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New Analysis Shows Medicare Reimbursement Cuts Will Hurt Patients, Physicians

April 4, 2002

(WASHINGTON, DC): Reductions in Medicare payments to health care providers threaten to reduce access to care for the program's recipients, as well as limit the services currently available to them, according to a new analysis prepared by the American College of Physicians-American Society of Internal Medicine (ACP-ASIM).

The more Medicare patients a physician's practice treats, the more its income will fall under the program's reimbursement cuts, the analysis points out. This will create a clear incentive for medical practices to limit the number of Medicare patients for which it provides care.

Medicare slashed payments to physicians by 5.4 percent this year, the fourth such cut in ten years. Unless Congress steps in and changes the way that Medicare calculates future payments, Medicare payments may be cut by as much as 14 percent over the next three years. After inflation, Medicare payments will fall as much as 28 percent below the rising costs of delivering care to beneficiaries.

The Medicare cuts of 2002-2005 have ominous implications for doctors of internal medicine, the physicians who provide the most care to Medicare beneficiaries. The overall decline in income to a typical general internal medicine solo practice would be $7,884,while the income decline for a four-physician practice would be $31,538 before inflation. This cut in Medicare reimbursement would likely require the practice to reduce key office staff.

The overall decline in income to a typical geriatrics solo practice, whose caseload overwhelmingly consists of Medicare patients, would be more than $30,630 a year. The drop in income for a four-physician practice would be $122,520 a year before inflation. For a group practice, this would presumably result in the practice laying off three nurses, or four billers, or six clerical workers.

Percentage Cuts Cuts
Medicare Solo Practice 4 Physician Practice
0% $0.00 $0.00
10% $2,628.20 $10,512.80
20% $5,256.40 $21,025.60
30% $7,884.60 $31,538.40
40% $10,512.80 $42,051.20
50% $13,141.00 $52,564.00
60% $15,769.20 $63,076.80
70% $18,397.40 $73,589.60
80% $21,025.60 $84,102.40
90% $23,653.80 $94,615.20
100% $26,282.00 $105,128.00


"Medicare is cutting reimbursement rates while the cost of delivering care is increasing", said William J. Hall, MD, FACP, president of the ACP-ASIM. "This confluence of events may force physicians to reduce staff, delaying buying new medical equipment, or deny accepting new Medicare patients just to keep a practice open."

The access problem will grow worse as rapid growth in the number of beneficiaries chases a smaller pool of doctors able to treat them. In 1990, 34 million Americans depended on Medicare. By 2010, that number will grow to 40 million and by 2030 to 68 million. To deal with this enormous increase, Medicare must ensure a sufficient number of practicing physicians are available, especially in specialties such as internal medicine and geriatrics that concentrate on the care of the elderly.

Estimates of revenue loss per practice from the Medicare fee schedule cuts were derived by multiplying the estimated payments per office visit in 2005 by the number of office visits provided by a typical internal medicine or geriatrics practice, compared to Medicare's 2002 payment rates for office visits, using the following calculations:

  1. The payments per office visit were calculated using the current relative values for office visits and Medicare's own estimate of the dollar conversion factor in 2005 (the conversion factor multiplied by the relative values determines the amount of payment per procedure).

  2. Current survey data from the Medical Group Management Association provided the number of office visits typically provided annually per internist and per geriatrician.

  3. The number of visits provided per internist or geriatrician by the 2002 and 2005 Medicare payments were multiplied, with the dollar difference being the estimated loss per internist or geriatrician.

  4. A range of potential losses was determined based on the percentage of a physician's total office visits involving Medicare patients.

This chart demonstrating the effects of the Medicare fee schedule is available online at: http://www.acponline.org/hpp/impact_medcuts.htm

The American College of Physicians-American Society of Internal Medicine is the nations largest medical specialty organization and the second largest physician group. Membership encompasses more than 115,000 internal medicine physicians and medical students.

Jennifer Whalen, (202) 261-4575, jennw@acponline.org

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