate should be had it kept up with inflation. The “green” line indicates the nominal or actual reimbursement rate during this time. From 2013 – 2015 the reimbursement rate tracked fairly closely to the “real” value. However, from 2016 on, the “real” rate far exceeded the nominal reimbursement rate.
Figure 3
The deviation in/around 2015/2016 indicates the moment where the “value” of Medicare’s reimbursement for a 99205 in Atlanta began to decline. In other words, there was less “dollar value” for the same service. Put differently, clinicians in Atlanta are basically, in “real” terms, making less now for a 99205 than they were in 2017. So while inflation has crushed the value of the reimbursement, rising costs make the impact more acute.
What Does This Mean?
The answer is just see more patients, right? Yes and no. At some point you can’t simply tuck in any more patients. Practically speaking Medicare’s persistent cuts in payment rates (whether via RVU, GPCIs, or CFs) is nothing short of cataclysmic for practitioners.
To understand, let me paint a picture from the annals of la-la-land, my data-static environment we’ll call Unicornville. In Unicornville, Dr. X saw 1,000 Medicare beneficiaries in 2013 and billed 99205s for each (which, sidebar, is probably a red flag to Medicare). In 2023, Dr. X saw another 1,000 Medicare beneficiaries and billed 99205s for each. That’s all that he billed for the year. (Figure 4)
Figure 4
In our scenario, Dr. X geeked out and compared his profit and loss (P&L) statements of 2013 and 2023 because he’s a nostalgic guy with too much time on his hands. In 2023 he had the exact same staff, the exact, antiquated IT system, same building, and uses the same “Other stuff” as he did in 2013. He’s literally changed nothing in a decade! Now of course this is silly but we are in Unicornville.
Over the years (we hope) Dr. X has actually billed other CPT codes, upgraded IT, added appropriate human capital, and added “Other stuff” where it made sense. But Figure 5 paints a picture of the impact of the nominal gains in CPT reimbursements relative to the impact of inflation over time.
Figure 5
Dr. X went from running a 54% overhead (46% profitability) practice to a 65% overhead (35% profitability) while performing the exact SAME work and utilizing the same resources. How did this happen? Well, Figure 5 clearly displays the damage of inflation (generally) and how Medicare’s meager reimbursement increases have not kept up with inflation. Dr. X is getting paid $220.93 per 99205 but all of his business costs have tracked with inflation.
Told you that to tell you this: no, this isn’t a “real” example but its implications are very real and indicative of how Medicare reimbursements continue to damage the financials of clinics and health systems. And, again, if clinicians’ commercial fee schedules are tied to Medicare rates, the issue won’t soon improve (e.g. practitioners will continue to lose ground to inflation).
Continuing problems (a further thesis):
· the US population is aging. The strain on Medicare will continue unabated and unless/until thoughtful heads and honest brokers prevail, this situation won’t improve
· clinicians in states with large Medicare populations (Florida) may feel the affects more acutely (e.g. a large revenue source will be Medicare)
· specialties with large concentrations of Medicare beneficiaries (cardiology, ophthalmology, orthopedics, etc.) may realize further strains
What to do?
· optimize clinics to mitigate financial pains. Ensure operations are streamlined, staffing is appropriate, and clinicians are empowered to see patients (also – remember that you cannot cut your way to profitability)
· explore partnerships or integrated networks; perhaps a management services organization (MSO) or some other avenue to pool operational resources
· reach out to your association, state medical society, and congressmen. While it can feel fruitless, this works
· don’t cast aspersions or lob anecdotes (e.g. “…Medicare is killing us.”) While this may be true, you need to bring receipts. They carry more weight than spitting into the wind. (Data always helps.)
· be a voice for change. I know it’s difficult seeing patients and practicing medicine then lobbying on your behalf but the system won’t change until it’s forced to.
Medicare will continue to cut. How clinicians, medical groups, and health systems react to those cuts will decide the future of reimbursements and care access for Medicare patients. Perhaps there are better ways for Medicare to allocate funds. (e.g. away from Medicare Advantage?) Maybe a payer overhaul is long overdue.
