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Home Publications Blogs Beat the Press Do Doctors Really Lose Money on Medicare Patients or Do They Lie to New York Times Reporters?

Do Doctors Really Lose Money on Medicare Patients or Do They Lie to New York Times Reporters?

Tuesday, 24 September 2013 10:03

That is undoubtedly the question that many NYT readers were asking when they read an article warning that insurance companies in the exchanges were not paying enough money to attract many doctors. At one point the piece told readers;

"Dr. Barbara L. McAneny, a cancer specialist in Albuquerque, said that insurers in the New Mexico exchange were generally paying doctors at Medicare levels, which she said were 'often below our cost of doing business, and definitely below commercial rates.'"

The claim that Medicare payments are "below our cost of doing business" might seem rather dubious to readers since most doctors accept Medicare patients. The median earnings of physicians are well over $200,000 a year (net of malpractice insurance), which means they are heavily represented in the one percent. Given their extraordinary incomes, which they vigorously protect by excluding foreign and domestic competition, it seems implausible that many doctors are willing to lose money by treating Medicare patients.

It is more likely that doctors are getting less than their desired pay when they treat Medicare patients, but still pocketing far more money than the overwhelming majority workers for their time. It would have been useful to clarify this point for readers rather than letting Doctor McAneny's assertion pass unchallenged.

Comments (17)Add Comment
Another Costly Government Regulation
written by Frank B, September 24, 2013 11:19
A phrase in another NYT health article made me think of you this morning...

"The agency has cleared about 100 mobile medical apps in the past decade, about 40 of them in the past two years. None of them were required to go through costly regulatory hurdles like clinical trials."


Costly regulatory hurdles like clinical trials, i.e., medicine based on safety, evidence and the precautionary principle.
written by AlanInAZ, September 24, 2013 11:35
I believe it is common practice for most commercial insurers, including those outside the not yet existing exchanges, to pay at Medicare levels within their networks. The comment that medical practices lose money on Medicare patients is nonsense. Medicare pays bills quickly and usually without hassle.
Local flavor
written by Anna Lee, September 24, 2013 11:36
I moved to a new location for retirement. My husband went on Medicare. Nearly all the doctors here do not accept Medicare assignment but tell the patients not to worry that they charge the Medicare rate. (Until when??) I asked a podiatrist why there seemed to be a single policy throughout the community. He said the doctors were mad that Medicare payments were lower in this area than in the adjacent area which includes a big city. My conclusion was that Medicare patients were being harassed by doctors as they jointly agreed on throwing a tantrum.
written by JDM, September 24, 2013 11:52
I guarantee you that if a McDonald's line worker or union member had made a statement as full of BS as that doctor's, the NYT article that printed it would have called it out, and several of their columnists would have devoted at least one, probably several, columns to pointing out its absurdity, and in a derisive, mocking tone.
Medicare Paymensts to Doctors
written by George Uriano, September 24, 2013 12:18
I vaguely recall a study about how doctors' incomes increased substantially when Medicare started up. I think the average family doctor's income was about $10K per year and specialists made about $12K per year before Medicare. Within two years after Medicare started, the incomes of these doctor's went up about 250% to the $25-35K range. My father was a highly skilled toolmaker whose salary was about $5K per year which hardly increased while the doctors received their Medicare induced income surge. The increased income was likely largely due to the increased number of paying patients who had Medicare. If Medicare were to be terminated, there is no reason not to believe that the incomes of most doctors and hospitals would drop by 50% or more because many potential patients simply could not afford medical care or would obtain it through "free" services at emergency rooms or special clinics for the poor.

Someone like Dean Baker should go back in time and analyze how the incomes of medical service providers changed after the onset of Medicare. These providers clearly don't understand how they have benefited from the program.
There is no single definition of Price, nor of Commercial
written by Commercial - Hah, September 24, 2013 12:55
I am sure the doctor is correct that the prices in Medicare are below a "commercial" price. What is currently unknown is which of the multiple commercial prices he is referring to.

Is the doctor referring to the non-negotiated, "Oh, sh*t, I don't have insurance--I am so screwed**" price or to the insurance company negotiated price that is steeply (steeply, steeply?) discounted?

In March 2014 North Carolina will start publishing the full range of "commercial prices" for the top 100 diagnostic related groups in hospital and clinic settings. At that time we might get some data to use to identify "commercial price".

** Read this story about a knowledgeable health care worker's experience with the "Oh, Sh*t!" moment when they discovered that they might not have insurance and they do have appendicitis.
confused by statement in NYT article
written by Joe, September 24, 2013 2:25
“If a health plan has a narrow network that excludes many doctors, that may shoo away patients with expensive pre-existing conditions who have established relationships with doctors,” said Mark E. Rust, the chairman of the national health care practice at Barnes & Thornburg, a law firm. “
How do patients without insurance and having expensive pre-existing conditions then reject Obamacare? If they are that wealthy then they can choose a better plan.
Medicare and Basic Office Costs
written by Aaron, September 24, 2013 2:52
Some years ago I was talking to a criminal defense lawyer who explained his court-appointed work, "It pays a lot less per hour than the private work, but I use that revenue to cover my office costs." Had he been busy enough to fill his practice with private pay clients, he would have done so - but he had enough room in his calendar for the appointed work and as his operating costs were essentially fixed that "lower paid" work substantially increased his profits.

