Providers Should Worry, Not Docs

Philip Betbeze, Senior Editor, Finance , August 20, 2007

On the surface, it looks like doctors will bear the brunt of Medicare's efforts to grow at what a previous Congress felt was a "sustainable" rate. Based on a controversial physician payment formula approved by Congress in 1998, CMS proposed last month that doctors get a 10 percent haircut in Medicare physician fees for 2008.

Of course, as anyone who has followed the 105th Congress's blunt solution to a complicated problem will attest, these cuts almost never stick. For the past five years, Congress has stepped in before the cut became final to reduce or eliminate it each year. Why? Because of the very real possibility that doctors simply will stop accepting new Medicare patients--combined with effective lobbying by the American Medical Association. Of course, that means government has to find a way to make up for the loss somewhere else, so to speak.

Count Tom Scully among the skeptics that this latest physician fee cut will stick. As administrator of CMS from 2001 to 2004, he should have pretty accurate insight into this type of thing.

Back in April, Scully was at the CIT Healthcare Conference in New York where he spoke to a roomful of Armani suits and me. And the Armanis might not have been very happy about what he had to say regarding the fallout from this 10 percent proposed cut. We're likely, he says, to have the typical "end-of-year wreck where somebody's going to get whacked who's not expecting it."

Translation: Congress will hit providers.

Imaging got whacked in 2005 and may be in line for another cut. But that won't deliver the savings Congress needs to eliminate the doctor cut. Democrats want to hit the "overpaid" Medicare Advantage plans. Again, that won't result in the necessary savings. Ditto for nursing homes and hospice.

Hospitals have been doing relatively well financially over the past several years. Moody's reports that operating margins and liquidity balances remain strong relative to historical levels. Hospitals also have been feeding at the trough of low-cost debt in recent years--improving their operating performance by cutting their debt service levels significantly. But count Medicare among the big bumps in the road that hospitals may face in the coming months and years, including greater competition with doctors, declining patient volumes and a higher expense growth rate.

Why will Congress likely go after providers to pay for an expected change in the 10 percent doctor rate cut? Willie Sutton perhaps said it best when he talked about why he robbed banks, says Scully.

"Because that's where the money is."

Philip Betbeze is finance editor with HealthLeaders magazine. He can be reached at

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