The Slow Decay Economics of a Failure to Fix the Looming December 1 Sustainable Growth Rate (SGR) Cut

Well it's started.

The AMA President predicts "catastrophe" if the cuts mandated by Medicare's complicated Sustained Growth Rate (SGR) formula go through on Dec 1. The Disease Management Care Blog's state medical society has alerted it to a "national white-coat call-in day" campaign aimed at members of the U.S. Senate. While Congress has repeatedly intervened with temporary legislation to block those cuts, it's unclear to the DMCB how the partisan survivors in a lame duck Congress will respond to this latest crisis of its own making. Will the legislators vote in another temporary increase? Will they view this as their chance to demonstrate fiscal fortitude? Will there be gridlock?

In prior posts, the DMCB has pointed out that implications of a Medicare fee schedule cut would be enormous. That being said, however, it isn't convinced that complete Medicare boycott would necessarily commence at midnight December 1.

That's because of how many physicians "develop" their practices.

"Develop" you ask? Read on.

Most young physicians accrue their clinical panels over a number of years, one patient at a time. These patients arrive myriad ways: via referrals from other physicians, community word of mouth and hospital discharges. Most new patients are kept, while some (because of interpersonal conflicts, unwillingness to establish an enduring doctor-patient relationship and/or lack of insurance or economic means) are not given follow-up appointments. Once a large enough patient population is established to maintain practice income (in primary care, that can be between 2000-3000 patients), the practice is generally closed and the physicians "graze" off their assigned population. As relatively small numbers of patients turn over (thanks to moving away or dying), small numbers of new patients are brought on. That's why retiring physicians can "sell" their practice after retirement for hefty sums of money: it's a business that comes with a established cash flow that has taken years to nurture.

Over the years, established patients may change or lose jobs, or they may change or lose their health insurance. For physicians, that's simply part of the cost of doing business - they know that most of their patients' economic set-backs are temporary. During recessions, that can increase considerably and physician incomes can decline. But even during the good times, there is always a churn of money-losing patients in the average panel.

Last but not least, the majority of physicians generally carry a percent of patients with inadequate health insurance and limited economic means (such as Medicaid). While the willingness to put up with this varies from practice to practice, the vast majority of physicians understand that "indigent" patients are part of their social mission and cross subsidize their care. Many don't even bother billing Medicaid and just see those patients gratis.

So, the DMCB predicts that if an SGR fix fails to pass, most physicians with established practice panels will, in the short term, do what they always do: a) keep their patients (it took too long to establish them), b) manage this as more "churn," (figure maybe Congress will right things in the future) and c) remember their social mission.

Unfortunately, that will be a temporary lull. Without a meaningful correction, as the months go on and new Medicare beneficiaries start looking for a physician, clinic practices will not welcome them. For established patients, the churn may be too burdensome and become unmanageable. Physicians will equate Medicare with Medicaid/non-paying patients and be forced to reduce that percent in their panels.

In other words, it may not show up as an immediate crisis. Instead it could be a slow decay. Not a bang.... but a whimper.

Two other points: A drop in Medicare income could force physicians to reconsider the economics of buying an electronic health record in the next year. In addition, physicians are becoming extremely wary of a fickle Federal government, which is quickly depleting any remaining political good will.