I suspect that a lot of the doctors who complain about Medicare are in a similar situation. They want Medicare to pay more money, not because they're losing money on Medicare patients or because they're inclined to stop taking Medicare patients, but because they want to receive an even higher net income - but, as George Uriano argues, were they actually to stop taking Medicare their incomes would plummet as they don't have a source of higher-paying patients ready to fill the void.

Anna Lee's anecdote is interesting because if the doctors are collectively scheming to boycott Medicare and to fix prices, well.. antitrust?
written by Jay, September 24, 2013 7:56
I think the doctors dislike the lower fees and the inconvenience of billing. I had read about doctors that only accept cash to avoid the hassle of even dealing with ordinary insurance.
What's the cost of doing business?
written by Chris G, September 24, 2013 8:34
"...often below our cost of doing business..."

It's hard for me to believe that doctors actually lose money every time they see a Medicare patient. Let's see the numbers which support that claim.

(Perhaps what she meant was "If all my patients were Medicare patients then what I could pay myself for a salary wouldn't support my current lifestyle and I don't like that thought."?)
Covering Cost and Covering Monopoly Profit is Not the Same Thing
written by Last Mover, September 24, 2013 9:35

Econ 101 question. If Medicare doesn't pay "enough", why don't single payer systems in other developed countries go broke since they pay far less than Medicare?

To claim that "costs" are not covered begs the question. Why do members of the health care industry get a free pass to make these claims? Note the outcry when fast food workers make these claims. Take it further up the chain and ask why college graduates in general can't demand jobs (and implied customers) necessary to cover their education cost the same way doctors do.

Doctors and health care workers in other developed countries are not forced into bondage to work at their jobs. It's voluntary like it is in America. They willingly accept less, as do hospitals, insurers, pharma, medical device makers and all the rest. They earn a decent living without demanding they be paid a monopoly profit or they won't accept patients.

Paul Ryan and the voucher scam was the same old game with the cruel twist that Medicare would eventually be wiped out altogether in a death spiral as more patients were rejected because even higher monopoly profits would lure all the doctors away.

This is not rocket science. When health care is the complete market failure it is, single payer systems like Medicare and the VA provide the "prices to be taken" by the players on the supply side, the same way players take prices in competitive markets. Both are voluntary.

The "shortages" created by players exiting these markets are created intentionally from within to hold prices far above true cost. For example, specialists with huge incomes crowd out primary care physicians who become specialists themselves, creating a built in death spiral "shortage" of PHPs driven by monopoly profits earned by specialists.

The fake "shortage" of PHPs is then played up as caused by PHPs not paid enough rather than caused by specialists making too much. It was designed that way and the NYT is not going to write a story per Dean Baker style to explain why PHPs already make enough to satisfy market demand under Medicare if only the monopoly stranglehold was broken.
written by AlanInAZ, September 24, 2013 10:11
I looked up Dr. Barbara L. McAneny and found that her center, of which she is CEO, accepts the following insurances.

Arizona Medicaid
Blue Cross Blue Shield
CCN First Health
Cigna/Great West
Indian Health Services
Lovelace Health Plan
United Healthcare

Most of above carriers have negotiated rates similar to Medicare rates. The incremental income she will get from the newly insured via exchanges will be in line with her established patients who are insured. The unquestioning NYT reporting is inexcusable.
written by watermelonpunch, September 25, 2013 12:54
Some doctors in the U.S., I think, need to spend a couple weeks a year helping Dr. Tom Catena in Sudan, to remember what the hell we're paying them for.
Before Medicare, the Buick was the "doctor's car". After Medicare, the Mercedes
written by Rachel, September 25, 2013 8:29

So I heard a libertarian MD explain recently.

Of course now he only wants to take cash. But at least he admitted that doctors do not earn market rates. And who knows? Another day he might admit that their incomes are also artificially high because per 100,000 population, we train an abnormally low number of MDs in the US.

Oh, I just checked. RNs in Albuquerque make $70,000 a year. Almost $50,000 less than they make in some areas around SF. And the cancer specialist still can't cover costs?
I have to admit...
written by Carl Weetabix, September 25, 2013 12:05
As a liberal I have a reflexive bias to support doctors just like I have a reflexive bias to support the entertainment industry because they are "on our side". That is, and maybe I'm wrong which would be doubly ironic, that I assume they tend to be more defenders of liberal policy than maybe say someone in the financial industry. I say that in part because most of the people I know who work in medicine do seem to tend toward the left. In short I identify with them and therefor have a bit of automatic, if unjustified, bias.

Assuming I'm not the only one, that may explain at least part of the bipartisan support that they and institutions like the RIAA receive.

Of course there's also the fact that they supposedly do their jobs to "help people" (which is undoubtedly true, but somewhat offset by salaries that show it isn't entirely a charitable enterprise).

Anyway, I am not saying my reflex to support them is good, nor for that matter why I have that reflex (it certainly is hypocritical - any support should be based on facts, not on association). Mostly I forward it as a possible explanation, if not a condemnation of the flaws of myself and others like myself.

The wonders of opportunity costs
written by zfhfd, September 25, 2013 9:15
Like any good economist, doctors are evaluating Medicare cases based on their "opportunity cost." If a doctor could make more money on another patient, he or she has "lost" the difference.

This is why the concept of "opportunity cost" is so ludicrous.
written by FoonTheElder, September 30, 2013 11:47
On average, American doctors are the highest paid professionals in the world.

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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.