What is The Care You Provide Worth?

Medical care is a strange thing to value, at least in the United States. In most industries, and for most services, price is the guide. Price rises and falls with demand, more or less. But however imperfect the market, price is at least the point of departure. Not so in medicine.

The value of medical care is difficult to determine because the market for medicine is so fractured. The largest payers of medical care, the federal Medicare program and the federal/state combination of Medicaid, do not ne

gotiate rates, they dictate them. And yet there is a modicum of fairness built into the Medicare program, in that it is supposed to provide reasonable reimbursement and reimbursement is governed, in some significant part, by the determination of certain physicians.

What Medicare pays is quickly becoming the standard. It is not just that Medicare is the single largest payer. Medicare rules require that physicians charge the same to all patients. As the delta between what physicians charge and what Medicare pays grows, common sense gravitates toward what is paid, not what is charged, as the reasonable value of care.

This tendency to look to Medicare is enhanced by the increasing dissatisfaction with the way in which the health care market works. As costs continue to increase and the promise of medical technology continues to improve (the two factors are not unrelated), the stability of Medicare reimbursement, no matter how low in proportion to medical charges, is a light in the storm. The increasing attractiveness of a single-payer model, once unthinkable, points in the same direction.

What does the Medicare reimbursement rate mean for private payers, though? A lot, it turns out. The Medicare rate is increasingly attractive for insurers and health plans, not just because it is low, but because it is increasingly defensible.

In the past, it was the case that Medicare simply was the government rate, not to be compared to the "real" market rate. Now, Medicare is increasingly used as a reference point towards establishing what is reasonable. Consider the difference between a health plan that reimburses at some percentage of gross billed charges and one that reimburses at some percentage of Medicare. Which do you think pays more?

Some doctors face these economic realities more than others. Emergency room physicians often find themselves having provided care to individuals covered by plans with which the physician has no contract. Sometimes this is because the physician covering the ER is not as established in the community and does not share the patient population with the hospital. These physicians must fight the (most often losing) battle of trying to convince health plans or insurers to pay closer to their gross billed charges than to what Medicare pays.

They often find that the argument that most of their patients pay more falls on deaf ears. The doctors must contest with internal dispute resolution processes, or bringing a claim in arbitration or court. There, success depends less upon proving one's own worth than taking the time to gather the evidence that shows most other physicians in the local market are paid more than the amount offered to the covering physician. Success there depends upon good legal representation, not academic pedigree or patient satisfaction.

The issue is one that affects all physicians, though, because as more and more payers turn to Medicare as a reference point, that becomes, in effect, the market. The combined synergies of low reimbursement and public affinity for a single-payer referent means that for all physicians, reimbursement rates are headed inexorably down.

Pay attention, each contract renewal at a time. If you do not resist, you may find yourself like the proverbial frog in water slowly brought to a boil. By the time you notice, it will be too late.