Pressure to Cut What Doctors Get Paid is Mounting, and There's Not Much to Stop It

(MoneyWatch)  Threats to doctors' incomes are multiplying -- and not necessarily in a good way. While physicians are understandably focused on the latest congressional effort to head off a 21 percent cut in Medicare reimbursement, they should also pay attention to state regulation of insurance rates. Because if state governments decide to take a hard line on premium increases, the result will translate into lower payments to doctors and hospitals.

Exhibit A is Massachusetts, where insurers are demanding that many medical providers renegotiate their contracts. Blue Cross Blue Shield of Massachusetts, the biggest health-insurance company in the state, said it will cut the reimbursement of the most highly paid hospitals and physician practices. BCBSMA plans to lower its payments to some hospitals by up to 10 percent. Harvard Pilgrim, another big plan, predicts that it will freeze or slightly cut payments to 25 of its biggest hospitals and physician groups.

The insurance companies are simply reacting to a recent state government decision to limit health-insurance premiums. Healthcare organizations and physicians can expect little sympathy from the state: Massachusetts Gov. Deval Patrick has already sought authority to roll back existing rates that some big healthcare systems have arm-twisted from insurers and employers.

In California, where Anthem Blue Cross' proposed 39 percent premium increase on individuals generated public outrage, a bill to make insurance companies justify rate hikes passed a state assembly committee in March. The legislation, which would require state approval for increases exceeding 7 percent, is still wending its way through the lower house and faces an uncertain future in the state senate. But if it passes and is signed by Gov. Arnold Schwarzenegger, it would set off the same pressure on provider payments that we're now seeing in Massachusetts.

The Obama Administration wanted to include similar authority to reject "excessive" rate hikes in the national reform legislation. Although that attempt failed, it could always return later in a separate bill if runaway health cost inflation continues.

Meanwhile, a bill that would, among other things, postpone the planned Medicare cut in physician reimbursement passed the House and will be taken up by the Senate later this week. This "doc fix" bill, however, would only delay the cut for only 18 months, compared to the five years originally proposed, and that's telling. With concern about the federal budget deficit mounting, it will be very hard for Congress not to cut doctor payments sooner or later. While the Medicare fee schedule might not be pared back, Congress could replace it, partly or wholly, with a budgeting mechanism that would lower physician reimbursement.

Against this backdrop, the Medicare Payment Advisory Commission (MedPAC) recently did a study that calculated the impact on physician income if all payers, public and private, paid Medicare-level fees. Overall, the researchers found, physicians would earn an average of $240,000 a year, compared with $273,000 today. Cardiologists would make $450,000, down from $483,000; and radiologists would take home $390,000, versus $488,000 today.

Since this compensation includes Medicare, the all-payer scenario would have varying impacts on different specialties in different markets. Medicare supplies a large percentage of cardiologists' business; so the effect of having all payers reimburse doctors at Medicare rates is less for cardiologists than for, say, pediatricians or family doctors, who treat different populations. Applying Medicare rates to family physicians' entire book of business would cut their annual income by 10.6 percent. Even harder hit would be surgeons, who would earn 18.6 percent less, and radiologists, who would see their income drop 20.2 percent. In contrast, physicians who have large Medicaid practices would see an increase in their incomes.

Will payers try to force physicians' income down to Medicare levels? It might seem implausible now; but if the states or the federal government try to cap insurance rates, it could happen.

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