A solution to Medicare: doctor-patient price negotiations

Recently, an elderly woman called and asked me for a medical appointment. She was desperate. I was the ninth doctor she had phoned and nobody was calling her back. What was the problem? When she told me that she had Medicare, I knew what was happening. Increasingly, I am seeing Medicare patients struggling to find doctors and timely appointments.

At its root, Medicare is like any other insurance, except it pays substantially worse. In psychiatry, fees differ according to where you practice. In my area, most people are paid around $160 for a 50-minute session. In 2006, Medicare limited pay to about $115 for that same session. That is a 28 percent discount. The doctors who work most closely with Medicare,
those who are “participating” in the plan, are cut even deeper; their fee is reduced by 34 percent.

In order to treat those in need, doctors are often willing to accept such discounts. However, when sustained over a year, the concessions add up. Continuing with the example, assume that a psychiatrist took one hour each week and devoted it to seeing only Medicare patients. Consider this a “weekly Medicare-hour.” For each weekly Medicare-hour, the doctor’s annual income will drop by about $2,070. Doctors who participate in Medicare earn even less; their paycheck is reduced around $2,500. But, that is just one patient a week. Suppose that the psychiatrist has a full practice. In the best case, devoting one eight-hour day a week to treating just Medicare patients will decrease the doctor’s income by about 11 percent.
Though I used psychiatry as the example, the same applies to the other medical specialties. Unfortunately, Medicare is designed to financially discourage doctors from seeing the elderly or disabled. While I believe the vast majority of doctors are not in the field for money, significant pay cuts sting. Thus, it should not surprise us when the old or infirm cannot find doctors.

Regrettably, the problem goes deeper. Medicare also disrupts the patient-doctor relationship. Although the insurance does a good job in getting treatment to the poor, it interferes in the care of those who are middle income or higher. In my experience, charging an artificially low fee to a well-off patient introduces complex and difficult issues into a treatment.
Imagine seeing a multi-millionaire at a hugely reduced fee. Emotions such as guilt, resentment, entitlement, devaluation or shame can be artificially injected into a treatment. And, resolving such issues is not easy. Medicare physicians must bill at or below the discounted government rate, without exception. Either that, or they must refuse to treat the patient. Otherwise, the doctor may be guilty of fraud and face large fines or criminal charges.

More abstractly, this problem is a familiar one to economists. Consider what happens when cities implement rent control.
Initially, people are pleased. Then the supply dries up and the existing apartments suffer from inattention and poor maintenance. We are now seeing similar long-term effects in our national health insurance. It suffers from artificially low fees and flawed policies.

How do we solve this problem? Not in the way the government recently acted. Last December, Congress agreed to pay doctors about $1.50 more, in exchange for data on our patients. Eventually, Medicare hopes to use the data to create outcome-based punishments and rewards. There is an astounding disconnect here. Congress’s solution solves nothing and just encourages more discontent. Medicare rates are already deeply discounted and the extra dollar is insulting. It will not even cover the costs of complying with the new federal program. Meanwhile, asking for privileged patient data is certain to upset doctors. Congress should be mindful that doctors can always opt out of Medicare, refuse to accept the insurance, and implement a sliding-scale fee structure. Provoke them and an increasing numbers of physicians will avoid Medicare, entirely.

Is there a better solution? Yes. Medicare should continue to set their fees. However, allow doctors to negotiate their own rates. If the doctor and the patient contract to a fee that exceeds Medicare’s, the government should continue to pay what it always has. However, the patient should then pick up the difference. In this way, doctors will again have financial incentives to treat the elderly, the poor will still be subsidized, and the middle class will have increased medical access. Let the patient and doctor negotiate a fair fee, without government meddling. Otherwise, Medicare patients will get increasingly frustrating healthcare with long waits and too few providers.


Block is a psychiatrist in private practice in Portland, Ore., and is on the clinical teaching faculty at Oregon Health and Sciences University.