Nature abhors a vacuum

This idiom expresses the concept that empty space is unnatural and will be filled by something. That nature will find balance through its own means.

Last week, David DePaolo made a point about medical costs in his blog. He discussed the competing interests and their pursuit of the almighty, but limited, "one" dollar in the workers' compensation industry. His focus was the recent debate in Wisconsin over medical fee schedules, and how medical and indemnity compete for their shares of workers' compensation. 

Fee schedule efforts by the state to restrict what is reimbursed for various medical services are common. Though recent efforts in that regard have failed in Wisconsin and other jurisdictions, fee restrictions are not a new concept. Medicare has been restricting what it pays for medical services for years, as have health insurance companies. Workers' compensation systems have likewise implemented such schedules.

The point here is related to the Medicare schedule, which has significant influence. Last week, the U.S. Congress passed resolutions which defer the effect of the Sustainable Growth Rate (SGR). They likewise deferred implementation of the ICD-10, but that is a discussion for a different day. SGR is an attempt to control federal medical costs by cutting reimbursements paid by Medicare. Though Congress passed these constraints, they have repeatedly delayed implementation. Each time they do, they have to find dollars elsewhere in the budget to make up for the projected savings that their implementation delay results. 

If you are going to rob Peter to pay Paul, you better be sure that Peter has money. Unfortunately, robbing other budget lines to cover the SGR delay, in the current budget, is borrowing from one bankrupt to pay another bankrupt. 

There is a national debate ongoing regarding the SGR. It is not directly related to workers’ compensation, it is a Medicare issue. However, the manner in which Congress deals with the SGR debate has the probability of sending ripples through the state’s workers’ compensation systems. SGR could materially change how much physicians are paid. 

The trend has been to impose restrictions on the amount a physician can charge for various services. This occurs in voluntary markets through contracts between third-party payers, such as health insurance companies. Physicians negotiate rates for services with these companies, and the companies sell access to their resulting physician networks to policy-holders.

Medicare uses a similar process. Their's is arguably less a negotiation. The agency defines allowable reimbursement rates for care. Doctors are then free to either treat Medicare patients or to decline. The same is true for workers' compensation. Unfortunately, in much of Florida, many doctors decline.

With the nationally established Medicare benchmark, states have created their workers’ compensation fee schedules. In many instances, these are “tied” to Medicare. With this method, a state need not assign its own independent value to a medical procedure or service, it merely associates its state value by some comparison to Medicare. For example, a state may provide that workers’ compensation medical care shall be paid at a rate of 120% or 140% of the allowable Medicare rate. If the Medicare rate rises, so does the state workers' compensation rate, and the converse, if Medicare rates decrease so do the state rates. Currently in Florida there is a bill pending to tie workers' compensation hospital fees to Medicare in this same manner. 

Since 2012, the SGR has been effectively zero percent. Congress, having decided that medical care rates needed to be cut, passed the SGR. They defined what would be cut to "save" federal budget dollars. The medical industry has lobbied for a repeal of the SGR, but has instead accomplished delay in its implementation. Repeal would cost about $180 billion. Implementing the intended reductions would reduce what Medicare pays doctors by about 24%. The latest vote last week puts the cuts off for another year. When they put off the cuts, they find money elsewhere in the budget to cover the "lost savings."

You know what they say, "a billion dollars here, a billion dollars there, pretty soon you are talking about real money." I cannot find who said that, but it is an interesting quote.

Consider what all of this really means. A doctor performs four identical procedures, or evaluates four identical patients, on a particular day; one is on Medicare, one is an injured worker, one has a group health policy, and one has no insurance. Let us presume that the normal charge for such care is $250.00 per patient. Thus, the total billing should be $1,000, that is four patients at $250.00 each. Of course, most practitioners could not stay in business at a rate of $1,000 per day; office rent, staff salaries, malpractice insurance, supplies, etc., this is merely a hypothetical.

