Countdown to 2013 Medicare Payment Reduction

The clock is ticking for physicians countrywide — at least where Medicare reimbursement is concerned. As the law stands today, barring any action by Congress prior to Jan. 1, physicians’ Medicare reimbursement will be reduced by 27%. How’s that for a rude awakening come New Year’s morning?

The potential impact, says Cheryl Yarbrough, CPA, and leader of the health care practice at Windham Brannon, could be devastating.

“If Congress does not act, and they actually put this through, you will see physicians be out of business in 90 days,” Yarbrough says. “They do not have the ability to weather an almost 30% cut in their revenue.”

A somber reality

Based on history, Yarbrough does not expect the 27% reduction to go through, and she believes that most physicians, for the moment, are ignoring the possibility. That’s because it seems the same scenario is played out every year. And every year the pending significant reduction gets delayed or changed.

Physician expectations, Yarbrough says, are that there will be no reduction in the end — a viewpoint she believes may be too optimistic.

“They may still get reductions, but not 27%,” she explains. “And if they get a two or 3% reduction, they’re going to be very unhappy, but they can probably weather it.”

The other dilemma is that January and February are traditionally difficult cash flow months for most physician practices. That’s because Medicare and Medicaid reimbursements are slow in general. For the first two months of the year physicians get far fewer receipts than the rest of the year when budgets start kicking back up. In addition, many physicians will have paid out all of their profits to avoid corporate tax, and so they’ll be left with little or no reserves within their practice in help them weather the start of the year.

“What they usually do is they rely on a line of credit for those couple of months, and then as the revenues start coming from the Medicaid back-up — it’s usually Medicaid even more than Medicare — then they’ll pay off that line of credit and be able to start giving themselves some paychecks,” Yarbrough says. “So, there are a lot of issues if physicians do see a 27% decrease in revenues.”

Changes developing

Opponents of the Medicare sustainable growth rate, the method currently used by the Centers for Medicare and Medicaid Services to control spending by Medicare on physician services, say that the short-term fixes that seem to occur as each calendar year winds down harm patient access to care while creating uncertainty among providers over reimbursement. Yarbrough believes that changes occurring within the health care field will eventually make the sustainable growth rate (SGR) — which determines Medicare payment cuts — moot.

“We’re going to see different payment models start to develop,” she explains. “We’re going to actually see more global payment models. We’re probably going to see payments — not fee-for-service, but episodic.”

Yarbrough illustrates with a home health agency getting paid to render a service for a certain period of time, and how much or how little is really up to them and whether or not the patient needs it. There are some parameters around that, but the physician group has to monitor its own time and expenses within that.

The SGR was implemented because the fee-for-service environment caused fees to keep climbing and that needed to be controlled, according to Yarbrough. However, she adds, the rate needed to be adjusted each year and in the end the SGR didn’t work since physicians’ costs continued increasing.

“And now we’re going even further back and saying, ‘Well, wait a minute. It’s not just the SGR that’s a problem — it’s the fee-for-service model. We’re going to have to change the fee for service model,’” Yarbrough says. “That’s going to take five to 10 years, if it ever occurs. So, we still may deal with this next year, but I think you’ll start seeing some changes. And they’ll be less emphasis on the reason for the SGR.”

Advice for physicians

Yarbrough is advising physicians to think twice when they pay out bonuses at the end of December before spending them, because they may have to turn around and loan it back to the practice if they want to stay in business.

“It may not seem fair, but it’s easier to borrow money from yourself than to go to a bank and borrow money,” she says.

Yarbrough also recommends that the practice’s line of credit is in place and available just in case it’s needed. Plus, physicians should always have other options.

“If they can’t weather a two or 3% decrease, then they’re on the edge anyway,” Yarbrough says.