Tuesday, March 8, 2016

Sacrificing Physician Morale To Save Medicare Pennies

Here's another example of why doctors are always getting screwed when lawmakers without any skin in the game make up rules about healthcare. Medicare has decided that in order to save costs from all the expensive drugs that physicians prescribe, they are going to cut the reimbursement for administrating the medications.

Under Medicare Part B, doctors get a fee of 6% of the cost of the drug that they give to a patient in the office or other medical facility. So if a $100 drug is given to a patient, the physician will get a fee of six whole dollars from the government along with the $100 cost of the drug. If the drug costs $1,000, the doctor gets $60 plus the cost of the medication. Sounds pretty skimpy to me already when one considers that the $6 fee has to cover all the risks of administering that $100 drug.

With the new proposal, Medicare wants to increase reimbursements if the doctor prescribes a cheaper drug and cut the fee if a more expensive drug is used. Now the new rules state that doctors will only get 2.5% of the cost of the drug while earning an additional flat rate of $16.80. So now a doctor who administers a $100 drug will receive $19.30 while a $1,000 drug will only net $41.80.

Think about the numbers for a minute. The government saves $18.20 on a $1,000 drug, or 1.7% ((1060-1042)/1060). But for the physician, his reimbursement just got cut by 30% ((60-42)/60). In the meantime, the pharmaceutical company still gets to sell its drug at $1,000. Where is the outrage? Where were our so called advocates in the AMA when these plans were being devised? The drugs companies can continue making billions of dollars and their CEO's raking in hundreds of millions while physician livelihoods are getting chopped by double digits. While government employees are striking over inadequate pay raises, doctors quietly submit to working harder for less pay because we're afraid of tarnishing our image.

I predict that this latest experiment in healthcare authoritarianism will fail miserably. It doesn't make sense when one considers the usual capitalist market forces. If a doctor is getting less money for prescribing an expensive drug, is he likely to switch to a cheaper drug that will reimburse him even fewer dollars? No. A rational person would prescribe even more of the expensive medication to make up for lost income. Using the above as an example, even though the reimbursement for giving the cheaper drug has gone up, it still doesn't make up for the higher fee the doctor gets from giving the expensive drug. So now the doctor has every incentive to give more patients the expensive drug to compensate for lower reimbursements.

The real cost drivers of this scenario, the drug companies and the patients who insist on having expensive drugs so that they feel they are getting their money's worth, get off scot free. But no American lawmaker would dare vote for a British style government rationing system. And they can't resist all the money the pharmaceutical lobbyists throw at them. That leaves doctors out of the loop and holding the bag.

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