Friday, July 18, 2008

Why Health Policy Matters: Medicare Payment Cuts

Medicare is a foreign concept to me as a medical student. I am inundated with tons of information about biological processes and disease, but I have received very little formal education about the business of medicine. Perhaps it seems too lowbrow for the higher purposes to which doctors should aspire. However, I think it is important to be aware of these things, and I find myself quite ignorant. My basic understanding of how doctors are compensated is that Medicare sets payment rates, and then insurance companies use these rates as a proxy for their own rates. Doctors then perform services, report them to Medicare or insurers, and the payers then pay the doctors accordingly. However, this system is facing a major threat. Medicare is about to cut payments by 10.6%:
Congress returns to work this week with Medicare high on the agenda and Senate Republicans under pressure after a barrage of radio and television advertisements blamed them for a 10.6 percent cut in payments to doctors who care for millions of older Americans. 
The advertisements, by the American Medical Association, urge Senate Republicans to reverse themselves and help pass legislation to fend off the cut. 
How to pay doctors through the federal health insurance program is an issue that lawmakers are forced to confront every year because of what is widely agreed to be an outdated reimbursement formula. But the dispute, which showcases the continued potency of health care issues, has reached a new level of urgency this year. Some doctors are reassessing their participation in the program and powerful interests on all sides are in a lobbying frenzy.
The real major problem here is that at the end of the day, patients suffer. Many doctors end up closing their practices to new Medicare patients because each patient would represent a "loss." The costs of the supplies needed to treat them would be greater than Medicare's reimbursement. As rational economic actors, one cannot blame the doctors for not accepting such a deal. The current government is a strong proponent of free market solutions, but here the free market is acting appropriately in response to external factors, but the result is clearly less than ideal. Our healthcare policy shows such cognitive dissonance, with the same factions railing about 'socialized healthcare' yet strongly lobbying to continue or increase the government-funded "socialist" Medicare program. A longterm solution is needed, but in the interim, Congress should maintain at least the current payment level if it has any interest in preserving Medicare.

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