Mayo Clinic Bridles at Medicare Payments

(MoneyWatch)  The Mayo Clinic, which has been praised by President Obama as an exemplar for the healthcare industry, will no longer accept new Medicare patients at a primary-care clinic in Glendale, AZ, a Phoenix suburb. While this office serves only a small portion of Mayo's 526,000 patients in Minnesota, Arizona, and Florida, the organization says that the Glendale clinic is part of a 2-year pilot that will determine whether Mayo continues taking care of Medicare patients at other facilities. Meanwhile, the 3,000 Medicare patients who see family doctors at the Glendale office will have to pay nearly $2,000 a year out of pocket if they want to stay with their physicians.

Mayo is going in this direction because it lost $840 million last year on Medicare. Its Arizona hospital and four primary-care clinics lost $120 million. Nationwide, physicians earn about 20 percent less from Medicare than they do from private payers, but there's no evidence that most are losing money on Medicare. In a Bloomberg article, Dr. Robert Berenson of the Urban Institute is quoted as saying that some primary-care physicians can afford to do without Medicare "because there is an unlimited demand for their services." In areas where private health plans pay much more, Medicare looks like a poor payer, he adds.

Nevertheless, the Mayo experiment highlights the grim realities facing Medicare. Even at the current payment rates, the payroll-tax-funded Medicare Trust Fund, which covers inpatient care, is expected to go bankrupt in 2017. General tax revenues and beneficiary premiums guarantee the solvency of Medicare Part B, the outpatient program, but neither higher taxes nor the current rise in premiums is popular. Cutting doctors' fees is not politically acceptable, either. To keep those fees stable for the next decade, the House recently passed a supplemental spending bill of nearly $200 billion, and the Senate is expected to follow suit, in return for the AMA's support of its reform bill.

Ironically, the original version of the public option required that providers accept Medicare-level fees for people under 65. The idea was to lower insurance costs by paying providers below market. Of course, this would have never worked, because doctors and hospitals would have refused to accept such low fees, unless they had to do so as a condition of participating in Medicare. Even then, some might have balked because they were already losing money on the government program for seniors. It's a moot point today, of course: There's no chance of Congress adopting any kind of public option as part of reform legislation.

Several months ago, Mayo Clinic CEO Denis Cortese opposed having providers paid Medicare-level fees in a public plan. However, he proposed that Medicare speed its development of a value-based purchasing model. In a New England Journal of Medicine article, Cortese and coauthor Jeffrey Korsmo said, "We believe that Congress should set a 3-year deadline for creating and implementing new Medicare payment methods."

The Mayo executives said that payments to both hospitals and physicians should be based on performance, including metrics for "outcomes, safety and service." The value measures, they said, could be applied to Medicare's "diagnosis-related group payments, physician fees, payment updates, and other payment formulas, including those for bundled payments." Moreover, they said, providers should join together into larger business units.

It all sounds good to me, but it's unlikely to happen as fast as Cortese wanted. Consequently, more providers will likely drop Medicare in coming years, despite reform.