If Medicare today reimburses this hypothetical procedure or evaluation at $100.00, then the physician's earnings on that quarter (using the four patient/procedure example) are markedly reduced, a loss of $150.00. 

By implication of the workers' compensation fee schedule (using the example above of 140%), the physicians earnings on that procedure/evaluation are also markedly reduced; they are $140.00 instead of the $250, a loss of $110.00. 

The group health patient/procedure will almost certainly not pay the $250 either, but that is what they will be billed. A variety of factors might be employed by the insurance carrier to reduce that amount, one of which is paying a percentage of "usual and customary charges," that is the group health contract will pay a percentage of what they deem "normal" charges for that procedure. The key word in much of this analysis is "charges." To some extent, what the doctor gets paid is dependent upon what is charged, not just by this doctor, but by doctors generally. For the sake of the example, let's say the group carrier pays $200.00 for this procedure/evaluation.

The uninsured is difficult. There will be those who pay for their medical care, and others that simply will not. The reality is that many medical bills are not collected by physicians, and that others are collected only through intervention of costly collection agency or legal processes. The amount collected for this "self-pay" is therefore unlikely to be the $250.00 either. For the sake of argument, let's say the doctor gets $150.00 from the self-pay patient as that is what they can (or say they can) pay.

For the four procedures that should (more on "should" below) total $1,000.00, the doctor receives $590.00 ($100.00 Medicare, $140.00 workers' compensation, $200.00 group health and $150.00 self-pay). All of these realities lead to the simple outcome that the doctor in this example is not going to make the $1,000 that might have been expected at the outset. As bad, it will take months to get paid whatever is received, yet another conversation for a different day. 

If SGR were implemented, then the doctors would face a 24% Medicare reduction. The Medicare patient that generated $100.00 in our example then generates $76.00. The workers' compensation patient now generates $106.40 (140% of $76.00). If the group health and the self-pay payments remain constant, then the $590.00 is reduced to $532.40 ($76.00 Medicare, $106.40 workers' compensation, $200.00 group health and $150.00 self-pay). The reduction in doctor revenue is about 10% total ($590.00-$532.40 = $57.60 = 10% app.).

This begs the question. What is the procedure/evaluation worth. If it is worth $76.00 then why should the group health or the self-pay expend any more than that to obtain it? If the value of the service is $250.00, then what is the effect of suppressing the price below that rate for some volume of those performed? Why does one market (Medicare or workers' compensation) subsidize or receive subsidy from some other market segment such as group health or self[pay?

I would guess that the value is neither $76.00 or $250.00. I would guess that the value is between these. I wonder whether, much like the tax code, there is some population who benefits by the complexity of these processes?

Years ago, when I was involved in the medical business briefly, I received two brochures in the space of a month. When disposing of these, I noticed that both came from the same company, but were intended for different audiences. 

One promised me that with this company's software, I could input my activity regarding a particular patient, and the program would select the best billing codes, and sequence them to result in the highest possible reimbursement. A boon to the medical provider. 

The second promised me that with this company's (same company, second brochure) software, I could input the billing codes as charged by any provider and the program would select less expensive billing codes as alternatives, and re-order them in such a way as to minimize the reimbursement. A boon to those who pay medical providers. Perhaps there are those who benefit from the system's complexity.

Congress acted last week to delay SGR for another year. Is Medicare paying too much, if so why keep doing so, why not implement SGR? Is Medicare paying too little, if not why are group health, workers' compensation and self-payers paying more? If SGR is the solution, why not implement it? If SGR is a mistake, why not repeal it? Why can this whole process not be simplified? Why not make one determination as to how we value these services, then charge and pay that amount? 

How to value medical services is the subject of a national debate. There are obviously many constituencies, and many competing interests. Perhaps, however, someone can explain the point of long debates, compromises and passing bills (SGR) if they are not the right thing to do. While they are at it, they might explain why delayed implementation somehow is better than repeal. It seems a confusing mess from this perspective, and with the impact Medicare has directly and by implication on so many providers, it would seem there is great benefit in predictability, transparency, and consistency.